China’s General Administration of Market Regulation (GAMR) held an administrative guidance meeting on Tuesday, inviting representatives of dozens of Internet companies to attend, pointing out that there are various hidden dangers in the domestic platform economy and that the companies concerned need to be overhauled. After Alibaba was fined a huge amount of nearly 20 billion yuan, what is the intention of the authorities to “summon” these companies in such a big way?
The meeting, which was held by the State Administration of Market Supervision and Administration of Taxation in conjunction with the Central Internet Information Office, invited representatives of 34 Internet platform companies, including Baidu, Jingdong, Ali, Tencent and Jindo. The South China Morning Post reported that the total market value of these companies reached at least $2.7 trillion, more than the total economy of the United Kingdom, the world’s fifth largest economy.
Analyzing the outstanding problems of the platform economy
The conference pointed out that China’s platform economy has accumulated risks and hidden dangers in its rapid development, including forced implementation of “two-for-one”, abuse of market dominance, “pinch point mergers and acquisitions”, burning money to seize the “community group purchase “market,” “big data to kill ripe”, indifference to counterfeit and shoddy as well as tax-related violations, etc., must be seriously rectified. The meeting required these platform companies to conduct a comprehensive self-examination and thorough rectification within one month. The authorities will then follow up on the rectification, and if the platform companies are found to have committed related illegal acts, they will be punished “severely and strictly”.
Only a few days ago, China’s General Administration of Market Supervision imposed a record fine of more than 18 billion yuan on e-commerce giant Alibaba for monopolistic practices in the country, noting that Ali had long prohibited its platform merchants from opening stores or participating in promotional activities on rival platforms. Ali issued an open letter on the same day saying that the company is deeply aware of the responsibilities of platform companies in the country’s economic and social development and will sincerely accept and resolutely obey this punishment.
Shenzhen-based financial commentator Zou Tao believes that this anti-monopoly storm must have been brewing for a long time.
“The Chinese government has not had much experience in managing the Internet industry in the past and has been more encouraging to these companies, letting them run wild, so to speak. But just in recent years, the Internet has slowly formed some oligarchs, and they have led to some serious social problems.”
China’s anti-monopoly knife is slashing at tech giants (Photo by Radio Free Asia)
“National interests” take precedence
Tuesday’s meeting made it clear that platform companies should prioritize the “national interest” and fulfill their social responsibilities. The meeting also mentioned that government regulators affirmed the positive role of the platform economy, but also asked to give full play to the warning role of the Ali case. Among a series of risks and hidden dangers, the forced implementation of “two-for-one” problem is particularly prominent, the authorities believe that this restricts market competition, harming the interests of platform merchants and consumers, and must be firmly eradicated.
Zou Tao said that the forced implementation of “two choices” does bring economic losses to the merchants, the government to take control is necessary.
“Merchants certainly hope that which platform is good, which platform to do business …… If I work with Alibaba, my sales do not go up, and you do not let me go to Poundland, I invariably lose a large amount of interest.”
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What will be the next move?
Authorities have been making a lot of moves on platform antitrust enforcement since the sudden halt of Alibaba’s Ant Group’s IPO plans last year. In December last year, the General Administration of Municipal Supervision issued three anti-monopoly fines against Alibaba and Tencent, stating that “the Internet industry is not a place outside the anti-monopoly law”. In the same month, the General Administration of Municipal Supervision opened an investigation into Alibaba’s alleged monopolistic behavior. Last month, the General Administration of City Supervision issued fines to 12 companies, including Tencent, Baidu and Drip, stating that the cases they were involved in constituted illegal implementation of operator concentration.
Chinese Premier Li Keqiang also recently said in this year’s government work report that while the state should support the innovative development of platform enterprises, it should also regulate their development according to the law, and also strengthen anti-monopoly and prevent disorderly expansion of capital.
U.S.-based economist Zheng Xuguang analyzed that the Chinese government may further tighten its grip on Internet companies, which would be detrimental to businesses and consumers.
“One possibility is disguised nationalization to strengthen state control over Internet companies …… For consumers, the enhancement of user experience may stagnate, meaning that the Internet platform ecology may start to freeze and shrink, and its development will struggle.”
Reuters recently quoted a number of people familiar with the matter as saying that China’s General Administration of City Supervision plans to expand its anti-monopoly staff and decentralize case review to local authorities to speed up case processing.
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