April 29, 2021 | How To View China's Tech Regulation
Anti-trust in China is more than just a struggle between free markets and authoritarianism. Here are some alternative ways of looking at anti-monopoly regulation in China
There’s lots of good reporting and analysis on China’s tech regulation, yet China’s anti-trust drive is sometimes mischaracterized as a battle between authoritarianism and free-market capitalism. This is true to some extent, but overall this narrative is over-simplified. Here are some alternative ways to look at this.
Many Chinese e-commerce platforms engage in a shady practice known as “Choose One from Two.” This scheme forces online merchants to choose a single platform as their sole distribution channel. If a seller tries to list on multiple platforms, the operators will throttle traffic to the seller’s product pages and even pull products from the platform altogether.
E-commerce platforms have deployed “Choose One from Two” for years, and it’s pervasive throughout China. Now China’s largest tech companies are facing pressure from China’s State Administration for Market Regulation (SAMR).
This month, regulators imposed a $2.75bn fine on e-commerce titan Alibaba due to an anti-monopoly investigation. This week SAMR announced they’d opened an investigation into Chinese e-commerce food delivery service Meituan’s business practices, and regulators are also considering a retroactive fine against internet conglomerate Tencent.
The big question is this: How much of China’s anti-monopoly push is motivated by rectifying market imbalances? And how much of it is about trying to limit the political influence of China’s tech giants? No doubt there’s a bit of both.
Regulation in any market is inherently a struggle for control between the state and private sectors. This struggle for control will appear to be especially intense within China’s one-party authoritarian model from the outside. Although China’s political system is ostensibly Marxist-Leninist, the Chinese Communist Party (CCP) depends heavily on private markets to promote Chinese citizens' prosperity and strengthen the party’s legitimacy.
With the realities of this struggle between the state and private sector in mind, we must also be mindful of the Chinese government’s reluctance to allow private tech companies to collect too much influence in society. Although largely unspoken, preventing companies from becoming too big will be a constant feature of the interplay between regulators and the tech behemoths.
China’s tech giants are among the world’s most valuable companies. Alibaba and Tencent’s market capitalizations are $665bn and $750bn, respectively. These are incredible businesses with enormous growth potential. However, in the medium term, these companies face considerable regulatory risk. Although Chinese regulators won’t completely cripple these businesses, they’re not prioritizing the preservation of these companies’ valuations either. Buyer beware.
Although it’s tempting to view China’s regulatory campaign as the dismantling of China’s private sector, it’s important to realize China is grappling with very real market-distorting, monopolistic tendencies. Even if the result of this regulation push is greater state authority over the private sector, we should also recognize that stronger state influence may be in the best interests of Chinese consumers and society.
Previous Notes
Current Events and Additional Reading
China Regulatory
China Clips Big Tech’s Finance Wings With New Regulations
Chinese regulators are handing down new laws that will restrict the finance operations of some of the country’s biggest technology firms, Bloomberg reported on Thursday (April 29).
Tencent, ByteDance, JD.com, Meituan and Didi are among 13 tech businesses in China that are being summoned to meet with the country’s central bank, as well as several watchdog agencies. New mandates include stricter compliance for global listings, limits on information monopolies and transparency on data gathering.
The restrictions are similar to those levied against Jack Ma’s Ant Group earlier this year after its initial public offering (IPO) was halted by Chinese regulators in December 2020.
China readies Tencent penalty in antitrust crackdown- sources
China is preparing a substantial fine for Tencent Holdings (0700.HK) as part of its sweeping antitrust clampdown on the country’s internet giants, but it is likely to be less than the record $2.75 billion penalty imposed on Alibaba earlier this month, two people with direct knowledge of the matter said.
Tencent should expect a penalty of at least 10 billion yuan ($1.54 billion), significant enough for the State Administration of Market Regulation (SAMR) to make an example of it, both people said.
China widens internet crackdown with Meituan monopoly probe
China’s government has expanded its antitrust crackdown beyond Jack Ma’s technology empire, launching an investigation into suspected monopolistic practices by food-delivery behemoth Meituan.
The State Administration for Market Regulation is looking into alleged abuses including forced exclusivity arrangements known as “pick one of two,” employing the same language in a probe into Ma’s Alibaba Group Holding Ltd. that ended with a $2.8 billion fine. China’s third largest internet company recouped early losses to rise as much as 3.1% Tuesday after Nomura analysts estimated Meituan may have to fork over just 4.6 billion yuan ($709 million) based on Alibaba’s punishment.
Photo by Sebastian Kanczok on Unsplash