China Turns Up Heat on Country's Tech Giants

December 21, 2020

In recent weeks, Chinese regulators have cracked down on some of the country's biggest and most powerful technology companies, illustrating the immense market power of these companies, which has drawn concern from the government.

On Monday, the State Administration for Market Regulation (SAMR), China's top market regulator, fined three of the country's largest technology companies, including e-commerce giant Alibaba Group and social-media juggernaut Tencent, for failing to disclose acquisitions of smaller competitors.

Last month, China Securities Regulatory Commission halted the record initial public offering of Ant Group, one of China's dominant digital payment platforms backed by Alibaba. It then announced new draft rules targeting monopolistic practices on the country's digital platforms.

Analysts who spoke to VOA said these moves reflect the Chinese government's rising concern over financial technology and e-commerce companies that are using unfair competitive practices to undermine traditional payments and financial service companies. There is also a concern that the companies could pose a systemic risk to the economy.

First fine

On Monday, a subsidiary of Alibaba Group, a unit of Tencent Holdings, and an affiliate of express delivery company SF Holding were fined $75,000 (500,000 RMB) each for breaching China's anti-monopoly law.

SAMR said in a statement that the online economy has become increasingly controlled by a few companies. "Complaints about platform monopoly have been on the rise, indicating competition risks and problems in the online economy," it said.

This marks the first fine towards the country's internet giants since the enforcement of the anti-monopoly law in 2008.

Lu Suiqi, an associate professor of finance at Peking University, says the government has been turning a blind eye to monopoly issues for the past decade, because developing the digital economy was an important part of China's industrial policy.

"Now these companies have become too strong, they have been using inappropriate means to drive their competitors out of the market," Lu said. "They have grasped an excessively high market share and there's a lack of healthy competition, which is bad for the overall economy."

Some 70% of the top 30 Apps in China belong to either Alibaba or Tencent. The two companies are each believed to oversee a payment and financial tractions ecosystem with a market value around $1.5 trillion (10 trillion RMB).

Li Chengdong, founder of the Beijing-based Dolphin think tank, says that the explosive growth of internet firms has made governments around the world vigilant. In the United States earlier this month, attorney generals from 48 states sued Google and Facebook, accusing them of illegally conspiring to shut out smaller rivals. Analysts say there is a similar dynamic happening in China.

"It's very common in China for big internet giants to crack down on small- and medium-size start-ups," he said, adding only more strict regulation and enforcement can put the economy back on track.

Rebalancing away from technology?

Meanwhile, experts recommend China needs to rebalance its economy between e-commerce and brick and mortar stores to achieve more sustainable growth.

Tomson Tang, vice chairman of China Electronic Commerce Association, says China's e-commerce has developed rapidly over the past 20 years in terms of users and the value of transactions, at the cost of hundreds and thousands of brick and mortar stores.

"The policy and regulations couldn't catch up with the speed at which e-commerce develops. That include systematic problems on issues around monopoly, which is bad for the real economy," he told VOA.

However, he said the digital economy is a key element for China to maintain overall economic momentum down the road. The government needs to use regulations to make sure that market opportunities created should be open to all participants and cannot be monopolized by a few large companies.

Beijing's antitrust watchdogs last month announced draft rules targeting monopolistic practices on the country's digital platforms, which analysts say will have negative implications for major internet companies with dominant positions across segments.

Paul Triolo, a China digital economy fellow at the Washington-based think tank New America, says although the tech giants must comply with the tightening regulations, they might succeed in bargaining with authorities on how the regulations are implemented.

Tang predicts that in the next two to three years, China will establish a national digital economy bureau to oversee all internet companies.

"Without such an authority to supervise, coordinate and enforce regulations, it would be difficult to grasp the financial data and structures of these internet giants, thus impact the implementation of the new anti-monopoly law," he said.