Tag Archives: antitrust

Alibaba Antitrust Fine Is As Instructive As Punitive

Screenshot of Alibaba website

THE ANTITRUST FINE on Alibaba is hefty — a record in yuan terms –but not as punitive as it could have been.

The 18.2 billion yuan ($2.8 billion) that the e-commerce giant will have to pay for abusing its market dominance tops the $975 million imposed on the US chipmaker Qualcomm in 2015 but is equivalent to only 4% of Alibaba’s revenues. Qualcomm’s was 8%, and the maximum penalty authorities can impose is 10%. Further, the State Administration for Market Regulation (SAMR) took a narrow view of Alibaba’s revenue, counting just those from its e-commerce businesses.

None the less, this amounts to more than just a slap on the wrist. It also reinforces a message that has been repeatedly sent for several months.

Authorities are reining in the power of the tech platform giants, among whom Alibaba and its sprawling empire of associated businesses is the poster child. They thrived in a sector that never had the moderating influence of large state-owned enterprises. Alibaba was disingenuous when it said in its post-fine letter of contrition:

Alibaba would not have achieved our growth without sound government regulation and service, and the critical oversight, tolerance and support from all of our constituencies have been crucial to our development.

It and its main rival Tencent grew massive because of the absence of state guidance. Party leadership is being plain that the Party calls the shots, no matter how large the tech platforms’ social and economic influence grows. The da y’s of light regulation are over. The tech sector will become subject to the same level of regulatory oversight as any other.

Attacking Alibaba and its main rivals on antitrust grounds – the specific charge against Alibaba is that it restricted competition by forcing vendors on its Tmall and Taobao online shopping platforms to deal exclusively with it — provides consumer-protection gloss to the actions. A dozen companies were fined last month for antitrust violations, including Tencent and Baidu (the other two of the ‘big three’ Chinese internet giants) and the ride-hailing app Didi Chuxing.

Financial regulators are also concerned that the rapid expansion of fintech — services such as AliPay — beyond payments systems is creating new avenues of unregulated shadow banking that will add to the overall leverage within the economy that already greatly concerns authorities. Preventing what is termed ‘disorderly expansion of capital’ is now policy. Regulators forcing Alibaba’s spun-off fintech, Ant Group, to pull its proposed blockbuster $37 billion initial public offering last November was another indication of that.

Jack Ma, Alibaba’s founder and China’s most prominent and outspoken tech billionaire inside and outside the country, has been particularly in authorities’ crosshairs. Last week, his Hupan University, an elite business academy that teaches entrepreneurship, was made to suspend new enrolments. Elite educational establishments outside Party control are viewed with official distrust.

Alibaba has also been pressed into divesting its media assets. It owns video streaming and sharing sites in China and Hong Kong’s leading English-language newspaper, the South China Morning Post.

More worrying is that the crackdown may bring restrictions on its ‘secret sauce’: its ability to combine the many businesses it has diversified into, from physical retail to food delivery and cloud computing, with its core e-commerce and social platforms, thus turbo-charging its ability to cross-sell.

In November, SAMR released draft rules to prevent price-fixing, predatory pricing and unreasonable trading conditions. They also included restrictions on using data and algorithms to manipulate the market, which could curtail the platforms from data cross-subsidisation to target specific customers. That would be a wounding blow to the big platforms’ business models.

It may also bring them closer into line with national economic objectives. By making the platform companies exit non-core operations and forcing more competition in their core business, Beijing may be co-opting them to the cause of global leadership in high-tech industries. Without access to the easy money from monopolistic practices, the tech giants will instead undertake more fundamental R&D and innovation to support national technological self-sufficiency. Or at least, so the theory goes.

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Beijing Reins In China’s Internet Giants

Screenshot of Alibaba web page, captured November 2020

CHINA’S PRIVATELY OWNED internet companies flourished in large part because they created a de novo area of the economy and thus had no state-owned competitors from the outset. That space is now being closed down, or at least being put under state sway.

New restrictions on the fintech sector led to last week’s abrupt suspension of Ant Group’s proposed blockbuster initial public offering and a public embarrassment of Jack Ma, its billionaire founder. This week, draft regulations have been announced that, when implemented (formally they are out for public comment), would curb monopolistic practices by internet platform and e-commerce companies such as Alibaba Group, also founded by Ma, and Tencent Holdings, the operator of We Chat founded by another of China’s richest men, Pony Ma.

The corporate behaviour that would be proscribed includes collusion to share sensitive consumer data, alliances to squeeze out smaller rivals and to subsidise services at below cost to eliminate competitors. The internet platforms may also have to apply for an operating licence if they use the governance structure known as a Variable Interest Entity, which is standard for internet companies as it lets them have foreign investors and list on overseas exchanges but exists in something of a grey area when it comes to Beijing’s blessing.

After a meeting earlier this month between antitrust and cyberspace officials and two dozen tech giants, authorities issued a statement giving fair warning of the new mood:


Internet platforms are not outside the reach of antitrust laws, nor are they the breeding ground for unfair competition.

Nothing will happen immediately. The State Administration of Market Regulation watchdog is taking public comments until the end of this month. As always, it will be the application of the administrative rules once the regulations are formalised that will matter.

The State Council has also said new regulations on internet transactions will be coming next year. Yet the message from the Party to some of the country’s most powerful companies and private billionaires is clear. The bonus for authorities is that the new rules should also bring some protections for consumers and small businesses, which will be popular.

China is far from the only country struggling with the power and disruptive horizontal spread of big tech. The EU and the United States are facing variants of the same issue.

However, in China, the Party has the additional complication of having to stop the horizontal spread of the platforms into areas, such as banking, in which state-owned enterprises are not only dominant but also essential policy tools.

Authorities also have to balance promoting internationally competitive Chinese tech companies with keeping them under firm control at home — a microcosm of what will be one of the most significant challenges for the Party in moving the country up the development ladder to the innovation-based economy.

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China’s Anti-Monopoly Law Steps Out

We do not pretend to be lawyers so a statement that China’s anti-monopoly law is a hybrid of European and U.S. models is a broad generalization. We do know that there was concern among foreign businesses when it was being introduced in 2007 that it could be used against foreign multinationals to bolster domestic industries and their acquisition of IP rights and technology, though it should be said that overall the new law was seen as a significant step forward in Chinese commercial law.

James T. Areddy and Dinny McMahon, writing in the Wall Street Journal, take last week’s divestment of Pfizer’s Chinese swine-vaccine business to Harbin Pharmaceutical as an occasion to review the use of the  anti-monopoly law two years in. They find five other examples of where the Commerce Ministry has stepped into mergers involving multinationals, blocking one of them, Coca-Cola’s $2.4 billion bid last year for Huiyuan Juice.

That was the only one in which the acquisition target was a Chinese firm. Of the other five target companies three were American, one British and one Japanese. The acquirers break down is three American, two Japanese and one Belgian. The tone of the article is that there is a lean, albeit a small one, in the direction of protecting the national interest, though that is what anti-monopoly laws everywhere tend to get used to do. That is different, too, from using the law to promote a national interest. What is clear is that Chinese anti-monopoly review is taking its place alongside those in the U.S. and, in particular, the E.U. in any big-ticket cross-border M&A.

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Beijing Hints At Flexing Its New Antitrust Muscles On Behalf Of Jilted Chinalco

There was obviously some wounded pride following the collapse of Chinalco’s proposed $19.5 billion investment in Rio Tinto. But to add insult to injury, Rio is now proposing an iron-ore joint venture with BHP Billiton in Western Australia.

Such a combination would account for 80% of the exports from one of China’s main sources of supply, Australia. To Chen Yanhai, who heads the raw materials department at the Ministry of Industry and Information Technology,  “The potential deal has an obvious color of monopoly. The joint venture is likely to have a big impact on the Chinese steel industry as China is the world’s biggest iron ore importer” (from CCTV via Reuters). “The deal should be subject to Chinese anti-monopoly law,” Chen adds.

That sting in the tail will raise some eyebrows among international M&A bankers. China’s anti-monopoly law says the ministry has to approve business combinations if the joint global revenue of the companies involved exceeds 10 billion yuan ($1.5 billion) or 2 billion yuan in China if two or more of the firms involved each cross a threshold of 400 million yuan of revenue in China during the previous accounting year. Both BHP and Rio have blazed past that. In the year ended June 30, the former’s revenue in China was $11.7 billion while the latter’s was $10.8 billion.

It is unclear what remedies would be imposed if the Rio-BHP deal was found to be monopolistic by Beijing (or even if it could apply such a ruling), but Chen indicated aid to domestic miners could be one. There have already been discussions around this between Canberra and Beijing at the diplomatic level, we hear. And BHP says it and Rio would be discussing the potential regulatory issues with Chinese officials, according to Reuters.

Meanwhile, Chinalco has to decide what to do with the stake in Rio it does hold, and whether to take up its allotment of Rio’s rights issue that is replacing its investment. It could dump its stock with a grumpy flourish and take the loss, not do that but not take up its rights issue allotment, thus diluting its stake, or take up its rights and hang in to see what develops. Patience rather than petulance might well be the right virtue in this instance.

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Coca-Cola’s Bid For Huiyuan Nixed

China is at that stage of its economic development where it is developing indigenous brands. Huiyuan, the country’s biggest maker of fruit juice, is one, and sufficiently powerful a one for Coca-Cola to bid $2.4 billion last September to acquire the Hong Kong-listed business. But what would have been the largest takeover of a Chinese firm by a foreign rival has been blocked by the Ministry of Commerce, as we suspected it would.

This deal was always seen as the first big test of the new anti-monopoly law, and the proposed combination has been nixed on the ground that it would give Coke too dominant a market share; Huiyuan has 42% of the domestic fruit juice market. But, as the FT reported, Coke had been considering abandoning the deal because regulators were insisting that it would have to give up the Huiyuan brand as it was too valuable to fall into foreign hands.

That will have been noted far beyond Atlanta.

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