By Ian Brown. Last updated: 3 May 2022

Stanford University has translated China’s recently published 14th Five-Year Plan for National Informatization, which mentions competition 22 times and calls for the government to:

Incessantly strengthen and improve anti-monopoly and anti-unfair competition oversight; prevent the disorderly expansion of capital; safeguard fair and orderly competition in the platform economy area, and ensure the lawful rights and interests of on-platform operators, consumers, and all other kinds of subjects.

The central government has also published Some opinions of the National Development and Reform Commission and other departments on promoting the healthy and sustainable development of the platform economy, which includes plans to “Amend the Antimonopoly Law and improve the supporting rules of the Data Security Law and the Personal Information Protection Law”, “Formulate and promulgate regulations prohibiting unfair competition on the Internet” and “Establish and improve the platform economy fair competition supervision system.” China also plans to “participate in the international coordination of anti-monopoly and anti-unfair competition” and “Establish an orderly and open platform ecology”, with increased cloud, business and data interconnection.

The government’s approach to digital competition is part of a broader agenda aimed, in the words of The Economist, at an authoritarian “techno-utopia… replete with ‘deep tech’ such as cloud-computing, artificial intelligence (ai), self-driving cars and home-made cutting-edge chips”, where incumbents’ market power is curbed to “redistribute some of their profits to smaller merchants and app developers, and to their workers” and smaller “cities will boast their own tech industries with localised services” – all “under the watchful eye of the government in Beijing.” President Xi Jinping has called for “independent” innovation in “core technologies”, and Chinese “self-reliance”.

As part of this agenda, in February 2021, China’s State Administration for Market Regulation (SAMR) issued new competition guidelines on digital platforms under the Antimonopoly Law, which ban platforms from requiring retailers to use a specific payment system, specify different mechanisms for calculating turnover depending on business model, and require platforms to monitor for anticompetitive activity. Where a potential low-turnover acquisition concerns a company with a free or low-price business model in an already-concentrated market, the agency will still investigate. 

SAMR already published (in August 2020) anti-monopoly guidelines on intellectual property. And in mid-August 2021, SAMR published draft regulations on unfair competition and use of user data, with a public consultation closing on 15 September. These would ban business operators from using data or algorithms to “hijack traffic or influence users’ choices”, according to Reuters. (Automated translations of the platform guidelines and draft regulations are here.)

The Cyberspace Administration of China also in August 2021 released draft guidelines on algorithmic recommendation management, which include in Article 13 a ban on self-preferencing and improper competition. The State Council’s 2021 work plan includes an amendment of the Antimonopoly Law. 

The Economist fulminated in August 2021 (despite the more nuanced article cited above): “Now the party feels emboldened, issuing new rules at a furious pace and enforcing them with fresh zeal. China’s regulatory immaturity is on full display. Just 50 or so people staff its main anti-monopoly agency but they can destroy business models at the stroke of a pen. Denied due process, companies must grin and bear it.”

The following month, the Ministry of Industry and Information Technology (MIIT) organised a meeting to put pressure on the largest digital platforms to make their products interoperable. Tencent and Alibaba announced they would do so, while ByteDance, Baidu, NetEase, Huawei and Xiaomi also participated. While this ministry lacks legal power to compel such action, the Financial Times speculated the companies feared enforcement action by SAMR. So far, Alibaba appears to have taken more action than Tencent, mainly focused on enabling Tencent’s WeChat Pay in its smaller services (but not yet its main shopping apps, Taobao and Tmall).

SAMR has published for consultation draft platform guidelines, which include a number of measures also seen in other countries’ digital competition legislative reforms, as well as other measures also seen in the EU’s proposed Digital Services Act. The rules would apply to “super-large platforms” with “over 500 million annual active users, a market cap of over 1 trillion RMB ($160 billion), strong capability to separate vendors and consumers, and the offering of at least two core services”. 

The National People’s Congress reviewed draft amendments to the Anti-Monopoly Law in October. It published a second draft for public consultation, which include stronger penalties and reforms to the merger control regime, including allowing SAMR to scrutinise transactions below the usual filing thresholds which may have anticompetitive effects, and identifying for enforcement “industries relating to people’s well-being, finance, technology and media”. The draft also highlights the role of data and platforms. 

Meanwhile, MIIT is considering “rules to make hundreds of millions of articles on Tencent’s WeChat messaging app available via search engines like Baidu … [and] making short videos from ByteDance’s Douyin – TikTok’s Chinese cousin – show up in searches”. This follows up from previous government-inspired moves whereby “Tencent last month allowed WeChat users to link to things like Douyin videos and Taobao stores in one-on-one messaging for the first time in years, while Alibaba added WeChat’s payment system to some of its apps.”

Key enforcement actions

The Economist noted in August 2021 “over 50 regulatory actions against scores of firms for a dizzying array of alleged offences, from antitrust abuses to data violations.” A November 2020 review noted apparently higher scrutiny of mergers in China since 2017 than the US and EU, highlighting conditional approval for “HP/Samsung, Essilor/Luxottica, KLA/Orbotech, Infineon/Cypress and Nvidia/Mellanox” link-ups while the US and EU approved them without remedies.

In April 2021, in its “first major antitrust decision in recent years”, SAMR imposed a record fine on Alibaba of US$2.8bn for abuse of dominance – a ban on sellers using other platforms. The agency also issued 13 penalty decisions in December 2020 and March 2021 on tech firms for failing to notify past transactions. In its quarterly review to September 2021, Clifford Chance noted SAMR had fined Tencent for failing to notify its acquisition of a majority stake in CMC, “with remedies and extensive obligations also imposed by SAMR to restore competition.” SAMR fined affiliates of Internet platforms such as Didi and Meituan for failure to file in 22 cases – although the latter was lower than expected. In an academic analysis of the record Alibaba fine, Prof. Sandra Marco Colino concluded:

from a substantive perspective, the investigation may seem like an open-and-shut case to the international observer. Nonetheless, in 2014 the judgment of the Supreme People’s Court in Qihoo 360 v Tencent pointed to a lax approach towards exclusive dealing practices and market dominance… SAMR’s attempt to effectively tackle the dire consequences associated with this classic exclusionary behaviour becomes all the more momentous. Secondly, in targeting a national company, the decision puts a dent in the narrative that competition law in China serves a protectionist agenda. Thirdly, as enforcers in other parts of the world face what feel like interminable legal battles to punish anticompetitive conduct, the SAMR has managed to impose a record penalty in just a few months. It begs the question of whether such swift action is achievable, or even desirable, in other jurisdictions.

Sandra Marco Colino

In July 2021, SAMR blocked the merger of Huya and Douyu, the two largest online-game streaming companies in China. Tencent, the largest online-games company, owns Huya and partly owns Douyu. SAMR is “reportedly getting ready to slap a $1bn fine on Meituan, a super-app that delivers meals.”In January 2021, the central bank released draft rules on the “non-bank payment industry” regulating e-payments. Financial regulators also required Ant Group to separate its consumer finance group, responsible for around one-tenth of non-mortgage consumer loans in the country, into a new firm. Regulators are now pressuring Ant to create a separate credit scoring joint-venture with the government, holding Ant data used for credit decisions.

At the end of October, the Financial Times noted Chinese tech stocks have seen double-digit growth on hopes that “peak regulatory risk has passed” – although one analyst cautioned “These [regulatory moves] are part of bigger actions on the overall economy.” A December FT analysis suggested “Alibaba is still the largest ecommerce company in China, but its market share is slipping as rival platforms take advantage of the break-up of its monopoly.”

Fieldfisher China managing partner Zhou Zhuofeng told the Global Times “Although last year’s mega fine on Alibaba will not likely be surpassed because of the company’s market scale, this year’s anti-monopoly cases are likely to exceed last year’s level, as the amended Anti-Monopoly Law is very likely to come into force in the first half of this year, and China’s national anti-monopoly bureau was inaugurated last year”.

Following intense antitrust scrutiny, Tencent has pursued a quieter investment strategy amid China’s Big Tech crackdown. “Regulators have stated very clearly they don’t want to see anti-competitive behaviour . . . [like] gobbling up every gaming company,” Wong Kok Hoi, chief investment officer at APS Asset Management, told the Financial Times. “Now they have no choice but to go international.” 

The firm is reducing its part-ownership of e-commerce group from about 17% to 2.3%, distributing 460m ordinary shares to its own shareholders in March. The FT quoted a person “close to the company” saying it did not want “to be seen to be exerting massive influence over a huge segment of the economy in perpetuity”. And shares in Singaporean gaming and e-commerce business Sea fell more than 11% after Tencent announced it would sell over $3bn of its shares in the company.

In January, the National Copyright Administration of China (NCAC) ordered digital music platforms not to sign exclusive copyright agreements except under “special circumstances”. Tencent already ended all such deals last year; it previously held “more than 80% of exclusive music library resources”.

Four government agencies (the Central Cyberspace Administration, together with the National Development and Reform Commission, the Ministry of Industry and Information Technology and SAMR) organised a symposium on 28 January. The government summary relates the agencies told Internet firms they “should fully understand that improving the rule of law and supervision in the Internet field provides a strong guarantee for the sustainable and healthy development of enterprises”.

SAMR is expanding its anti-monopoly bureau, more than doubling its staff to 100 people. In March, it announced an enforcement budget increase to RMB 121.4 million (US$19.1 million), a 73% increase over the previous year’s spending. SAMR created a Competition Policy and Big Data Centre in December 2021, and is continuing its focus on platforms. China’s central bank governor has also signalled a greater interest in “unauthorised and excessive” fintech company data collection, warning in televised remarks “Companies with large traffic could acquire new customers … and enjoy steady data flow. Fintech has increasingly gained the upper hand in using, accessing and storing data.” 

Following significant falls in the Chinese stock market in early March, the government’s Financial Stability and Development Committee told regulators to “Complete the rectification (i.e., crackdown) of major internet platform companies ASAP”, according to a summary by Kendra Schaefer of Trivium China. She concluded: 

We always tell our clients that the Chinese government’s number one fear is domestic instability — social or economic. And if anything can make regulators change course abruptly and dial back the crackdown, it’s volatile market conditions caused by over-regulation. More importantly: The politics of tech regulation are about to get very interesting. I get the sense that there are at least two major policy camps — the economists on one side, and the national security peeps who want to hammer tech companies until they cry uncle.

Kendra Schaefer, Trivium China

Acknowledgment: this update was commissioned by Open Society Foundations