Saturday, 2024 March 2

China’s final rules on internet monopolies leave tech giants with room to maneuver

The State Administration for Market Regulation issued its final guidelines on Sunday, aiming to prevent monopolistic behavior within the country’s internet platform economy and to promote fair competition for the benefit of consumers. The rules, which are a guide for anti-monopoly law enforcement in the internet sector, which has more complicated business models than traditional industries, define key terms in a monopoly case, such as the abuse of market dominance and monopolistic agreements.

The guidelines come nearly three months after the regulator released a draft version to seek industry feedback on November 10. There are seven key amendments in the finalized version, some of which actually favor the internet giants involved, Liu Xu, a researcher with the National Strategy Institute of the Tsinghua University, told KrASIA on Monday.

The policy draft released in November allowed law enforcement to declare a violation without defining the “relevant market” where the abuse occurred, but the final version requires any incursion to be defined within a relevant market, raising the threshold for breaches and putting more pressure on regulators.

“This will lead to more costs and longer time for the claimant to provide proof of market dominance by Tencent and Alibaba’s fintech arm Ant Group and is thus more favorable for these two companies,” said Liu.

For Han Wei, an associate professor at the Chinese Academy of Social Sciences, this move shows a more conservative and prudent approach so regulators cannot abuse power and stymie growth. “Law enforcement agencies would be given too much discretion in deciding whether a company has committed a monopolistic behavior if they don’t have to determine the relevant market,” he said.

The new guidelines also stipulate that law enforcement officials can only declare that a dominant company refuses to do business with another firm if there is material reduction in the latter company’s current business.

“If the investigations can only be started when a company’ products or services have already been harmed, such moves are meaningless in proactively protecting effective competition,” said Liu, referring to a notable example of Tencent restricting the sharing of links to ByteDance and Alibaba apps within WeChat for years.

There have been no known probes from Chinese law enforcement officials into Tencent for these bans, but ByteDance’s Douyin has filed a lawsuit against Tencent alleging abuse of market dominance.

Regulating the use of subsidies

The final regulations also allow companies in the internet economy to sell below market prices only if they are considered to have justifiable reasons like attracting new users and carry out promotions in a reasonable period of time, according to the policy, while no such allowances were present in the November draft.

“How to determine what is ‘reasonable period of time’ leaves wiggle room for companies suspected of abusing market dominance and selling below costs,” Liu said. This aspect of the policy is particularly relevant to the grocery group-buying sector, where cash-rich internet giants were undercutting traditional retailers through the widespread use of subsidies, prompting a backlash and boycott from suppliers, according to Liu.

“If the anti-monopoly law enforcement agencies have to wait to move until the companies who are suspected of abusing the market dominance have already attracted new users and promoted sales, small and medium-sized companies, and individual business owners will already have been pushed out of the market,” he added.

“Even if these companies’ behaviors are finally recognized as violating the anti-monopoly law, competition in relevant sectors cannot be restored,” he warned, explaining that the retroactive enforcement of the policies often means healthy competition is trampled before its too late.

In the country’s first-ever anti-monopoly law enforcement cases, the State Administration for Market Regulation in December fined Alibaba, Tencent-backed online literature company China Literature, and SF Express-owned smart locker Hive Box, RMB 500,000 (USD 76,463) each for not reporting acquisition deals for monopoly review.

Jingli Song
Jingli Song
I believe Chinese innovation at various level needs to be known by the world.

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