China gets serious about antitrust in cyberspace

Tech majors like Alibaba told they cannot force customers to 'take sides'

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China gets serious about antitrust in cyberspace www.financialstand.com

A record penalty slapped on Alibaba Group Holding earlier this month kicked off China’s clampdown on anti-competitive activity in cyberspace, where a few titans increasingly dominate Chinese consumers’ daily lives — from online shopping to mobile payments to food delivery to car-hailing.

After years of tolerating online platforms’ extraordinary expansion into underregulated markets, China is now determined to rein in unfair competition, authorities say. Even though Alibaba’s executives say they do not expect the government’s 18.2 billion yuan ($2.8 billion) fine to have much of an impact on the e-commerce giant’s business, industry insiders say this is only an initial deterrent to be followed by more regulatory scrutiny and civil lawsuits.

Three days after the Alibaba fine, China’s market regulator and its cyberspace and tax regulators summoned the country’s biggest tech companies and warned them of “severe punishment” if they continue to break antitrust rules after a one-month grace period.

Meanwhile, Chinese lawmakers are writing more teeth into the first major revisions to the Anti-Monopoly Law in 13 years. A draft will be submitted by the end of this year to the Standing Committee of the National People’s Congress, the country’s top legislative body, the committee disclosed Wednesday in its 2021 work plan. The existing law has long been criticized for being too lenient to the country’s sprawling internet giants.

On Feb. 7, the State Administration for Market Regulation clarified in new guidelines how it will ensure that players in the so-called “platform economy” follow anti-monopoly rules. The new regulations for the first time bring several grey areas under a regulatory framework. For instance, variable interest entities, the legal structure many Chinese tech companies use, are now formally within the purview of China’s Anti-Monopoly Law.

No ‘picking sides’

All the moves signal that regulators are gearing up enforcement so that internet platforms can no longer gain market share using a practice known as “picking sides,” in which a platform forces vendors to choose between its services and those of its rivals.

This was one of the main reasons for the massive Alibaba fine. Two of Alibaba’s rivals, JD.com and Pinduoduo, have long complained that Alibaba’s picking-sides policy unfairly cuts them out of potential deals with vendors.

In November 2015, JD.com reported to the State Administration for Industry and Commerce that Alibaba forced apparel merchants to choose between participating in the Nov. 11 “Double 11” shopping festival on Alibaba’s Tmall or on JD.com. Alibaba threatened merchants that participating on both platforms would result in punishment, such as reduced traffic or lower rankings, JD.com said. The regulator investigated but never publicly disclosed the results. Two years later, JD.com sued Alibaba. The case is still in the hearing process.

Since then, every year before the event, also known in China as “Singles’ Day,” market regulators would call on e-commerce platforms, stressing that the picking-sides practice is prohibited. Just a day before last year’s event, market regulators issued draft rules aiming to prevent monopolistic practices by internet platforms. But the practice has never really stopped.

Alibaba also faces lawsuits from vendors. In a high-profile feud last year, top microwave-oven brand Galanz sued Alibaba for allegedly abusing its market dominance by forcing merchants to pick sides when deciding where to sell their wares online. Galanz told Caixin in June that it withdrew the suit after reaching a settlement with Alibaba, without giving details.

In August 2020, Alibaba-owned food delivery service Ele.me sued rival Meituan Dianping, alleging that Meituan told restaurants to choose between the two apps. Meanwhile, a letter of complaint from 20 merchants in Wenzhou alleged that they have long been exploited by Ele.me and forced to sign exclusive deals with it.

At the April 13 meeting with representatives of 34 companies including JD.com, Pinduoduo, Meituan, Ele.me, short-video app operators ByteDance and Kuaishou Technology, internet titan Tencent Holdings, and gaming giant NetEase, regulators gave the platforms a month to conduct a comprehensive self-check and rectification. Authorities told the platforms to stop the picking-sides practice along with a list of other outlawed activities, such as abusing market dominance, burning cash to take a dominant position in the lucrative group buying market, violating user data privacy rules, and turning a blind eye to phony products.

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