China tightens anti-monopoly regulations to limit tech giants’ majority share in market

• Ant Group and Tencent face anti-monopoly measures as they dominate mobile payments
• New rules formalise an earlier anti-monopoly draft law and clarify a series of monopolistic practices that regulators plan to crack down
• Anti-monopoly regulation aims to increase productivity and promote long-term economic growth

The Chinese government is plugging regulatory loopholes to protect consumers and prevent data leak and abuse. China proposed measures to curb market concentration in its online payment market, potentially dealing another blow to financial technology giant Ant Group and its biggest rival Tencent.

Ant Group, Tencent face anti-monopoly measures as they dominate mobile payments

For Chinese internet giants, 2020 started as a year of tremendous growth. Compared with the government, the tech giants demonstrated better collection of real-time data of people’s new daily routines, modified spending patterns, and travel destinations during the COVID-19 pandemic. While mobile payments constitute a segment of online transactions, they have become the most important platform in China. Alipay, operated by Ant Group, held a 55.6% share of the mobile payments market as of last year, while Tencent held a 38.8% share.

Companies including internet giants Alibaba and Tencent were fined by anti-monopoly regulators in a new move to tighten control over their fast-developing industries. China’s State Administration for Market Regulation (SAMR) announced investigations of 22 cases and has fined the companies RMB 500,000 ($75,000) for each case for actions including acquiring stakes in other companies that might improperly increase their market power. The agency said that the violators included six companies owned by Alibaba Group, five by Tencent and two by retailer Suning.com. China’s leaders worry about the dominance of its biggest internet companies, which are expanding into finance, health services and other sensitive areas. The Communist Party considers anti-monopoly enforcement, especially in tech, a priority.

Ant, which has over 1 billion annual users around the world, most of whom are in China, was also asked to end its monopoly on user data and ensure the safety of individuals’ and the country’s information. As a financial holding company, Ant will also need to control the liquidity risk of its financial products and shrink the size of its money-market fund, which is one of the world’s biggest.

New rules formalise an earlier anti-monopoly draft law and clarify a series of monopolistic practices to crack down

The guidelines are expected to put new pressure on the country’s leading internet services, including e-commerce sites such as Alibaba’s Taobao and Tmall, and JD.com. They will also cover payment services such as Ant’s Alipay and Tencent’s WeChat Pay. The rules, issued by SAMR, ban companies from a range of behaviour, including forcing merchants to choose between the country’s top internet players, which has been a long-time practice in the market.

China has waged a campaign to rein in its internet titans as the government grew increasingly concerned over their growing influence over every aspect of Chinese life as well as the vast amounts of data they have amassed through providing services such as online shopping, messaging and ride-hailing. The crackdown has already forced Ant to scrap its initial public offering while regulators have levied a record fine against its affiliate Alibaba. The law would impose some of the world’s strictest controls on private-sector handling of information about individuals but appears not to affect the ruling party’s pervasive surveillance or access to those corporate data. Its passage follows anti-monopoly and other enforcement actions against companies including Alibaba and Tencent, which caused their share prices to plunge.

Anti-monopoly regulation will increase productivity and promote long-term economic growth

Beijing has strengthened its efforts to control the expansion of technology companies as it believes that the development of internet platforms leads to a “winner takes all” dynamic, which increases inequality and slows economic growth. “The new technological revolution with more prominent properties of increasing returns will inevitably produce an unprecedented tendency toward monopoly,” said Cai Fang, a member of the People’s Bank of China’s monetary policy committee. Cai’s comments are the latest indication that policymakers in Beijing intend to continue a campaign to rein in the tech giants.

Internet companies were more prone to monopoly as they tend to be larger and have stronger barriers to entry due to their control over data. Now that China has achieved middle-income status, future growth needs to come from productivity gains rather than increasing investment. “That requires more government action to increase competition between companies and prevent monopolies rather than relying on markets,” Cai added.