How China is focusing on Big Tech

Earlier this year, Alibaba’s internal bulletin boards were rife with questions from staff as officials against China’s monopoly began investigating the technology giant.

But company executives had no answers to many questions. China’s technology industry has never seriously complied with the country’s competition laws.

Employees said regulators interviewed them and downloaded chat logs from Alibaba’s internal communications platform. Officials had the power to take the data they wanted, surprisingly expanding searches that could stop operations. As the investigation unfolded, managers told staff they had studied cases against the EU and US monopolies to prepare themselves.

The sudden boom in activity by the State Market Regulation Administration (SAMR) has exploded in the technology sector.

Alibaba’s shares have fallen about 18 percent since they were investigated in December, and have not recovered significantly even after regulators completed the initial case. With a $ 2.8 million fine. The food delivery company Meituan has slipped about 5 percent since it became the second target of a formal probe in late April.

Another 30 technology companies have also been asked to “self-correct” and provide information to SAMR, including vehicle company Didi Chuxing uncertainty ahead of schedule blockbuster US IPO.

“It’s the speed of the rotation that has surprised me: in China, regulators can move very fast. In fact, China is complying with US and EU regulations – the direction is right,” said Daisy Cai B, head of the Beijing venture capital firm’s office.

People’s anger drives cases

Lawyers and technology organizations have said the flood of antitrust activity has been created in part by the tremendous power of some tech companies, such as online food platforms and food distribution companies, which became key uses in the coronavirus pandemic, but did not share. profits with delivery controllers that work too much.

Beijing’s goal also seems to be to control high-tech billionaires, such as Jack Ma, the clever founder of Alibaba, who launched the Ant Group IPO last year, and to target companies at the service of society and government intentions.

“It doesn’t matter if it’s an anti-monopoly law or an anti-unfair competition law, for the government [laws] they are all tools for social governance. They are all set to set standard behaviors and will be used most effectively, ”said Wei Shilin Dentons’ lawyer.

Enforcing the competition law was not just about improving the market, Guo Shanek admitted at the Plenum in Beijing, that the authorities were carefully examining the treatment of fintech and staff. “Anti-monopoly can be a useful tool for disciplining these technology giants,” he said.

In March, Li Shouzhen, a member of the Chinese government’s advisory board, told state media that China is moving from “inclusive and prudent regulation” to the growth allowed to its technology giants to “science and innovation regulation”, focusing on protecting consumers and new technology companies. .

Beijing wants its technology companies to conduct basic research to help disconnect technology from the US in the long run, rather than focusing on attracting as many consumers as possible to their platforms.

Regulators have no resources

But in many ways, antitrust regulators do not exceed the size of Chinese technology companies. In March, the SAMR had only about 50 employees, according to Huang Yong, a member of the State Council’s anti-competition advisory committee.

He has no separate team of economists to study the cases, and regularly hires private or academic consultants, says Fay Zhou, head of internship competition at Linklaters China. Meanwhile, tech companies have been hiring lawyers and government relations staff to try to protect themselves.

The antitrust campaign could help spread the SAMR itself, predicted Angela Zhang, a law professor at Hong Kong University and An exceptional anti-monopoly Chinese.

“Chinese government departments at all levels are constantly competing to control politics,” he said. “Antitrust regulators certainly see this as a perfect opportunity to reverse the current campaign against Big Tech, allowing its small office to demand a budget and more staff.”

SAMR’s strictest stick is the antitrust law, which allows fines of up to 10% of the company’s annual revenue, the same penalty as proposed by the EU Digital Markets Act.

Under this law, investigations can be slow, and its main purpose is deterrence, Weik said. SAMR is tackling a number of practices against the competitiveness of technology companies, including forcing traders to be exclusive to a single platform. That was the reason for Alibaba’s fine for attracting discounts to customers and offering different prices to different customers.

However, many of these behaviors are difficult to define and prove, and SAMR does not have the resources to go after all the companies involved in those behaviors, the lawyers said.

Technology companies are starting to soften the public image

Instead, regulators focus on companies that resonate with public behavior. “Companies can wait for complaints from consumers, customers and the media,” Zhou said. “When a company’s behavior rises to the level of people’s displeasure, there would be a high risk of regulatory inquiries or intervention.”

Companies that attract the attention of regulators can expect lengthy private negotiations and communications before anything is made public – if the case becomes public.

In response to pressure, Chinese technology creators have begun to judge public opinion by strengthening their commitment to improving society. In April, Tencent said it will spend $ 50 billion ($ 7.7 billion) on social and environmental initiatives. Pony Ma, the founder of Tencent, pledged $ 2 billion in shares to the charity.

Other technology executives are standing out, including Colin Huang Pinduoduon, 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 rules

It is not yet clear what impact Chinese technology companies will have on enforcing the rules. After announcing an anti-monopoly fine, Alibaba said its revenue will grow by 30% a year to Rmb930bn. Meituane’s chief executive has assured investors that the company is likely to hold on to its traders and has not changed its growth target.

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Oliver Ruik, a finance professor at the China-Europe International Business School in Shanghai, warned that tighter controls on data collection would be the main risk for companies – as Apple has harmed the advertising industry around the world through tight controls.

Investors remain confident in supporting current industry leaders. “These companies are leaders because they have built tough competitive trenches. Their platforms still have a significant centralizing force, and they will continue to be leaders, ”added venture capitalist Cai.

Additional news from Nian Liu