CHINA POLICY UPDATE 15 January 2021
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CHINA POLICY UPDATE
15 January 2021
China’s Anti-Trust Authorities Target the Country’s Internet
Giants
By Torsten Weller, China Policy Analyst
The Chinese authorities have stepped up their efforts to regulate the country’s powerful online platforms
The sudden halt of Ant Group’s IPO last year shows both the determination and weakness of Chinese
authorities when it comes to reining in powerful tech firms
Anti-trust measures against China’s internet platforms face serious technological and organisational
challenges which will increase uncertainty for foreign businesses and investors
Summary
The curious case of Ant Group’s failed IPO and Jack Ma’s sudden disappearance have brought China’s anti-
trust policies to international attention. Although the dramatic events in early November 2020 caught many
outside observers by surprise, the growing regulatory pressure on China’s powerful platform oligopolies has
been in the making for some time.
Back in August 2019, China’s State Council had called for better regulation of the country’s platform
economy 1. A new Draft Amendment to China’s 13-year-old Anti-Monopoly Law, published in January 2020,
would go on to extend the anti-thrust authorities’ regulatory oversight to online service providers.
But daunting challenges remain for those trying to rein in the likes of Alibaba and Tencent. Not only are
China’s digital behemoths far more powerful than their Western counterparts – not least because of their
crucial role in China’s financial system – they are also among the most important investors in emerging
technologies covering everything from AI to healthcare. While this increases pressure on policy makers to
strengthen oversight, it also makes anti-trust action potentially far more disruptive and susceptible to
political influence.
Background
Since the inception of the country’s first Anti-Monopoly Law (AML) in 2008 2, anti-trust measures have been
implemented sparsely and often with a whiff of political bias. For example, sanctions were used against
foreign car makers 3; or seemingly used as a bargaining chip to gain better access to foreign markets or
technology, as in the case with US chip maker Qualcomm 4.
But over the last couple of years, China’s anti-trust policy has become more structured. In 2018, the
government merged three enforcement bureaus from the Ministry of Commerce (MOFCOM), the National
Development and Reform Commission (NDRC) and the State Administration of Industry and Commerce
(SAIC) into a single agency: the State Administration for Market Regulation (SAMR) 5.
Following the restructuring, the number of mergers reviewed by the SAMR has picked up markedly. In 2018,
the SAMR approved more cases than the European Commission, further expanding its lead in the following
1
[Chinese] http://www.gov.cn/zhengce/content/2019-08/08/content_5419761.htm
2
https://www.wipo.int/edocs/lexdocs/laws/en/cn/cn099en.pdf
3
https://www.ft.com/content/f7bbeaa2-4a4d-11e4-bc07-00144feab7de
4
https://www.reuters.com/article/us-china-qualcomm-idUSKBN0LD2EL20150210
5
https://www.whitecase.com/publications/alert/china-merges-antitrust-enforcement-agencies-one-its-anti-monopoly-
law-approachesCHINA POLICY UPDATE
15 January 2021
year. In the first half of 2020, Chinese authorities reviewed 217 merger decisions, 21.2% more than their
European counterparts over the same period, according to data from Clifford Chance 6.
Following the State Council’s statement on the platform economy in late 2019, anti-trust authorities turned
their focus to China’s powerful online giants. In January 2020, lawmakers published a draft amendment to
the AML which would extend the law’s scope to online and e-commerce companies and increase fines for
violations. The amendment also raised the maximum fine from the risible low of 500,000 RMB (£57,000) to
10% of annual turnover 7. China thus followed the EU’s Digital Service Act 8, which introduced similar
penalties based on turnover for platforms operating in the European Union.
Graph – Merger reviews by European and Chinese anti-trust authorities since 2013
500
450
400
350
300
250
200
150
100
50
0
EU China EU China EU China EU China EU China EU China EU China EU China
2013 2014 2015 2016 2017 2018 2019 2020 H1
Simplified Procedure Normal Procedure Conditional Approval Blocked
Source: Clifford Chance ©CBBC
Besides the amendment, Chinese regulators issued a series of regulatory notices against monopolistic
behaviour by internet platforms. In May 2020, SAMR launched its first investigation of ‘exclusive contracts’,
which effectively tie consumers to one platform. In November, it also released the Antitrust Guidelines for
Platform Operators 9. The guidelines define monopolies not only based on traditional market share criteria -
a measure which has proven to be ill-suited for online businesses -- but also based on specific discriminatory
behaviour engaged in by platforms, such as curbs of data traffic or manipulating rankings in search results.
It was against this backdrop that Alibaba launched the initial public offering (IPO) of Ant Group, the
company’s financial services arm. After filing for an IPO with both the Hong Kong and Shanghai Stock
Exchange on 25 August 2020, Ant Group quickly became one of the most hyped stocks since the IPO of its
parent company, Alibaba, six years earlier. Alibaba had raised USD25 billion (£18.3 billion), becoming the
largest IPO in history. In late October analysts believed that Ant Group could attract as much as USD 34
billion (£24.9 billion) 10.
6
https://www.cliffordchance.com/content/dam/cliffordchance/briefings/2020/07/asia-pacific-quarterly-antitrust-
briefing-q2-2020.pdf
7
https://www.chinalawtranslate.com/en/draft-revisions-of-the-anti-monopoly-law-public-comment-draft/
8
https://ec.europa.eu/info/strategy/priorities-2019-2024/europe-fit-digital-age/digital-services-act-ensuring-safe-and-
accountable-online-environment_en
9
[Chinese] http://www.samr.gov.cn/hd/zjdc/202011/t20201109_323234.html
10
https://www.wsj.com/articles/ant-group-to-raise-more-than-34-billion-in-record-ipo-11603712848CHINA POLICY UPDATE
15 January 2021
Yet warning signs started flashing on 24 October 2020, when Alibaba founder Jack Ma gave a speech at the
2020 Bund Summit, an annual get-together of China’s financial sector. In his remarks, Ma criticized what he
sees as an outmoded model of financial regulation and indirectly insulted Chinese regulators as ‘old people’
who should be sent to hospital 11.
Timeline: Chinese Anti-Trust Measures from 2019 to 2021
Source: Caixin, Buzz Tech China ©CBBC
Whether the speech was a deliberate attempt to lobby for a change in China’s regulatory approach -- as Tech
Buzz China’s Rui Ma has suggested 12 -- or just Jack Ma’s usual style of airing his views is of secondary
importance. What matters is that his words clearly ruffled feathers in Beijing. Shortly afterwards, on 2
November 2020, China’s financial regulators summoned Ma and Ant’s management team for a meeting,
which clearly did not go well: one day later, Ant’s IPO was halted at both exchanges, two days ahead of its
intended launch.
11
https://hk.appledaily.com/opinion/20201108/TRMUNM72DRAQJNCG3ON2JUUF4A/
12
https://www.techbuzzchina.com/newsletter/signup/extra-buzz-19-ant-group-the-biggest-ipo-that-wasntCHINA POLICY UPDATE
15 January 2021
Regulators were quick to point to financial risks as the primary motive for the drastic step 13. They demanded
that Ant enforce new rules on capital adequacy 14, which would require the company to maintain a capital
ratio of 30% for each loan it offered. Ant currently only maintains only a 1%-2% capital ratio per loan, one of
the reasons it has been able to gain so much market share by undercutting rivals.
The new rules meant it would require Ant to potentially raise an additional USD20 billion (~£14.6 billion),
according to financial analysts 15. Even Rui Ma conceded that Ant’s leverage problem was real and that
Chinese public opinion favoured a stronger stance against its business model, which many have long
considered as ‘predatory’ 16.
Even though the reasons behind the regulators’ intervention were probably sound, the curious timing left
many observers dumbfounded. What’s more, it reinforced perceptions that the crackdown was primarily a
symptom of a power struggle between the Communist Party and a highly successful entrepreneur 17.
There is other evidence which casts doubt over this narrative.
As Rui Ma indicated in her article on the case, Chinese regulators were probably well aware of Jack Ma’s
views – a point reinforced by the fact that the Bund Meeting’s keynote speaker was no other than Wang
Qishan. What is more likely is that Ma’s speech helped tip the balance in an already on-going power struggle
between regulatory hardliners, who have been arguing for a more forceful approach towards the country’s
tech giants, and those who favour a more permissive approach to innovation over regulation 18.
The reality that Ant Group’s fate needs to be understood in the broader context of China’s evolving anti-
trust policies became clear in early December, when the Politburo’s meeting on economic work included the
objective to rein in monopolies and prevent the disorderly expansion of capita 19. Shortly afterwards,
regulators slapped heavy fines for monopolistic behaviour not only on Alibaba, but on Tencent and other
platforms as well 20.
The policy shift is also in line with the Chinese government’s ‘Dual Circulation Theory’ and the new emphasis
on ‘demand side reforms’, which both aim at boosting domestic consumption 21. The sharp rise in consumer
debt in recent years in China – fuelled by microlending services like Ant -- and the shrinking space for private
businesses to grow outside of the large platforms present clear and present danger to these reforms.
The Future of Ant and other regulatory challenges
Ant Group’s future remains in limbo and Jack Ma has not been seen in public since early November, when he
was summoned by Chinese regulators. Fears that a nationalisation of Ant or even Alibaba are in the offing
are probably overblown. Alibaba is clearly no Yukos, the Russian oil firm which was dismembered and
swallowed up by its state-backed rivals after its owner Mikhail Khodorkovsky had run afoul of the Kremlin.
There is simply no Chinese ‘Rosneft’ which could absorb such a sprawling empire as Alibaba, without causing
massive harm to China’s economy.
13
https://news.cgtn.com/news/2020-11-02/China-s-financial-regulators-talks-with-Ant-Group-s-top-executives-
V65cFu9TtC/index.html
14
[Chinese] http://www.gov.cn/xinwen/2020-11/03/content_5556884.htm
15
[Chinese] https://finance.sina.com.cn/roll/2020-11-04/doc-iiznezxr9959272.shtml
16
https://www.techbuzzchina.com/newsletter/signup/extra-buzz-19-ant-group-the-biggest-ipo-that-wasnt
17
https://www.ft.com/content/751c2500-f50d-47c9-8f04-a28ad62285fd
18
[Chinese] http://weekly.caixin.com/2021-01-08/101648195.html?p0#page2
19
[Chinese] www.xinhuanet.com/politics/leaders/2020-12/11/c_1126850644.htm
20
https://www.reuters.com/article/china-antitrust-tech-analysis/analysis-china-to-crank-up-anti-trust-heat-on-big-
tech-after-unprecedented-fines-idUKKBN28P1EU?edition-redirect=uk
21
[Chinese] http://weekly.caixin.com/2021-01-08/101648195.html?p0#page2CHINA POLICY UPDATE
15 January 2021
Alibaba’s chief resource, data, is another obstacle. The platform’s reliance on data algorithms makes a
breakup nearly impossible as it would deprive its constituent parts of their core asset 22, as Xu Ke of the
University of International Business and Economics in Beijing has pointed out.
What is more likely is that regulators will force Alibaba and other platforms to drastically curb their most
risky and discriminatory practices. The People Bank of China’s demand for greater oversight of online
lending already points in that direction 23.
Stricter controls on M&A activities between variable interest entities (VIEs) are also in the cards. VIEs are
offshore holding companies that allow Chinese entrepreneurs, such as Jack Ma and Alibaba, to circumvent
national regulations on foreign funding and technology transfers. Yet the extraterritorial nature of these
entities has made it difficult for regulators to monitor their activity.
The use of VIE structures has also helped Chinese platforms to scoop up potential rivals and break into ever
more diverse sectors. By the end of 2020, Tencent had invested in more than 785 different companies,
Alibaba in over 440, according to the Chinese business intelligence provider Tianyancha. Stricter barriers for
such transactions could make it more difficult for platforms to expand but would also make it harder for
start-ups to obtain much needed capital.
Chinese regulators also face organisational challenges. The State Administration for Market Regulation
currently employs only 50 staff members, according to a Chinese expert interviewed by Caixin 24. The upshot
is that many former anti-monopoly officials have switched sides and are now advising the very platforms
they previously monitored. This only increases the risk of backroom deals between platforms and
authorities, and makes it more likely that sudden political shifts could become a key driver of reform.
CBBC View
China’s anti-trust measures against the country’s tech giants are largely in line with global trends and mirror
similar debates in the United States and Europe. But local factors, such as Chinese platforms’ central position
in online payments and financial services, have increased both their influence as well as their exposure to
regulatory action. The Chinese government’s turn towards demand side reform and the persistent concern
over debt-fuelled consumption have added further urgency to its latest anti-trust measures.
Fairer competition and stricter controls on financial services should certainly be welcomed, but technical as
well as organisational challenges raise questions about the efficacy of China’s anti-trust reforms. It also
makes it more likely that future measures could be driven more by political considerations, rather than by
due process and administrative logic.
Foreign businesses should brace for an uneven reform process, that may be characterized by sudden,
unexpected actions by the authorities.
About the author
TORSTEN WELLER
Torsten Weller is CBBC's London-based China Policy Analyst. He can be reached on
Torsten.Weller@cbbc.org
22
[Chinese] http://weekly.caixin.com/2021-01-08/101648195.html?p0#page2
23
[Chinese] https://www.thepaper.cn/newsDetail_forward_10750691
24
[Chinese] http://weekly.caixin.com/2021-01-08/101648195.html?p0#page2CHINA POLICY UPDATE
15 January 2021
Related Updates:
China’s Leadership Sets Priorities for 2021 (CBBC Special Update, 21 December 2020)
China’s Plans Changes to Country’s Anti-Monopoly Law (China Policy Update, 5 February 2020)
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