China has unveiled the draft version of new anti-monopoly laws that target the immense economic power of the country’s incumbent tech giants.
On 10 November the State Administration for Market Regulation (SAMR) issued the draft version of the “Anti-monopoly Guidelines for the Platform Economic Sphere” (关于平台经济领域的反垄断指南（征求意见稿）) for the solicitation of opinions from the Chinese public.
SAMR said that Guidelines are for the purpose of “preventing and restraining monopolistic conduct in the platform economies sphere, and strengthening and improving anti-monopolistic regulation of platform economies.”
The release of the Guidelines had an immediate impact on the Hong Kong-listed shares of the tech giants, with Meituan seeing a 10.5% plunge, JD.com an 8.78% drop, Alibaba a 5.1% decline and Tencent a 4.42% fall on the same day.
The release of the Guidelines arrives following other moves by the Chinese central government signalling heightened pressure on China’s tech giants, including the suspension of Ant Group’s USD$36 billion IPO in Hong Kong and Shanghai that was originally scheduled for 5 November.
On 6 November a trio of central government authorities including SAMR, the Cyberspace Administration of China (CAC) and the State Taxation Administration (STA) summoned 27 of China’s leading internet platforms for a meeting on “the standardisation of the online economic order.” These companies included JD.com, Meituan, Alibaba and Tencent.
Certain sectors of China’s digital economy have become increasingly concentrated following the flourishing growth of the tech giants and the increasing pace of acquisitions and take-overs. Gaming giant Tencent, for example, has made over 15 investments worth more than 20 billion yuan in 2020, and currently enjoys a 70% share of China’s live-streaming gaming market.
Deng Zhisong (邓志松), senior partner at Dacheng Law Offices in Beijing, said that the draft Anti-Monpoly Guidelines focused in particular on areas including variable interest entity (VIE) structures and abusive market practices such as the widely criticised “pick one of two” (二选一) requirements made by e-commerce platforms.
Chapter 4 of the Guidelines provides the first official confirmation in China that VIE enterprises will be subject to anti-monopoly scrutiny, stating that “the concentration of VIE operators falls within the scope of anti-monopoly review.”
VIE structures in China involve listed foreign entities controlling Chinese companies by means of a series of contractual arrangements, in order to avoid regulatory barriers to foreign entry into the Chinese domestic market.
Over the past two decades Chinese online giants such as Sina, Netease, Alibaba and JD.com have made use of VIE structures to facilitate their operations in China after first listing in the US, creating an area of ambiguity for regulators.
“The anti-monopoly guidelines make direct reference to overseas structures, and will likely include all China-related stocks or associated entities under the regulatory purview,” said Dong Yizhi (董毅智) from Shanghai’s Joint-Win Partners. “Stated simply, there will be no platforms that are not subject to regulation.”
The Guidelines also provide strong discretionary powers to regulators, with Article 21 on “relief measures” stating that anti-monopoly enforcement agencies will be permitted to determine additional measures, including stripping of tangible assets, stripping of intangible assets such as intellectual property rights, technology and data, “opening up” of online or platform infrastructure and key licensed technology; termination of exclusive agreements and amendment of platform rules or algorithms.
“[Authorities] will be able to require that platforms strip away parts of their operations,” said Liu Xu (刘旭), a specialist in intellectual property rights and competition law at Tongji University. “It’s also feasible that at such time the stripping will in actuality be a breaking up.”
Big data abuses and exclusive sales arrangements are two other areas targeted by the Anti-monopoly Guidelines.
Article 15 of the Guidelines states that where competing platforms demand that transactional parties “pick one of two” (二选一) or engage in conduct with similar effects, this can be considered restricted trading conduct.
Online platforms in China such as Meituan and Eleme have been widely criticised for implementing “pick one of two” requirements, which involves the e-commerce platforms demanding that vendors only engage in sales promotion activities on their own platform. Critics say this damages the interests of both vendors and consumers.
The Guidelines also target the use of big data algorithms to provide differentiated prices and conditions to consumers and traders, in a practice referred to as “Big Data Price Discrimination” (大数据杀熟).
