Earlier this year, Alibaba’s internal bulletin board buzzed with questions from staff as China’s antitrust officers began formally investigating the technology giant.
But company executives did not have answers to many questions. The Chinese technology industry had never experienced a serious application of the country’s competition laws.
Staff said regulators had interviewed them and downloaded the chat logs from Alibaba’s internal communications platform. Officers had the power to take whatever data they wanted, extending it to surprise raids that could stop operations. As the investigation unfolded, executives told staff they had studied antitrust cases in the EU and the United States to prepare.
The sharp burst of activity by the State Administration of Market Regulation (SAMR) has shaken the technology sector.
Alibaba’s shares have fallen about 18 percent since it was investigated in December, and have not shown significant momentum even after regulators concluded their initial case. with a $ 2.8 billion fine. Food delivery company Meituan has dropped about 5 percent since it became the second target of a formal probe in late April.
More than 30 other technology companies have also been asked to submit “self-rectifications” and provide information to SAMR, including the company Didi Chuxing, uncertainty in front of his project blockbuster US IPO.
“It’s the speed of the U-turn that surprised everyone: in China, regulators can move very quickly. In fact, China is sticking to the picture of US and EU regulatory standards – the direction is right, ”said Daisy Cai, head of the Beijing office of venture capital firm B Capital.
Public anger drives cases
Lawyers and technical initiators said the wave of antitrust activity had come in part in response to public outrage at the enormous power of some technology companies, such as online food platforms and online food companies. food delivery, which became essential utilities during the coronavirus pandemic, but had not shared the revenue with their overworked delivery drivers.
Beijing’s goal also seems to be to bolster top tech billionaires like Jack Ma, the frank founder of Alibaba whose Ant Group IPO was launched last year, and to get companies to serve society and the ambitions of the government.
“It doesn’t matter whether it’s antitrust law or anti-unfair competition law, for the government these [laws] they are all tools for social governance. They are all there to set standards of behavior, and what is most effective will be used, ”said Wei Shilin, Dentons’ lawyer.
The application of competition law was not only to improve the market, agreed Guo Shan, in Plenum, a Beijing-based consulting firm, as authorities looked closely at fintech treatment and labor. “Antitrust could be a useful tool to keep these technology giants disciplined,” he said.
In March, Li Shouzhen, a member of China’s government advisory committee, told state media that China was undergoing “inclusive and prudent regulation” by virtue of which its technical giants had been allowed unlimited growth in “regulation of science and innovation,” with a focus on protecting consumers and technology start-ups from established giants.
Beijing also wants its technology companies to do fundamental research, to help it in the long-term technology decoupling from the United States, rather than just concentrating on attracting as many consumers as possible to its platforms.
Regulators lack resources
But in many ways, antitrust regulators are overwhelmed by the size of China’s technology companies. As of 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 doesn’t have a separate team of economists to analyze cases, and instead hires private or academic consultants on occasion, according to Fay Zhou, head of Linklaters ’Chinese competition practice. Meanwhile, technology companies have hired lawyers and government relations staff to try to protect themselves.
The current antitrust campaign can help SAMR expand, says Angela Zhang, a law professor at the University of Hong Kong and author of Chinese antitrust exceptionality.
“Chinese government departments at all levels compete without fear for control of policies,” he said. “Antitrust regulators definitely see the current campaign against Big Tech as the perfect opportunity to step back into the center, allowing their small bureau to demand more budget and staff.”
The most acute blow that SAMR has is the antitrust law, which allows fines of up to 10 per cent of a company’s annual national revenues, the same penalty proposed by the EU Digital Markets Act.
But investigations under this law can be slow, and its main purpose is deterrence, Wei said. SAMR deals with several anti-competitive practices by technology companies, including requiring traders to be exclusive of a platform, which was the main reason for Alibaba’s demise, the price skyrocketing after attracting customers with discounts, and offers different prices to different customers.
However, many of these behaviors are difficult to define and test, and SAMR does not have the resources to go after all the companies involved in such behavior, lawyers say.
Technical companies are beginning to polish the public image
Instead, regulators focus on companies whose behavior results in a public outcry. “Companies can keep complaints from consumers, customers and the media,” Zhou said. “When the behavior of a society becomes high at the level of public dissatisfaction, the risk of regulatory demands or even intervention would be high.”
Companies that attract the attention of regulators can wait a long period of private negotiations and communications before anything is made public – if the case becomes public.
In response to pressure, China’s technology founders have begun to judge public opinion by increasing their promises to improve society. In April, Tencent said it would spend 50 billion Rmb ($ 7.7 billion) on social and environmental initiatives. Pony Ma, founder of Tencent, also pledged $ 2 billion of his shares to charity.
Other technology leaders have left the center, including Colin Huang at Pinduoduo, who said he wanted to do scientific research, and Zhang Yiming at ByteDance, who spoke of “giving back to society.”
The biggest blow will be stricter rules on data
It remains unclear how much China’s technology companies will be blamed for enforcing the rules. After announcing its antitrust fine, Alibaba said its revenues grew 30 percent year-on-year to Rmb930bn. Meituan’s chief executive assured investors that the company was likely to attack its traders and did not change any growth targets.
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Oliver Rui, a professor of finance at China-Europe International Business School in Shanghai, has warned that tighter controls on data collection would be the top risk for companies – as Apple has hurt the advertising industry global due to tighter track controls.
Investors remain confident in supporting current industry leaders. “These companies are leaders because they have built fast competitive pits. Their platforms still have a significant centralizing power, and they will continue to be the leaders,” added Cai, the venture capitalist.
Additional reports from Nian Liu