The "good old days" are over. For years, Chinese authorities took what they called a "tolerant and cautious" approach to Big Tech, hoping a light touch would enable innovation and entrepreneurship. It worked for nurturing Chinese tech companies like Tencent and Alibaba, but with a huge downside: They've become behemoths that crush smaller competitors using the power of big data, algorithms and a series of unfair rules.
The beginning of the end to that came last November, when Beijing issued draft amendments to the country's Anti Monopoly Law. The rules aimed at preventing specific monopolistic behaviors by internet giants, with harsh penalties for violations.
Legal experts have long been skeptical of whether the thinly staffed Anti-Monopoly Bureau of the State Administration for Market Regulation would be able to tackle the mounting antitrust cases in the tech sector. In the past, "instead of applying the antitrust law, [antitrust] authorities preferred to apply more lenient regulatory tools such as the Anti-Unfair Competition Law and the E-Commerce Law," Angela Zhang, an associate professor of law at the University of Hong Kong and the author of "Chinese Antitrust Exceptionalism," told Protocol.
But things are changing, fast. In December 2020, the State Administration for Market Regulation launched an antitrust investigation into ecommerce giant Alibaba for monopolistic behavior. In early February, the State Council, China's Cabinet, finalized antitrust guidelines for "the platform economy," updating their rules for the modern internet age. Most significantly, in mid-March, Chinese ruler Xi Jinping called for enhanced oversight of the platform economy and "enriching the anti-monopoly regulatory force" at a meeting he chaired.
Below are some of the practices Chinese Big Tech will need to curb to stay on Beijing's good side.
Cross-platform link blocking
One of the most egregious — and annoying — monopolistic practices from Chinese Big Tech is routinely blocking users from sharing content from outside platforms.
Taobao and WeChat, owned by Alibaba and Tencent, respectively, are the best-known offenders. On the messaging app WeChat, if users receive a link to a product from the ecommerce app Taobao, the user has to copy and paste the URL in a browser to access the content. In January, WeChat adopted the same practice against a slew of other apps, including Xiaohongshu, Zhihu and Tencent's own products to "maintain a good user experience." Other popular social commerce apps have adopted similar approaches to lock users into their own ecosystems. Douyin, which in February sued Tencent for blocking the sharing of Douyin content on its messaging apps, has banned its users from accessing products linked from third-party ecommerce platforms during live streams.
"WeChat has been justifying its link-blocking behavior by saying the third-party links violate user privacy or the platform's own rules," Zhai Wei, an associate professor at East China University of Political Science and Law who specializes in competition law, told Protocol. "But they've been doing this for years on a large scale, and so it is difficult to convince users that WeChat does this for the public good. Law enforcement should be the judge of that."
Exclusive partnership agreements
Ecommerce juggernauts frequently ink exclusive partnerships with sellers — known as "pick one from two" (二选一) — which prohibit their selling on any platforms save one. The deals have involved carrots such as platform subsidies, discounts and traffic rewards, and sticks such as blocking stores and traffic restrictions.
New guidelines state that if a platform "abuses its dominant market position" by requiring brands to exclusively sell products on that platform, that behavior may break the law.
Who's in the crosshairs? Though Chinese ecommerce platforms frequently use these tactics to prevent sellers from operating on competing platforms, the key to establishing an antitrust case is to show that the platform has a dominant market position. On this front, Liu Xu, a legal researcher at Tsinghua University's National Strategy Institute, told Protocol that Alibaba, one of the best-known players of exclusive partnership agreements and China's largest ecommerce platform, will likely be an enforcement target. SAMR is already investigating the ecommerce behemoth for its practice of prohibiting vendors from selling on other platforms.
Relentless mergers and acquisitions
Up until December 2020, China's antitrust enforcement had largely turned a blind eye to mergers and acquisitions deals in the tech industry, even though the country's 2008 Anti Monopoly Law mandates that certain large mergers and acquisitions deals must be reported in advance to the antitrust authorities for review.
On March 12, Tencent, Baidu, ByteDance and Didi Chuxing were among 10 companies each fined 500,000 RMB ($76,064) by China's antitrust regulator, the maximum currently allowed, for failing to disclose past acquisitions and investments. Last December, SAMR fined Alibaba, a Tencent subsidiary and Hive Box for the same breach.
Under new rules, similar violations could be as high as 10% of the offending firm's revenue from the previous year — a potentially astronomical sum. If a tech company that failed to report merger deals in advance is found to "have the effect of excluding or restricting competition" after investigation, the anti-monopoly authorities can order the company to divest shares or assets — or break it up.
Regulators are likely to take careful stock of Tencent, which has stakes in hundreds of startups.
Big data ripoffs
Over the past few years, Chinese consumers have gradually discovered that on ticket-booking apps, car-hailing apps and ecommerce platforms that include Ctrip, Didi, Tmall and Meituan, regular customers have to pay a higher price than new users, while iPhone users tend to be charged more than Android users for the same service or product.
Jilted consumers who complain about these "big data ripoffs" can finally do something about it. Anti-monopoly guidelines for internet platforms for the first time specified that if dominant players in the industry "exclude or restrict market competition by imposing differential treatment on customers with the same trading conditions without justifiable reasons," citizens can bring suits. But Zhai says such practices are often difficult to identify and prove, so it would "require strong regulatory enforcement to protect consumers' interests."