China targets tech firms in proposed overhaul of monopolies law

Draft revisions to anti-monopoly empower regulators to look at the impact internet companies have on online retail market

A Tencent booth at the Global Mobile Internet conference in Beijing. China has proposed revisions to its anti-monopoly law to allow regulators oversight of an online retail market in which Tencent andShow more

China has included the internet industry for the first time in an envisioned overhaul of its anti-monopoly laws, potentially giving regulators the power to rein in the country’s increasingly dominant technology giants.

Proposed revisions to the Anti-Monopoly Law, published last week, included language that accords regulators the responsibility to monitor the impact that internet companies have on the online sector, their scale and their ability to control products and services.

More broadly, companies found to have violated the law could be fined as much as 10 per cent of their revenue or a maximum of 50 million yuan (Dh26.4m) if they do not generate significant sales, according to the revised rules posted on the State Administration for Market Regulation’s website. The draft is currently open to public consultation.

The proposal follows heightened scrutiny of technology companies worldwide, as regulators investigate the extent to which internet giants from Facebook to Google can use valuable data to shore up their dominance. China itself is home to some of the world’s largest corporations, from e-commerce giant Alibaba Group and WeChat operator Tencent Holdings to up-and-comers such as ByteDance, which owns the TikTok social network.

A handful of domestic companies control swathes of online businesses from retail to social media, and their backing is often key to the success of newly emergent start-ups. It is unclear what other punishments Beijing’s regulators could mete out, but the industry’s leaders have drawn criticism for years for over-aggressive competitive tactics.

“Online platforms and consumers don’t have equal bargaining powers, and platforms will tend to abuse their dominant positions in the market,” said Zhan Hao, managing partner with Anjie Law Firm in Beijing. “Over the past years, China has encouraged innovation and development in the internet sector, going through a phase where regulators are more tolerant. There will be closer scrutiny going forward.”

China’s authorities took two decades to draft its Anti-Monopoly Law before enacting it in 2008. Foreign governments and businesses have long urged China to bring forward clear laws and procedures for enforcing them. But critics say the antitrust crackdown is being enforced unevenly, and that the business environment for overseas companies is worsening as a result. US President Donald Trump is now waging a campaign to get Beijing to open more sectors to foreign participation.

The latest revisions appear to be targeted at domestic operators, Susan Ning, antitrust partner at King & Wood, wrote in a report published on the law firm’s social media account. “This definitely casts a spotlight on the internet sector and how it does business,” Ms Ning wrote. “As we understand it, singling out the internet sector signals a newfound focus on the industry’s unique characteristics and is intended to ensure room for its expansion. Also, it signals a renewed focus on the internet, and on internet platforms in particular.”

JD.com, for instance, has accused bigger rival Alibaba of unfairly locking in exclusive agreements with merchants, which Alibaba has denied. Regulators have investigated the legality of ride-hailing leader Didi Chuxing’s acquisition of Uber Technologies’s Chinese business. And Tencent’s WeChat dominates many aspects of daily Chinese life from payments to gaming, though upstart ByteDance has in recent years begun to eat into its advertising business through video service Douyin and news platform Toutiao.

The proposed revisions are an attempt to update laws for the internet era, to adapt to an industry where market dominance isn’t always easily quantifiable. In the past, China used revenue or market share as metrics to determine whether a company held a monopoly. But those precepts may not apply to internet companies, which sometimes control valuable information yet don’t generate a lot of cash because they haven’t monetised that data.

“The government has for a long time wanted to regulate the internet sector. It’s part of a growing trend internationally as well,” said Ma Chen, a Beijing-based partner at Han Kun Law Offices who specialises in antitrust law. “The new economy companies are having a great impact so the government wants to make sure anti-monopoly laws are keeping up with the times.”