FACTBOX-China’s unprecedented crackdown on its internet sector
BEIJING, June 22 (Reuters) – China is in the midst of an extraordinary clampdown on its once-freewheeling internet sector, with its competition regulator in particular dishing out fines and warnings and conducting investigations into the biggest names in the “platform economy”.
The high-profile moves from the State Administration for Market Regulation (SAMR) have included a record fine on e-commerce giant Alibaba, an ongoing antitrust probe into food delivery giant Meituan, and expected penalties for social media and gaming giant Tencent.
In February, SAMR issued anti-monopoly guidelines that target internet platforms. In April it summoned 34 companies including Tencent, ByteDance and JD.com for a meeting, ordering them to conduct self-inspections within one month and warning of “severe punishment” for any that still violated the rules.
Reuters reported exclusively in April that the newly activist SAMR is adding staff and other resources to aid its crackdown.
In addition to investigating and penalising specific companies, it has also announced fines and warnings on entire segments of China’s online economy. In March, for example, it tightened scrutiny over livestream shopping as well as community group buying.
Here are some of Beijing’s highest-profile targets:
SAMR has begun an antitrust probe into Didi Chuxing, just as the ride-hailing giant is pushing ahead with what could be the largest initial public offering in the United States this year, Reuters reported last week.
SAMR is investigating whether Didi used any competitive practices that squeezed out smaller rivals unfairly, and whether the pricing mechanism used by Didi’s core ride-hailing business is transparent enough, sources told Reuters.
Didi became dominant in China’s online ride-hailing business after years-long subsidy wars with Alibaba-backed Kuaidi and Silicon Valley-based Uber’s China unit, both of which were merged into Didi.
China in April slapped a record 18 billion yuan ($2.78 billion) fine on Alibaba Group, after an anti-monopoly probe found the e-commerce giant had abused its dominant market position since 2015.
The fine, about 4% of Alibaba’s 2019 domestic revenue, was levied after SAMR determined that Alibaba had abused its market dominance by preventing merchants from using other online e-commerce platforms, a practice known as “choosing one from two”.
The regulator also ordered Alibaba to make “thorough rectifications” to strengthen internal compliance and protect consumer rights.
China torpedoed the $37 billion listing of Alibaba fintech affiliate Ant Group in November after company founder Jack Ma said during a now-infamous October speech that the country’s financial and regulatory system stifled innovation.
The dramatic suspension of the IPO came as Beijing grew increasingly uncomfortable with banks using third-party technology platforms such as Ant for underwriting loans amid fears of rising defaults and a deterioration in asset quality.
Chinese regulators, led by the central bank, subsequently imposed a sweeping restructuring on the fintech giant, forcing it to turn itself into a financial holding firm, and to cut links between its payments app Alipay and its other businesses.
The social media and gaming giant could face a penalty of at least 10 billion yuan for not properly reporting past acquisitions and investments for antitrust reviews, and for anticompetitive practices in some of its businesses, SAMR has informed the company, Reuters reported in April.
The regulator also told the tech giant that Tencent Music should give up exclusive music streaming rights, and may even be forced to sell the acquired Kuwo and Kugou music apps, the Reuters report said.
SAMR also said in December it was looking into a merger between game livestreaming firms Huya Inc and DouYu International announced in October. Tencent is a major investor in both and the Chinese tech giant had pushed the deal.
In April, SAMR launched an antitrust investigation into food delivery giant Meituan, also focused on the “choosing one from two” practice.
Meituan, which competes with Alibaba-backed Ele.me among others, had an estimated 68.2% of China’s food delivery market in the second quarter of 2020, according to Trustdata.
In March, Meituan was among five backers or owners of community group-buying platforms fined by SAMR over “improper pricing behaviour” related to subsidies.
SAMR has been formally investigating whether KE Holdings , China’s biggest real estate broker, forces real estate developers to list housing information only on its platforms, another probe into the “choosing one from two” practice, Reuters reported in May.
KE Holdings, backed by Tencent and SoftBank Group Corp , was among dozens of internet companies warned in April by SAMR against any abuse of market dominance.
China’s market regulator said in February it fined online discount retailer Vipshop Holdings Ltd 3 million yuan for unfair competition.
An investigation found that from August through December last year, Vipshop had developed a system to obtain information on brands it and competitors sold which gave Vipshop a competitive advantage. ($1 = 6.4696 Chinese yuan renminbi) (Reporting by Yingzhi Yang; Editing by Muralikumar Anantharaman)