What differentiates China’s Big Tech antitrust challenges from those of Google, Amazon, Facebook or Apple
- The antitrust investigation against China’s Big Tech companies appear to share many similarities with inquiries in other parts of the world
- Chinese companies’ unique challenges include dependence on their home market and a more opaque policy environment
Technology giants around the world are facing increasingly higher regulatory barriers to expansion. Long uneasy with monopolies, governments and consumers in North America, Europe and now in China have pushed back against Big Tech’s increasing concentration of market power.
“Closer scrutiny of the tech sector is not uniquely Chinese, and the seriousness of antitrust enforcement is not particularly new,” said Marcus Pollard, antitrust and foreign investment counsel at the law firm Linklaters, adding that the main concern for regulators had been whether Big Tech could use their market clout to exclude competitors at the detriment of consumers. “Alibaba is obviously a high-profile statement of intent by the regulator of their mission to keep markets open with diverse choices for consumers.”
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China kicks off antitrust probes into Alibaba over alleged monopolistic practices
In both China and the West, the rise of Big Tech went mostly unchecked for years, as many extolled the role played by technology in economic growth and improving people’s lives. US regulatory scrutiny of tech firms went into abeyance since the 1998 antitrust case against Microsoft was ultimately overturned and settled out of court, failing to break up the software vendor which powered nine of 10 personal computers around the world.
Scrutiny did not resume in earnest until about two years ago, as policymakers and consumers became aware of how technology giants – especially the internet behemoths operating everything from search to shopping and social interactions – had come to govern people’s lives and public discourse. Worse, as the incumbents grew larger, they were starting to squeeze out smaller competitors and start-ups.
Google, Amazon, Facebook and Apple, collectively known as GAFA, have clashed with regulators in multiple jurisdictions, including the US, UK, EU, Turkey and India. Over 450 pages, the US Judiciary Committee report was scathing in finding three common problems of depriving market access, abuse of market power and the further entrenchment of their dominance.
“Globally, regulators will be looking at areas where there is unfair competition,” Alibaba’s vice-chairman Joseph Tsai said during an April 12 call with analysts after the company’s penalty. “We have gone through this process and gotten to know [the regulators’] thinking very well. It’s a very healthy process. We have a plan to correct our [course] and we have a good internal compliance system to comply with the law.”
Before the crackdown, China’s unique market conditions helped its tech giants thrive in their earlier years. Local authorities have kept out many foreign rivals, such as Google and Facebook, through online censorship enforced by the Great Firewall. However, experts say this has come with pitfalls.
“The recent [fine on] Alibaba further shows [why] domestic companies should go out [and expand overseas], as domestic supervision will tighten,” said Zhao Xiaofeng, an assistant professor at Lingnan University’s Department of Finance and Insurance. “Anti-monopoly is a game of fairness and efficiency. In the past, Chinese private enterprises were still very small, and the government mainly treated them with a supportive mentality, so efficiency is more important [at that time.] Now, these enterprises have gradually grown up and even have a good international reputation. Its development has indeed brought social problems, so fairness has gradually gained the upper hand.”
To counter that, Zhao said these companies need to diversify outside China. “Don’t rely on a single country and a single government,” he said.
Beijing’s new-found interest in regulating Big Tech has also raised questions about the changing political environment for major internet companies.
China’s centralised political and legal system means that businesses often cannot directly push back on top-down mandates, forcing companies to adapt to decisions made behind closed doors. As a result, Chinese companies have less legal leverage to push back on government mandates than large tech firms in the US and EU, analysts said.
“In a federal system, such as the US, a company can be investigated by one level of government – say federal – but still be fine with local and municipal authorities,” said Victor Shih, associate professor at the School of Global Policy and Strategy at the University of California.
“In China, since all courts and regulators are controlled by the Chinese Communist Party, if there is political trouble with the central-level party, a company will run afoul of all lower-level governments and courts,” Shih added.
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Alibaba Chairman Daniel Zhang on company’s IPO and global expansion during US-China trade
In countries like the US, tech companies have sought to defend themselves in both the courtroom and in the media against regulatory pressure. Chinese authorities, meanwhile, have significant power to contain speculation and control the public conversation around regulatory moves.
Analysts said that for now, it is hard to predict the outcome and the duration of the investigations.
Tech giants such as Alibaba could face several possible outcomes. Most antitrust cases in China merely result in fines. According to a review of published cases by the Post, regulators decided to end several antitrust investigations after the company agreed to correct alleged monopolistic behaviour.
“As we see in recent days, companies may be required to change some of their long-standing business practices to comply with legal standards and to make commitments to fully comply with antitrust rules,” Pollard said.
Companies may be required to change some of their long-standing business practices to comply with legal standards, Pollard said.
The most severe punishment may be breaking up a company, a threat that has been levied against the likes of Facebook and Google. Regulators have so far refrained from imposing structural remedies such as breaking up a firm in antitrust cases, the Post found.
Alibaba had lost about 8 per cent of its value in Hong Kong since December 23, the day before Chinese authorities unveiled it antitrust investigation, before the announcement of the fine. However, the market has taken the fine, and Alibaba’s subsequent reassurances, as a net positive with the stock price jumping by 8 per cent to HK$235.60 on the Hong Kong exchange by Friday.
“Large internet companies have done a lot of good things to help the economy,” as shown “in China, where digitalisation has helped the average person afford goods and services, [which] is good, and we have played a role,” Alibaba’s vice-chairman Tsai said. “From a regulatory standpoint, every large company will face scrutiny. We have experienced it, and we are glad to put this behind us.”
Additional reporting by Tracy Qu.
