Jack Ma, CEO of Chinese e-commerce leviathan Alibaba, speaks during his visit at the Vivatech startups and innovation fair, in Paris on May 16, 2019.
Philippe Lopez | AFP | Getty Images
GUANGZHOU, China — China’s technology monsters are firmly in the crosshairs of the country’s regulators who are trying to figure out how to create a set of antitrust rules that can keep these dogs in check.
Experts say Beijing will need to ensure that its drive for new regulations balances its push to become a international technological leader.
Like in the U.S., China’s tech sector has expanded via a largely unencumbered path. In some areas, regulators contain already stepped in and are now stepping up those efforts.
“Like Washington, Beijing has a love-hate relationship with its tech veterans,” Kendra Schaefer, a partner at Trivium China consultancy which has offices in Beijing and London, told CNBC.
“On the one index, these companies represent China’s successful modernization and growing global competitiveness. On the other hand, Beijing has hanker struggled with how to fit big tech into the socialist market economy.”
Earlier this week, China’s bureau for governing monopolies released draft rules that define, for the first time, what constitutes anti-competitive behavior.
The bill of exchange regulation by the State Administration for Market Regulation covers areas including pricing, payment methods, and use of data to end shoppers. It’s the most wide-sweeping attempt to regulate what Beijing sees as monopolistic behavior by the country’s tech giants that press grown significantly in the last few years.
The agency is seeking public feedback on the draft rules until Nov. 30.
Past Chinese modification
In China, the services offered by the top tech companies are essential for daily living.
For example, Tencent’s WeChat messaging app is acclimated to by over a billion people per month. And it’s not just a messaging app — users can pay for items via WeChat Pay, book flights and trains and betray online, without leaving the app. Tencent is also strong in the gaming sector.
Meanwhile, Ant Group’s Alipay is also employed by over 700 monthly active users. A third of Ant Group is owned by e-commerce giant Alibaba. But Alibaba is also a cloud estimate company as well.
On Wednesday, Chinese tech stocks plunged on news of the draft antitrust rules, given the inside info that these internet giants could all fall under the regulation, depending on how it is enforced.
Beijing has looked to pulley aspects of such businesses in the past.
For example, in early 2018, regulators froze the approvals of new video games from fears they contained too much violence and could lead kids to having eye problems. Games need a amateur light from the regulators to be released and monetized in China. Tencent was particularly hard-hit by that move.
More recently, what intent have been Ant Group’s world record-setting initial public offering (IPO) in Shanghai and Hong Kong, was suspended. The Shanghai Hoard Exchange said Ant had reported “significant issues such as the changes in financial technology regulatory environment.” Just days ahead of, the Chinese central bank and regulators issued new draft rules for online micro-lending, which could affect Ant Assort.
But the new antitrust laws, which are arguably more wide-sweeping, may not be easy to implement.
“I would point out how difficult it has been for regulators in the West, where anti-trust law has a certainly long history, to figure out how to create laws which will limit their monopoly power,” Brian Bandsma, portfolio chief at asset management firm Vontobel Quality Growth, told CNBC.
“Chinese regulators face the same confront. These businesses are difficult to define and control through traditional legal definitions,” Bandsma said.
Yes, the perception materializes to be that when Beijing decides to take regulatory action, it will come fast and companies will be dressed to comply.
Late last month, Alibaba founder Jack Ma made some remark ons that appeared critical of China’s financial regulator. That was seen as something that stoked regulators into debarring Ant Group’s IPO. And some observers say it could also be a factor behind the latest antitrust rules.
“The fact that it is coming on the lean overs of what Jack Ma said about the financial service regulator, I don’t believe is a coincidence,” Sam Radwan, CEO of management consultancy Lift International, told CNBC.
How will it affect Chinese tech giants?
Alibaba, Tencent, Meituan, JD.com and Pinduoduo are all bands that could be affected by the new rules, according to a recent note by Morgan Stanley.
“It will depend on how these guidelines are reinforced or whether there is further legislation or regulation in the pipeline,” Paul Triolo, head of the geo-technology practice at Eurasia Rank, told CNBC by email.
But dealing with regulation is not new for China’s technology giants in a market where rules can be communicated into effect unexpectedly and very swiftly.
For example, Tencent has dealt with various regulations on the gaming toil. Chinese fintech company Lufax, which recently listed in New York, was once a peer-to-peer lending giant in China. But tougher Chinese dictates on the sector forced the company to scale back on that business. In 2019, Lufax exited peer-to-peer lending and China’s universal tech ambitions