Chinese regulators will also scrutinizeother large acquisitions, including Tencent’s merger agreement with sogou, Reuters said, citing people familiar with the matter, after the Chinese government recently slapped antitrust fines on alibaba and three other companies. The recent abrupt halt of Ant’s listing was seen as a major event in China’s financial regulation. So what does the government’s recent tightening of antitrust enforcement mean?
China’s antitrust broadsword is aimed at tech giants
Tencent’s acquisition of sogou will be checked
China’s State Administration for Market Regulation will thoroughly examine the merger agreement between Tencent’s subsidiary and search engine company sogou, Reuters said on Tuesday, citing two unnamed people familiar with the matter. That could mean the two sides won’t meet a July deadline to complete the merger.
In late September, sogou announced that it had signed $3.5 billion worth of buyout agreements with three Tencent subsidiaries and that it would delist from the U.S. stock market after the deal closes to become an indirect, wholly owned subsidiary of Tencent.
The report quoted one of the people as saying that the high-profile deal was now facing significant uncertainty and would most likely not close as planned. The person also noted that Internet search is a sensitive issue in China and that regulators will take into account Tencent’s position as a leader in a number of industries.
The government will also review a plan by private equity firm MBK Partners to buy China’s largest car rental company, Car Rental China LTD., a third person said. Since MBK already controls Ehi, China’s second-largest car operator, the authorities worry that this could lead to reduced competition.
Just two days earlier, the State Administration for Market Regulation had fined Alibaba, a subsidiary of Tencent and a subsidiary of SF Express Rmb500,000 each for failing to declare their acquisitions in accordance with the law, stressing that “the Internet industry is not outside the anti-monopoly law”.
Qin Weiping, an economist based in the United States, thinks the Communist government’s sudden attack on Internet companies is an attempt to fill a gap in financial regulation.
“Financial regulation in China is clearly lagging behind. Whether it’s ant financial, WeChat or alipay, they have largely monopolized the market. “If these companies want to get into any industry they want to get into, it can be a big blow to small and medium-sized competitors.”
The antitrust case has its roots
Two recent events can be seen as a prelude to this series of government actions. Earlier last month, the initial public offering of Ant Group, a unit of Chinese e-commerce giant Alibaba, was abruptly halted. The Wall Street Journal quotes Chinese officials familiar with the matter as saying that a recent speech by Alibaba co-founder Jack Ma angered the country’s leaders, and that President Xi Jinping personally ordered the suspension of Ant group’s planned listing. The case is widely seen as a reflection of what authorities in Beijing may increasingly perceive as a threat to the country’s economic and even political stability.
On Friday, a meeting of the Political Bureau of the Communist Party of China (CPC) Central Committee made clear for the first time that the authorities needed to “strengthen anti-monopoly and prevent disorderly capital expansion”, as well as “defuse various stock risks and prevent incremental risks”. The signal from senior party officials is seen as a sign that fintech companies will no longer be in a regulatory vacuum.
In the context of China’s slowing economy, it is clear that the authorities see huge financial risks in including Internet companies in their regulatory priorities, Qin said.
“Because these Internet companies have penetrated into every corner of the national economy, even the survival of more than a billion people cannot do without them, these companies actually have a considerable say in public affairs, which the government does not want to see.”
China is not alone in its antitrust efforts
In fact, Chinese tech companies aren’t the only ones under antitrust scrutiny these days. At the end of July, the ceos of four big American tech giants — Google, facebook, apple and amazon — appeared before a house antitrust subcommittee. The commission later released a report saying that the nation’s largest technology companies use their dominant positions to stifle competition and innovation, and that Congress should force them to break up their businesses in a ‘structural separation.’
Last week, the U.S. Federal Trade Commission (FTC) and 48 states filed an antitrust lawsuit against Facebook, alleging that the company has spent years buying or sidelining emerging technology companies that could one day become rivals.
But He Jiangbing, a Chinese finance scholar, argues that China’s big Internet companies are more application-oriented than American ones, so the authorities should not crack down too hard on their benign development.
“I don’t think the government needs to go out of its way to crack down on these companies, because they’re not pursuing monopolies, they’re not cracking down on rivals, and Chinese companies can’t do that.” It’s a matter of playing to their strengths and it’s a process of accumulation.”
Guo Shuqing, chairman of the China Banking Regulatory Commission (CIRC), recently pointed out that some large technology companies are involved in all kinds of financial and technology fields and have diversified business operations. He said the authorities must pay attention to the complexity and spillover of risks at these institutions and “precisely defuse” them in a timely manner.
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