Much is being said about China’s crackdown on its tech industry. And yet, behind all that noise, there’s nothing new about what China has done. Many governments around the globe are pushing for stronger legislation and more aggressive enforcement of antitrust law. China has merely been playing catch-up with the developed world after years of loose regulatory oversight.
The difference here is the speed under which China can operate. Its regulators wrapped up their antitrust probe into Alibaba in just four months. In other major economies, the wheels turn slower, and such cases can take years – if not decades – to resolve.
It needs highlighting that China’s anti-monopoly regulations are aimed at large corporations within the e-commerce and e-payments space. But they have a lesser impact on the tech industry as a whole. The big fine imposed on Alibaba was designed to set an example and bolster awareness of anti-monopolistic practices, as well as the need to adhere to laws.
Without regulations, nothing will stop e-commerce platforms doing whatever they can to keep competitors out of the market. They can do so by forcing merchants to choose between them and a rival platform, as appears to have been the case with Alibaba, or by going on an acquisition spree with the sole purpose of eliminating new entrants. And I guess we can all agree that none of this would be fair for merchants and the end-consumers.
Within the e-payments space, the People’s Bank of China issued a consultation paper covering the regulation of non-bank payment companies. We believe this will make them less competitive compared to bank-issued credit cards and the upcoming E-CNY – the first digital currency issued by a major economy. These antitrust rules should also stop incumbent players like Alipay and Tenpay from engaging in aggressive anti-competitive behaviour.
In our view, China’s new antitrust regulation is not designed to curb the innovation, but to encourage innovation within the internet sector by providing a healthy business environment, where small start-ups can compete with tech giants. Without regulation, China’s internet sector would be dominated by a handful platform companies and innovation would wane.
By cracking down on its tech giants, China hasn’t abandoned its ambition to become a leading digital economy. Quite the opposite. The increase in regulatory scrutiny will likely lead to more competition within the internet sector, which we believe should benefit consumers and set China on its path to meet a very important target outlined in its 14th Five-Year Plan: to transform into an innovation powerhouse.
There’s a growing consensus around much of the world that internet platforms have enjoyed a consequence-free environment for far too long. Many governments want to put in place stronger regulations for ‘Big Tech’, but there’s a significant variation in the nuance, speed and intent of regulatory response across regions.
For many investors, China’s crackdown on its internet sector represents a fundamental shift away from the government’s previous ‘hands-off approach’ towards its burgeoning tech industry. The first major sign of this shift occurred last November, when regulators pulled the plug on the IPO of Ant Group – a fintech offshoot of tech giant Alibaba.
Tighter regulatory scrutiny for China’s internet companies has formed a significant factor in their underperformance this year. The first shot across the bow was the last-minute postponement of the Ant Group IPO in November 2020 (Alibaba’s fintech arm), which was followed by broader anti-trust investigations into Alibaba’s e-commerce operations.
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