The country’s major internet companies, such as Alibaba, JD.com and Meituan, are likely to be hit by the rules.
Rules to prevent tech monopolies
China’s State Administration for Market Regulation (SAMR) issued a draft of new anti-monopoly rules on 10 November. The goal is to prevent monopolistic behavior, such as:
- Hosting companies restricting brands from selling on multiple platforms
- Platforms offering steep discounts to eliminate rivalry
- Platforms forming alliances to force out competitors
Last year, SAMR officials met with representatives of more than 20 platforms, including Alibaba, asking them to stop requiring merchants to sign exclusive deals.
The use of subsidies and discounts might also be outlawed as the new regulation regards such practice may deter fair competition.
|Source: IGD Research
The country’s major internet companies will be affected
China’s effort to ramp up regulations for governing ecommerce companies and payment services is not a surprise in global context. In October 2020, the US Justice Department filed an anti-monopoly lawsuit against Alphabet Inc’s Google.
With the purpose of preventing companies building up gigantic ecosystems, the new rules could potentially make future mergers and acquisitions difficult. China’s major ecommerce players will also be impacted in different ways:
- Alibaba: there have been complaints of merchant exclusivity on Albaba’s platforms. Merchants were told they would not be able to use Tmall if they used a rival platform. Alibaba may lose more market share under the new rules
- Tencent: the owner of WeChat, which has 1.15 bn monthly actively users, might be forced to allow competitors to access its WeChat ecosystem. Tencent will also need to pay more attention to the use and management of user data under the new rules
- Pinduoduo: extremely low prices are a compelling attraction of Pinduoduo. In 2019, it launched an initiative in collaboration with sellers to give CNY10 bn (US$1.5 bn) of promotional coupons to entice customers to its site. It will be affected if the rules limit the use of subsidies
- JD.com: similar as Alibaba and Pinduoduo, its promotional activities will be affected by the new rules, although to what extent subsidies will be regarded as a violation of anti-trust rules remains uncertain. JD.com’s bargaining power over its suppliers might be reduced as well
- Meituan: as an online delivery platform specialising in localised consumer services, Meituan might lose exclusivity with restaurants on its platform
Shares of Alibaba, Tencent and Meituan fell sharply on Wednesday 11 November, the day after SAMR’s announcement.
Alibaba’s financial arm, Ant Group, has also been targeted by the regulators. Ant was set to sell shares worth about US$34.4bn on Thursday 5 November. The plan was abruptly suspended 48 hours before it starts trading. Ant runs Alipay, the main online payment system in China. Ant will be forced to review and revamp its business model under the new regulations.
Changes are on the way.