On April 10th, the
Chinese State Administration for Market Regulation imposed a €2.3 billion (¥18.2 billion) fine on Alibaba Group Holding for having abused its dominant market position. According to the Chinese competition watchdog, Alibaba had forced many smaller sellers to make use of their selling platform, by demanding that those companies exclusively sell their goods on Alibaba. The fine has
shattered the old record for antitrust fines in China, which was imposed in 2015, and which roughly equalled €600 million. Alibaba group will now be subjected to thorough investigation by the market authorities, and will have to produce an extensive self-assessment report within
three years. This came along with a set of ‘rectifications’ that Alibaba will have to put into place, which are
“likely to limit revenue growth” in the coming period. In addition, the
Guangzhou Market Regulation Authority imposed a fine for false advertising on UC Browser, a subsidiary of Alibaba Group. A few days later, the crackdown on ‘Big Tech’ continued, with
market regulation authorities requesting that the 34 largest technology companies in China, including ByteDance, Meituan and Tencent, conduct ‘self-inspections’, as well as “publicly disclose their commitment to conduct business in compliance with laws.”
The Role of Big Tech in China
The enormous fine imposed on Alibaba Group is not a new, stand-alone phenomenon; it is part of a larger trend of Chinese government crackdown on the influence of Chinese Tech Giants, which was already exemplified earlier this year, with company founder and CEO
Jack Ma not appearing in public for a couple of months. Already a month ago President Xi announced that the government would be stepping up their regulations against “
platform companies that have amassed data and market power.”
In addition, the Chinese government already urged Alibaba to sell off its media assets in order to curb the tech giant’s growing public influence.
At the moment, these assets include ownership of the South China Morning Post, as well as large stakes in Youku, and Weibo.
The waves of crackdown on ‘Big Tech’ in recent years can be seen as a response to the growing power and influence of large internet firms in China. This is a direct result of the booming Chinese e-commerce and digital sector, which in 2019, was worth over ¥35 trillion, and accounted for about 36% of the entire Chinese GDP,
according to state media. Another example of this dominant position of Chinese tech giants can be see in the digital payments sector, where 95% of digital payments are conducted through Alipay or Wechatpay, digital payment platforms owned by Alibaba Group Holding and Tencent Group, respectively.
Large technology companies also play a huge role in Chinese innovation.
According to Chinese state media, the top 100 largest Chinese internet companies invested more than ¥153 billion (€19 billion) in R&D in 2018, which was a 45% increase compared to 2017. In 2020, R&D expenditures even rose to ¥177 billion. The Chinese government has even
actively encouraged digital innovation and entrepreneurship in the past, through acting as an “investor, developer, and consumer of new technologies.” This makes the dynamic between government and large technology companies such as Tencent or Alibaba especially interesting to observe.
However, the influence of large technology companies is not a matter only the Chinese government is facing. In the United States,
several members of the House of Representatives and the Senate are considering enacting measures to prevent social media companies from targeting children. Meanwhile, the EU is in the process of enacting the
Digital Market Act and the Digital Services Act, which aim to create a ‘safer digital space’.
The Future of Big Tech in China
Recurring waves of fines, regulations and restraints on Big Tech influence seem to indicate that the Chinese government limiting the influence of big technology companies is still an ongoing process. According to
an associate professor of law at Hong Kong University, the purpose of the large fine on Alibaba Group was to serve as a deterrent for other large companies, as a warning that large companies should fall in line. With the government being central to the operations of all companies in China, it seems unlikely that these companies can refuse to comply in any way. Already,
several companies have signed a pledge to comply with the government demands, and subject themselves to comprehensive investigations.
The exact impact of new regulations on Chinese Big Tech will only become clear over the course of the coming months or even years, as the tech giants remain under increased government scrutiny. In any case, it seems that Alibaba Group and Jack Ma have been established as one of the main targets of Chinese government regulations, and the recent fine is unlikely to be the last time we will see those companies being the main target of big large-scale crackdown measures.
See you at the next Industry Blog!
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