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    Home»Business News»How China targets Big Tech
    Business News

    How China targets Big Tech

    eduardo_alves38By eduardo_alves38June 18, 2021Updated:June 18, 2021No Comments6 Mins Read
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    Earlier this year, Alibaba’s internal bulletin board was filled with questions from staff as Chinese antitrust officials began formally investigating the tech giant.

    But company executives did not have many questions answered. China’s tech industry had never been the subject of serious enforcement of the country’s competition laws.

    Staff said regulators interviewed them and downloaded chat tapes from Alibaba’s internal communications platform. Officials had the power to take any data they wanted, going as far as surprise raids that could shut down operations. As the investigation unfolded, executives told staff they had been investigating antitrust cases in the EU and the US to prepare.

    The sudden explosion in activity of the State Administration of Market Regulation (SAMR) rocked the tech industry.

    Alibaba shares have fallen about 18% since being investigated in December and have not risen significantly even after regulators concluded their initial case with a fine of $ 2.8 billion. Food delivery company Meituan has lost around 5% since it became the second target of an official investigation in late April.

    More than 30 other tech companies have also been asked to undergo “self-rectification” and provide information to SAMR, including ride-sharing company Didi Chuxing, raising uncertainty ahead of his plan initial public offering in the United States.

    “It’s the speed of the U-turn that surprised everyone: in China, regulators can go very quickly. In fact, China is catching up with US and EU regulatory standards – the direction is right, ”said Daisy Cai, Beijing bureau chief of venture capital firm B Capital.

    Public anger drives business

    Lawyers and tech insiders said the surge in antitrust activity came in part in response to public anger over the enormous power of some tech companies, such as online grocery platforms and retailers. food delivery companies, which became essential utilities during the coronavirus pandemic, but lacked the product with their overworked delivery drivers.

    Beijing’s goal also appears to be to curb high-profile tech billionaires such as Jack Ma, the outspoken founder of Alibaba whose Ant Group’s IPO was pulled last year, and refocus businesses on serving society and government ambitions.

    “Whether it is the antitrust law or the anti-unfair competition law, for the government these [laws] are all tools of social governance. They all serve to set standards of behavior, and what is most effective will be used, ”said Wei Shilin, attorney at Dentons.

    Chinese delivery man waits for orders in Wuhan

    A Chinese delivery man waits for orders in Wuhan © Getty Images

    Enforcement of competition law was not only aimed at improving the market, agreed Guo Shan of Plenum, a Beijing-based consultancy firm, as authorities closely scrutinized fintech and the treatment of workers. “Antitrust laws could be a useful tool in keeping these tech giants disciplined,” she said.

    In March, Li Shouzhen, a member of the Chinese government’s advisory committee, told state media that China was moving from “inclusive and prudent regulation” under which its tech giants were allowed to grow unimpeded to “regulate science and innovation”, with an emphasis on protecting consumers and tech start-ups from established giants.

    Beijing also wants its tech companies to do fundamental research, to help it in the long-term technological decoupling from the United States, rather than just focusing on attracting as many consumers as possible to their platforms.

    Regulators lack resources

    But in many ways, antitrust regulators are outnumbered by the size of Chinese tech companies. In March, the SAMR numbered only 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 the cases and uses private consultants or academics on occasion, according to Fay Zhou, head of Linklaters’ China competition practice. Meanwhile, tech companies are actively hiring lawyers and government relations staff to try to protect themselves.

    advised

    The current antitrust campaign could help SAMR grow, predicted Angela Zhang, a professor of law at the University of Hong Kong and author of Chinese antitrust exceptionalism.

    “Chinese government departments at all levels compete relentlessly for control of policies,” she said. “Antitrust regulators definitely see the current campaign against Big Tech as the perfect opportunity to come back to the limelight, allowing his small office to ask for more budget and staff.”

    SAMR’s sharpest stick is the antitrust law, which allows fines of up to 10 percent of a company’s national annual income, the same sanction proposed by the EU’s digital markets law.

    But investigations under this law can be slow and its main purpose is deterrence, Wei said. SAMR is tackling several anti-competitive practices by tech companies, including forcing merchants to be exclusive to a single platform, which was the main reason for Alibaba’s fine, price hikes after luring customers with discounts and offering different prices to different customers.

    Yet many of these behaviors are difficult to define and prove, and SAMR lacks the resources to prosecute all companies involved in such behavior, the lawyers said.

    Tech companies are starting to polish their public image

    Instead, regulators are focusing on companies whose behavior is causing public outcry. “Businesses can monitor complaints from consumers, customers and the media,” Zhou said. “When a company’s behavior becomes high to the level of public dissatisfaction, the risk of regulatory investigations or even intervention would be high.”

    Companies that catch the attention of regulators can expect a long period of negotiations and private communications before anything is made public – if the matter becomes public.

    In response to the pressure, the founders of Chinese technology began to woo public opinion by stepping up their promises to improve society. In April, Tencent announced it would spend 50 billion Rmb ($ 7.7 billion) on social and environmental initiatives. Pony Ma, the founder of Tencent, also pledged $ 2 billion of his actions to charity.

    Other tech executives are stepping out of the limelight, 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 tougher data rules

    It is still unclear how much Chinese tech companies will be affected by the enforcement of the rules. After announcing its antitrust fine, Alibaba said its revenue would increase 30% year-on-year to Rmb930 billion. Meituan’s chief executive assured investors that the company is likely to hang on to its traders and has not changed any growth targets.

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    #techFT brings you news, commentary and analysis on the big companies, technologies and issues shaping this fast-paced industry from specialists around the world. Click here to receive #techFT in your inbox.

    Oliver Rui, professor of finance at the China-Europe International Business School in Shanghai, warned that tighter controls over data collection would be the main risk for companies – just as Apple has hurt the global advertising industry by stepping up monitoring checks.

    Investors remain confident in their support for current industry leaders. “These companies are leaders because they have built steep competitive divides. Their platforms still have significant centralizing power and they will continue to be the leaders, ”added Cai, the venture capitalist.

    Additional reporting by Nian Liu



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