Commentary: Why did China wait so long to crack down on Alibaba?

HONG KONG: Since the Chinese authorities abruptly halted fintech conglomerate Ant Group’s deliberate preliminary public providing in autumn 2020, its father or mother firm, e-commerce king Alibaba, has been going through harsh regulatory scrutiny.

On Christmas Eve, China’s antitrust authority introduced that it was investigating the agency’s unique enterprise practices. 

And Alibaba’s founder, Jack Ma, not too long ago eased considerations relating to his destiny by showing in public for the primary time since final October, when he delivered a speech criticising monetary regulation in China.

The mere announcement of the investigation into Alibaba wiped greater than US$100 billion off the agency’s market worth in a single day. Given the Chinese authorities’s large regulatory energy, buyers are rightly anxious about Alibaba’s prospects.

READ: Alibaba beats revenue forecast as Chinese regulators hover

But the federal government’s sudden and aggressive transfer in opposition to the agency additionally reveals a lot concerning the regulatory regime’s weaknesses.

To be certain, the Chinese authorities has legit causes to be vigilant towards the nation’s extremely concentrated web sector. By focusing on famous person corporations like Alibaba, China is following a worldwide regulatory development, with US and European Union policymakers equally vowing to impose harder sanctions in opposition to monopolistic web giants.

Composite pictures of Tencent, WeChat and Pinduoduo.

Composite footage of Tencent, WeChat and Pinduoduo. (Photo:s Reuters and AFP)

Just as Americans are apprehensive about Amazon’s dominance in e-retail, Chinese customers have equally good causes to be involved about Alibaba.

In 2020, Amazon’s share of the US e-commerce market was barely lower than 40 per cent, whereas Alibaba’s Tmall and Taobao held over 50 per cent of China’s e-retail market.

The present investigation into Alibaba shouldn’t be the primary time that the agency’s enterprise practices have been topic to antitrust scrutiny.

READ: Commentary: Ant Group will be back, but its path may not be as smooth-sailing, China’s second largest e-retailer, lodged a criticism about Alibaba with China’s antitrust authority again in 2015. Dissatisfied with the authority’s perceived failure to act, filed a go well with in opposition to Alibaba in a Chinese court docket (the case remains to be pending).


In reality, Alibaba used to be much more dominant in e-commerce. At its peak, when it was first listed in 2014, the agency accounted for greater than 80 per cent of China’s on-line retail market. 

Since then, its share has been steadily eroded by and different rivals comparable to Pinduoduo.

So, why did China’s antitrust authority wait so long earlier than investigating Alibaba?

Many have linked the present antitrust marketing campaign to Ma’s October speech and his seemingly recalcitrant perspective towards regulation.

FILE PHOTO: Jack Ma, chairman of Alibaba Group arrives at the "Tech for Good" Summit in P

FILE PHOTO: Jack Ma, chairman of Alibaba Group arrives on the “Tech for Good” Summit in Paris, France May 15, 2019. REUTERS/Charles Platiau/File Photo

Although Ma’s remarks might have been the set off, the basic purpose relates to regulatory inertia, a phenomenon deeply ingrained in Chinese bureaucratic politics.

As I elaborate in my forthcoming guide, though China’s antitrust authorities are seldom challenged in court docket, they have to carefully observe the formal and tacit guidelines of the paperwork and conduct a cost-benefit evaluation earlier than each regulatory transfer.

These issues affect the kind of circumstances they bring about and the approaches they make use of to sort out them.

One such constraint relates to the Chinese authorities’s initiatives selling innovation as a driver of financial progress. In 2015, for instance, the State Council introduced the “Internet Plus” program with the purpose of fostering extra entrepreneurship within the digital sector.

READ: Commentary: Are the best days of Big Tech over?

This positioned antitrust regulators in a troublesome place, as a result of overly harsh regulation would possibly thwart home innovation and entrepreneurship. 

And the very last thing antitrust officers need to do is act in ways in which could possibly be perceived as opposite to the nationwide growth agenda.

This explains why the Chinese antitrust regulator adopted a “cautious and tolerant” method vis-à-vis the tech sector. 

When disgruntled rivals complained about Chinese tech giants’ abusive enterprise practices, the authority most well-liked to deploy comparatively lenient regulatory instruments such because the Anti-Unfair Competition Law and the E-Commerce Law.


These legal guidelines lack enamel, as a result of the most important fines that may be imposed underneath them are comparatively small.

And as an alternative of launching investigations, the antitrust regulator carried out administrative interviews with every of the main on-line platforms on the eve of Singles’ Day, China’s largest e-commerce gross sales promotion occasion, in an effort to persuade them not to impose restrictive buying and selling circumstances on retailers.

Chinese e-commerce platform Pinduoduo

The emblem of Chinese e-commerce platform Pinduoduo is seen subsequent to its mobile phone app on this illustration image. (REUTERS/Florence Lo/Illustration/File Photo)

Similarly, the regulator additionally avoided intervening in merger transactions involving a “variable interest entity,” a construction many Chinese tech corporations have used to circumvent authorities restrictions on international funding within the web sector.

READ: Commentary: Why doesn’t India have as many tech unicorns as China does?

Until early final yr, a whole lot of acquisitions by Alibaba and Tencent had fully escaped antitrust scrutiny. As a consequence, the corporations have turn out to be two of the most important buyers in China’s digital economic system, collectively proudly owning a big proportion of the tech sector’s unicorns.

This regulatory inertia continued till Ant Group’s IPO debacle, when the antitrust regulator obtained a transparent sign from China’s prime management to rein within the tech giants.

But the authority’s earlier lax regulation on this space has contributed to immediately’s intractable dilemma: Once a monopoly emerges, it’s laborious to reverse it utilizing antitrust regulation.

As EU and US antitrust regulators have not too long ago found, such laws is simply too blunt a device for tackling Big Tech.

Above all, the sudden current regulatory crackdown in opposition to Alibaba gives the look that Chinese regulation enforcement is bigoted.

Of course, no regulation is applied in a vacuum. But it seems that the Chinese authorities deal with the identical enterprise follow in drastically other ways when coverage priorities shift, even when the related legal guidelines stay unchanged.

This threat definitely is not going to bolster investor confidence in China’s thriving web corporations.

Angela Huyue Zhang is Director of the Centre for Chinese Law and Associate Professor on the University of Hong Kong. Her guide Chinese Antitrust Exceptionalism: How the Rise of China Challenges Global Regulation might be printed by Oxford University Press in March 2021.

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