Big Tech, big fines: is the sector's privileged position in China changing?

On April 10, 2021, 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 exclusively use its selling platform. The fine shattered the previous antitrust record in China, set in 2015 at approximately €600 million. Alibaba will now be subjected to thorough investigation by market authorities and must produce an extensive self-assessment report within three years, alongside a set of "rectifications" that 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 and "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 an isolated event — it is part of a larger trend of Chinese government crackdown on the influence of Chinese tech giants, already signalled earlier in the year when company founder and CEO Jack Ma disappeared from public view for months. President Xi had already announced that the government would be stepping up regulations against "platform companies that have amassed data and market power." The Chinese government had also urged Alibaba to sell off its media assets — including ownership of the South China Morning Post and large stakes in Youku and Weibo — to curb the tech giant's growing public influence.

These waves of crackdown on Big Tech can be seen as a response to the growing power of large internet firms in China — a direct result of the booming Chinese e-commerce and digital sector, which in 2019 was worth over ¥35 trillion, with the digital economy accounting for approximately 36% of Chinese GDP. The dominant position of Chinese tech giants is perhaps most visible in digital payments, where 95% of transactions are conducted through Alipay or WeChat Pay — platforms owned by Alibaba Group and Tencent respectively. Large technology companies also play a major role in Chinese innovation: the top 100 largest Chinese internet companies invested more than ¥153 billion (€19 billion) in R&D in 2018, a 45% increase over 2017, rising further to ¥177 billion in 2020.

The Chinese government has actively encouraged digital innovation and entrepreneurship by acting as an "investor, developer, and consumer of new technologies" — making the dynamic between government and large technology companies such as Tencent or Alibaba especially interesting to observe. This tension is not uniquely Chinese: in the United States, legislators are considering measures to prevent social media companies from targeting children, while the EU is in the process of enacting the Digital Market Act and the Digital Services Act to create a safer digital space.

The Future of Big Tech

Recurring waves of fines, regulations, and restraints on Big Tech influence suggest that the Chinese government's limits on large technology companies represent an ongoing, evolving process. According to an associate professor of law at Hong Kong University, the large fine on Alibaba was intended as a deterrent — a warning that large companies should fall in line. With the government central to the operations of all companies in China, it seems unlikely that these companies can refuse to comply. Several have already signed pledges to comply with government demands and submit to comprehensive investigations.

The exact impact of new regulations on Chinese Big Tech will only become clear over the coming months and years, as the tech giants remain under increased government scrutiny. In any case, Alibaba Group and Jack Ma appear to have been established as primary targets of Chinese government regulatory action — and the recent fine is unlikely to be the last large-scale crackdown measure they face.