How China is targeting large tech companies

At the beginning of this year, as Chinese antitrust officials began to formally investigate the technology giant, Alibaba’s internal bulletin board was flooded with questions from employees.

But the company’s executives have no answers to many questions. China’s technology industry has never experienced strict enforcement of national competition laws.

The staff said that the supervisory department had interviewed them and downloaded the chat records from Alibaba’s internal communication platform. Officials have the right to obtain any data they want, extended to surprise attacks that may cease operations. As the investigation unfolded, executives told employees that they had studied antitrust cases in the European Union and the United States to prepare themselves.

The sudden outbreak of activities by the State Administration for Market Regulation (SAMR) disturbed the technology industry.

Since being investigated in December last year, Alibaba’s stock price has fallen by about 18%, and has not risen significantly even after the regulator’s case has been closed. Fines of 2.8 billion U.S. dollars. Since the food delivery company Meituan became the second target of the formal investigation at the end of April, its share price has fallen by about 5%.

More than 30 other technology companies have also been required to “self-rectify” and provide information to the State Administration of Market Supervision, including the ride-hailing company Didi Chuxing. uncertain Ahead of its plan The sensational U.S. IPO.

“What surprised everyone was the speed of the U-turn: In China, regulators can act very quickly. In fact, China is catching up with the regulatory norms of the United States and the European Union — the direction is right,” venture capital firm B Capital Beijing Said Daisy Cai, the head of the office.

Public anger is pushing the case

Lawyers and tech insiders say that the wave of antitrust activity is partly in response to public anger over the immense power of certain tech companies (such as online grocery platforms and food delivery companies) that have become essential during the coronavirus pandemic. Public utilities, but did not share the benefits of overworked delivery drivers with them.

Beijing’s goal also seems to be to control the most well-known technology billionaires, such as Alibaba’s outspoken founder Jack Ma, whose IPO was cancelled last year for the Ant Group and refocused the company’s ambitions on serving society and the government .

“Whether it is the anti-monopoly law or the anti-unfair competition law, these are for the government [laws] Both are tools of social governance. They are all for setting standards of conduct, and the most effective ones will be used,” said Wei Shilin, a lawyer at Dacheng Law Firm.

Guo Shan of Plenum, a Beijing consulting firm, agrees that the enforcement of competition laws is not just to improve the market, because the authorities are paying close attention to financial technology and workers’ treatment. “Antitrust may be a useful tool to keep these tech giants disciplined,” she said.

In March of this year, Li Shouzhen, a member of the Chinese Government’s Advisory Committee, told the state media that China is shifting from “inclusive and prudent regulation” that allows its technology giants to grow unrestricted to “scientific and innovative regulation”, with a focus on protecting consumers and technology start-ups Avoid the infringement of established giants.

Beijing also hopes that its technology companies will conduct basic research to help them decouple long-term technology from the United States, rather than just focus on attracting as many consumers as possible to use their platform.

Regulators lack resources

But in many respects, the size of Chinese technology companies exceeds the size of antitrust regulators. According to Huang Yong, a member of the Anti-Monopoly Advisory Committee of the State Council, as of March this year, the State Administration for Market Supervision had only about 50 people.

Fay Zhou, head of competition at Linklaters China, said that it does not have a separate team of economists to analyze cases, but occasionally signs contracts with private consultants or academics. At the same time, technology companies have been busy hiring lawyers and government relations personnel to try to protect themselves.

Angela Zhang, a law professor at the University of Hong Kong and author of the Financial Times, predicts that the current anti-monopoly campaign may help the State Administration for Market Regulation expand its scale. China’s Anti-monopoly Exceptionalism.

“China’s government departments at all levels relentlessly compete for policy control,” she said. “Antitrust regulators definitely see the current campaign against large technology companies as an excellent opportunity to regain focus, allowing their smaller agencies to request more budget and staff.”

SAMR’s most severe method is the anti-monopoly law, which allows companies to be fined up to 10% of domestic annual income, which is the same as the penalties proposed by the EU’s Digital Market Act.

But Wei said that investigations under this law may be slow and the main purpose is to deter. The State Administration for Market Regulation is addressing a number of anti-competitive actions by technology companies, including forcing merchants to operate a platform exclusively, which is the main reason for Alibaba’s fines, driving up prices after attracting customers with discounts, and offering different prices to different customers.

The lawyer stated that, however, many of these actions are difficult to define and prove, and the State Administration for Market Regulation lacks the resources to trace all companies involved in such actions.

Technology companies begin to polish their public image

Instead, regulators will focus on companies whose behavior has led to public outcry. “Businesses can pay attention to 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 investigations and even intervention is high.”

Companies that attract the attention of regulators may engage in lengthy private consultations and communications before anything becomes public—if the case is completely public.

In response to pressure, China’s technology founders began to win public opinion by strengthening their commitment to improving society. In April of this year, Tencent said it would spend 50 billion yuan ($7.7 billion) in social and environmental initiatives. Tencent founder Ma Huateng also pledged to donate his US$2 billion of shares to charity.

Other technology executives are gradually falling out of sight, including Pinduoduo’s Huang Kelin, who said he wants to do scientific research, and Bytedance’s Zhang Yiming, who talked about “giving back to society”.

The biggest blow will be stricter data rules

It is not clear how much Chinese technology companies will be hit by the enforcement of these rules. After announcing anti-monopoly fines, Alibaba stated that its revenue will increase by 30% year-on-year to RMB 930 billion. The CEO of Meituan has assured investors that the company may retain its business and 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 tighter control over data collection will be the biggest risk these companies face—just as Apple hurts the global advertising industry through stricter tracking controls.

Investors still have the confidence to support the current industry leaders. “These companies become leaders because they have established a steep competitive moat. Their platforms still have significant centralized power, and they will continue to be leaders,” added venture capitalist Cai.

Additional reporting by Liu Nian