How China is oriented towards Big Tech

Earlier this year, Alibaba’s internal bulletin board burst with questions from staff as China’s antitrust officials began formally investigating the tech giant.

But company executives had no answers to many of the questions. The Chinese technology industry had never experienced a serious enforcement of the country’s competition laws.

Staff said regulators had interviewed them and downloaded chat logs from Alibaba’s internal communications platform. Officials had the power to take any data they wished, extending to surprise strikes that could stop operations. When the investigation was conducted, executives told staff they had studied antitrust cases in the EU and the US to prepare.

The sudden explosion of activity of the State Administration of Market Regulation (SAMR) has exploded the technology sector.

Alibaba shares have fallen about 18% since it was investigated in December and have not been significantly concentrated even after regulators concluded their initial case. with a $ 2.8 billion fine. Food distribution company Meituan has fallen by about 5% since it became the second target of a formal investigation in late April.

More than 30 other technology companies have also been asked to self-correct and provide information to SAMR, including vehicle transport company Didi Chuxing, uncertainty ahead of schedule successful IPO.

“It’s the speed of the U-turn that has surprised everyone: in China, regulators can move very quickly. In fact, China is complying with the regulations of the United States and the EU: the direction is right, ”said Daisy Cai, head of the venture capital office at Beijing Capital.

Public anger is driving cases

Lawyers and technical experts said the wave of antitrust activity had come in part in response to public outrage over the enormous power of some tech companies, such as online grocery platforms and food delivery companies. , which became essential utilities during the coronavirus pandemic, but which had not shared the proceeds with their overworked delivery drivers.

Beijing’s goal also seems to be to curb the most prominent technology billionaires like Jack Ma, the frank founder of Alibaba, which withdrew the IPO from the Ant group last year, and reorient companies to serve society and government ambitions.

“It doesn’t matter if it’s the antitrust law or the anti-tasting competition law, for the government [laws] they are all tools for social governance. They are all about setting rules of behavior and the most effective ones will be used, ”said Wei Shilin, Dentons’ lawyer.

Enforcing competition law was not just about improving the market, Guo Shan agreed at Plenum, a Beijing-based consultancy, as authorities were looking closely at the treatment of fintech technology and workers. “Antimonopoly could be a useful tool for keeping these tech giants disciplined,” he said.

In March, Li Shouzhen, a member of the Chinese government’s advisory committee, told state media that China was moving from “inclusive and cautious regulation” according to which its technology giants had been allowed free growth in the ” regulation of science and innovation “, with a focus on consumer protection and technological start-ups of established giants.

Beijing also wants its technology companies to conduct fundamental research to help it in the long-term technological decoupling with the United States, rather than focusing solely on attracting the maximum number of consumers to its platforms.

Regulators have no resources

But in many ways, antitrust regulators are larger than the size of China’s technology companies. In March, SAMR had only a staff of about 50 people, according to Huang Yong, a member of the State Council’s antitrust advisory committee.

It does not have a separate team of economists to analyze cases, but occasionally hires private or academic consultants, according to Fay Zhou, head of competition for Linklaters in China. Meanwhile, tech companies have been busy hiring lawyers and government relations personnel to try to protect themselves.

The current antitrust campaign may help MRSA expand, predicted Angela Zhang, a law professor at the University of Hong Kong and author of Chinese antitrust exceptionalism.

“Chinese government departments at all levels compete non-stop for policy control,” he said. “Antitrust regulators definitely see the current campaign against Big Tech as the perfect opportunity to step back, and allow their small office to demand more budget and staff.”

The sharpest stick that SAMR has is the antitrust law, which allows fines of up to 10 percent of a company’s national annual revenue, the same sanction proposed by the EU Digital Markets Act.

But investigations under this law can be slow and its main purpose is deterrence, Wei said. SAMR is facing several anti-competitive practices by technology companies, including forcing traders to be exclusive to a platform, which was the main reason for Alibaba’s fine, reducing prices after attracting customers with discounts and offer different prices to different customers.

However, many of these behaviors are difficult to define and demonstrate and SAMR does not have the resources to track all the companies involved in this behavior, lawyers said.

Technology companies are starting to polish the public image

Instead, regulators focus on companies whose behavior causes public outcry. “Companies can monitor complaints from consumers, customers and the media,” Zhou said. “When a company’s behavior rises to the level of public dissatisfaction, the risk of regulatory consultations or even intervention would be high.”

Companies that call the attention of regulators can wait a long period of negotiation and private communications before anything is made public, if the case is made public.

In response to pressure, the founders of Chinese technology have begun to judicialize public opinion by intensifying their commitments to improving society. In April, Tencent said it would invest $ 50 billion ($ 7.7 billion) in social and environmental initiatives. Pony Ma, founder of Tencent, also pledged $ 2 billion of his shares to charity.

Other technology executives are coming to light, including Colin Huang in Pinduoduo, who said he wanted to do scientific research, and Zhang Yiming in ByteDance, who spoke of “returning to society.”

The biggest blow will be stricter data regulations

It is unclear to what extent China’s technology companies will be affected by the enforcement of the rules. After announcing its antitrust fine, Alibaba said its revenue would grow by 30% year-on-year to Rmb930bn. Meituan’s chief executive has assured investors that the company is likely to stay with its traders and that it has not changed any growth targets.

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Oliver Rui, a professor of finance at the China-Europe International Business School in Shanghai, warned that stricter controls on data collection would be the main risk for companies, in the same way that Apple has harmed the IT industry. global advertising through tighter controls on tracking.

Investors continue to rely on supporting current industry leaders. “These companies are leaders because they have built strong competitors. Their platforms still have significant centralizing power and will continue to be the leaders, ”added Cai, the venture capitalist.

Additional reports from Nian Liu