Impact of China’s Anti Monopolization Policies

• China issued a draft to Regulate Chinese Tech giants on 8 February 2021
• The Regulations are meant to curb the Monopolization of the Private tech companies
• The Regulation will also help China to become a superpower in Data management.

In November 2020, China issued its first serious regulatory draft framing the guidelines for the techno sector. The draft includes policies to prevent the companies from practicing unfair practices related to the protection of data privacy of consumers, regulations of discriminatory prices, the security of electronic payment systems, etc. Another export law in the draft restricts the transfer of technology and sharing of sensitive materials from China.

On 8 February, 2021, the draft has been implemented by the government and can be seen on the website of the State Administration for Market Regulations (SAMR).

Chinese Tech Companies as Superpowers

So far, Chinese retail techno companies such as Tencent, Ant Group, Alibaba, ByteDance, Meituan, JD.com have grown massively in the last few years. They have proliferated from finance to health sector and have become superpowers, unfettered by the government. These companies were successful in convincing the world and their cross border investors that they operate independently without any state interference. The regulatory action had sparked speculations across the world that the techno companies in China are no longer operating independently and are under the scrutiny of the Government.

Alibaba Group and Tencent have amassed billions by developing fintech products. They have invested billions in overseas acquisitions and developed vast markets across the borders and within the state for their products and technologies. They are also nurturing hundreds of small companies under their umbrella.

China Techs are Losing their Independence?

Recently the world witnessed live streaming of Alibaba and Ant Group founder Jack Ma addressing the public in a low profile public program in his home state. After delivering a speech in mid-October 2020, he was away from the public eye for few months, apparently for his critical comments against the Chinese government. And surprisingly, his comeback speech was in coherence with the Communist Governance.

Resultantly, soon after his critical comments in October, anti-trust policies have been drafted to pull the strings of techno companies. Ant Group and Alibaba group became the initial target of the regime and their $37 billion IPO project had been suspended as part of the fintech regulatory action. A probe had also been initiated against the Alibaba Group as part of the action.

Reasons behind Chinese Government’s Measures to Impose Regulations on Techno Giants

• Techno companies are practicing monopolistic business practices
• Unhealthy growth in the retail sector
• The exploitation of the customers by misusing their private data
• State’s plans to become world superpower in technology

Owing to the acute competition among the tech giants, unfair business practices are dominant across the environment that is detrimental to the interests of the customers as well as the government.

Moreover, the growing influence of the techno companies in the local market had upset the government for which they were brought under the scrutiny of the regulatory watchdogs.

Unfair Competition among the Techno Companies

Several companies including Tencent, Ant, and ByteDance have been creating a captive business ecosystem by imposing restrictions on the users, preventing them to use products of their competitors. The severe competition among these techno companies reached a peak amidst the China-US trade war in the last two years.

As per the government, companies such as ByteDance Ltd. and Tencent Holdings, Alibaba group have been collecting consumer’s data through their apps and e-commerce sites and were manipulating the markets.

Alibaba Group, Tencent and Ant Financial Task, etc. have consistently been into a feud for the past few years. In 2018. Douyin indicted Tencent for monopolistic practices. Accusations about blocking and coping the data further worsened the matter and lawsuits were filed against each other. Tencent further sued Douyin for storing and utilizing user’s data for gaining commercial interests.

Whereas, WeChat users have been restricted to share links and purchase products from Taobao online stores owned by the Alibaba group.

The war among these companies had been keenly watched but ignored for a long time by the government.

Impact of Regulations

2021 has witnessed regulations in several countries including the Eurozone UK, and India. Earlier the Trump-led US government had also imposed regulations on the tech companies such as Facebook, Google, and Amazon, while the Biden government seems open to supporting tech companies, its regulatory policies have not been clear so far.

After the regulatory action on the Ant Group, shares of most of the companies in China have been witnessing a downfall since December. Jack Ma‘s Ant Group has a valuation of $ 300 billion along with a global active user base of 1.3 billion. The regulatory action by the government led to a sudden drop of $60 billion in valuation. Meituan’s and Tencent’s shares crumbled down significantly. Overseas deals of several companies are now facing uncertainty raising a big concern for the investors.

It’s now apparent that the private fintech players will have to operate in accordance with the government. Tencent President Martin Lau has already confirmed that the regulations will not overly affect its online entertainment and gaming business and they will comply with the antitrust rules. Ant Group’s JackMa too is now willing to offer compliance with the government.

Of all the nations, China is at the forefront in running the trials for digital currency DCEP. China wants to promote its DCEP as an alternate payment system. In fact, one of the purposes behind the development of the DCEP was to constrain the monopoly of the Alipay and WeChat Pay wallet providers and trap their more than 800 million active consumer-base and 50 million retailers. DCEP adoption by these active users will boost the economy simultaneously restraining the power of private sectors.

Currently, Alipay, Tencent’s WeChat Pay charges a fee to the retailers to use their wallets, but if DCEP would be made available without any charges, it will seriously encourage the use of DCEP.

The restrictions on these private players help to boost the economy of China and simultaneously will gain momentum in its plans to become a world power in alternate payment business and settlement architecture. Unemployment issues in rural areas will also be boosted in tune with these private players. Jack Ma already has confirmed to work in union with the government in this arena.

These regulations will surely clamp down on the unlimited growing power of the tech companies in the internet sector, shrinking their horizontal monopoly in the local markets. It will not hamper their overseas market. Especially, if we consider the internet sector, US companies and Chinese internet companies operate in separate segments of markets.

Due to the regulations, local merchants and vendors will not be forced to choose exclusively one e-commerce platform to supply their products. This will accelerate fair competition and will function in favor of consumer’s interests. This will also accelerate more opportunities for new smaller players in the market.

Government Plans

The government itself plans to acquire a larger share of stakes in tech companies. While regulating the tech companies, China will have to maintain the equilibrium to protect the interests of the tech sector and the consumers as well. Recently the government regulators have assured that the anti-monopoly measures will not obstruct the growth of its digital economy.

Experts believe that the regulations in China might change the unhealthy scenario and could control the anti-competitive behavior of the techno giants but its high time for them to restructure their business models.

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