China’s Internet platform fined again, international investors start selling off

The Chinese government is taking another big shot at China’s internet technology platforms. The State Administration of Market Supervision has fined five major platforms, including Drip, Alibaba, Tencent, Suning and Meituan, under the Anti-Monopoly Law, for a total of 22 acquisitions dating back as far as a decade ago, with fines of 500,000 RMB each. As Beijing controls Chinese tech companies with data security, anti-monopoly, and tighter controls on offshore fundraising, internet platforms are silencing themselves and international investors are selling off.

“Ali, Drip and Tencent were all fined again under the “anti-monopoly law

On July 7, China’s State Administration of Market Supervision issued an announcement fining 22 illegal mergers or acquisitions in the Internet sector. The companies fined were all large Chinese Internet platforms, including 8 cases of Drip, 6 cases of Alibaba, 5 cases of Tencent, 2 cases of Suning, and 1 case of Meituan.

According to the State Administration of Market Supervision, in these cases, the operators did not declare the concentration of operators to the anti-monopoly enforcement agency of the State Council before obtaining business licenses or completing the registration of shareholding changes, thus violating Article 21 of the Anti-monopoly Law of the People’s Republic of China and constituting “illegal implementation of concentration of operators”. However, it still “does not have the effect of excluding or restricting competition”, meaning that it does not constitute a de facto “monopoly”, and therefore a penalty decision was made, with a fine of RMB 500,000 for each ticket.

Since the end of last year, the Chinese government has stepped up its regulatory crackdown on China’s Internet giants. In April, the General Administration of Market Supervision imposed a record fine of RMB 18.2 billion on Alibaba under the Anti-Monopoly Law.

While the amount of the fine is relatively low by comparison, observers are taking it as a sign that Beijing is further tightening its grip on the tech giant.

“This is just a prelude,” said Qin Peng, a U.S.-based political and economic analyst. “The signal is that the next crackdown on these companies will be stepped up, opening up in the name of anti-monopoly and data security. The core is to avoid the enterprises from getting too big, while keeping the data firmly in the hands of the Communist Party.”

Old cases of mergers and acquisitions were punished ten years ago Antimonopoly Bureau Director: there is no selective enforcement

Looking through the 22 cases punished, there are many mergers and acquisitions that took place before the establishment of the State Administration of Market Supervision and Administration in 2018. For example, Tencent’s acquisition of a stake in Cheetah Mobile in 2011, Sogou’s 36.5% stake in the search engine in 2013, or Alibaba Group’s acquisition of 50% of Evergrande Football Club in 2014 are among the many “old cases” on the list.

In a lengthy interview with the American Bar Association’s Antitrust Source, Wu Zhengguo, Director of the Anti-Monopoly Bureau, announced on July 7 that China will strengthen its antitrust enforcement in key areas in 2021, and that “the winner takes all in the digital platform economy. In addition, platform enterprises have the dual attributes of “enterprise” and “market”, and are prone to use market forces, platform management status and data, capital and technological advantages to exercise monopoly. The platform enterprises have the dual attributes of “enterprise” and “market”, and are prone to monopolistic behavior, restriction and exclusion of competition with the help of market power, platform management status and data, capital and technological advantages.

Wu also mentioned that China’s anti-monopoly law enforcement “does not have the so-called selective enforcement problem” and always treats all state-owned enterprises, foreign enterprises and private enterprises equally and fairly.

China’s official statement, however, has prompted many industry experts to question it.

“The anti-monopoly law is a bill that requires very large government resources to enforce, involving regulations, statistics, audits and other procedures ……. If a government is using it (the anti-monopoly law) as a tool to control businesses, the consequences are hard to imagine.” Ding Hongbin, a professor at the Loyola University Maryland School of Business, observed that the Chinese government’s several waves of interviews and rectification of large Internet private enterprises, the speed and scale of the situation, as well as the response of private enterprises to be silent, “is clearly to increase control over private enterprises, especially Internet-related enterprises. ……’s (Beijing government’s) biggest aim is money, and the ability to more fully control one’s food, clothing, housing, and transportation, to the point of mastering private wealth in detail.”

Investors worried about the sell-off Chinese tech giants’ market value evaporated hundreds of billions

In addition to the Anti-Monopoly Law by the General Administration of Market Supervision and the Internet Security Law by the Internet Information Office to strengthen control over Chinese Internet companies, China’s State Council issued a notice on July 6 to tighten regulation of Chinese stocks and said it would revise regulations related to the listing of Chinese companies abroad.

These disturbing signals have started a wave of selling by international investors. Bloomberg News reported on July 7 that the total market value of Chinese tech giants has evaporated by more than $800 billion so far since peaking in February this year.

“The fact is that the cost for a Chinese company to grow in the U.S. is not small, but a big motivation is to find an insurance policy so that his money will not be completely in the hands of China, or official Chinese investment companies.” Ding Hongbin told the station, but at this stage of China’s internal environment, he predicted that Chinese companies will also seek ways to protect themselves, such as turning to cooperation with the government and cooperating with the development of party branches within the company.

These changes in Chinese private companies have been happening in the past, he said, “but now they will accelerate within China.”