Chinese authorities call for the healthy development of platform economy

By Ma Miaomiao
0 Comment(s)Print E-mail Beijing Review, April 19, 2021
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A visitor walks past Alibaba's booth at the China Cross-Border E-Commerce Trade Fair in Fuzhou, Fujian Province, on March 18. [Photo/Xinhua]

The other shoe has dropped for e-commerce giant Alibaba Group. The State Administration for Market Regulation (SAMR) imposed an administrative penalty on April 10 for its monopolistic conduct of implementing an "exclusive dealing agreement."

The administration's investigation found the group had abused its dominant market position by prohibiting merchants on its platform from opening stores or participating in promotional activities on other competitive platforms since 2015. Additionally, Alibaba had exploited market forces, platform rules, data, algorithms and other technical means to ensure the full-fledged implementation of its agreement.

Alibaba was fined 18.23 billion yuan ($2.78 billion) for its violations of the Anti-Monopoly Law. This was close to three times China's previous record fine paid in 2015 by Qualcomm, the world's largest supplier of mobile chips. The number furthermore accounts for about 4 percent of Alibaba's sales in China in 2019.

"The case is a milestone and road sign in the field of China's platform economy," Shi Jianzhong, a professor at China University of Political Science and Law, told Economic Daily. "It also sends out a clear policy signal that while the government encourages the development of the digital economy, it will prevent and stop companies from hurting consumer interests, innovation and competition via their advantages in data, technologies and capital," he added.

Wake-up call 

Fang Chaoqiang, a lawyer with Beijing Yingke Law Firm, said to China Daily that "this indicates China's enhancement of actions against monopolistic behaviors. The platform-based Internet company is likely to develop under increasingly sound and clear regulatory rules."

Antitrust measures are legal tools used worldwide to restore fair and effective market competition, Sun Nanxiang, a researcher with the Institute of International Law, Chinese Academy of Social Sciences, echoed Fang.

For example, U.S. tech giants such as Apple and Amazon have been facing continuous scrutiny and fines from authorities as a result of their monopolistic behaviors. On the other side of the pond, then, the European Union fined Google with a hefty amount of 4.34 billion euros ($5.16 billion) in 2018 for squeezing out rivals.

"Anti-monopoly supervision over those tech giants didn't hit them at their core, but instead helped them to stimulate innovation and entrepreneurship and, at the same time, restore market confidence," Sun said.

Alibaba published an open letter to its customers and the public in the wake of the fine, saying the company accepts the penalty and will ensure its compliance. On April 12, Alibaba Chairman and CEO Daniel Zhang said during a conference call that the antitrust penalty imposed was unlikely to have a "material negative impact" on the company's business. And it would continue to introduce new measures to lower the entry barriers for and business costs of merchants on its platforms.

Strengthening supervision 

China's platform economy had expanded 200 percent to over $2.39 trillion as of early April 2020 from 2014, according to statistics from the China Academy of Information and Communications Technology under the Ministry of Industry and Information Technology (MIIT). The number of digital platform enterprises with a market value surpassing $1 billion had increased to 193 by late 2019.

Liu Xingliang, a member of the Telecommunications Economics Expert Committee of MIIT, said the antitrust investigation against Alibaba is meant to make the company and the sector at large to operate in compliance with the law, and respect the market, as well as peer companies and partners.

On March 15, the ninth meeting of the Central Committee for Financial and Economic Affairs took place, emphasizing the strategic role of the platform economy in fostering national competitiveness.

President Xi Jinping stressed at the meeting that "more should be done to improve the weaker links, create an environment for innovation, resolve critical problems, and promote a regulated, healthy and sustainable expansion of the platform economy."

On April 13, the SAMR, the Cyberspace Administration of China and the State Taxation Administration urged digital platform companies to self-inspect and stop any monopolistic activities that might hinder fair competition or hurt the interests of merchants and consumers alike.

These enterprises are required to pinpoint their individual problems within one month and correct them accordingly. Any enterprise found to partake in illegal behaviors after the stipulated rectification deadline will consequently be disciplined.

The authorities reiterated that the consolidation of supervision does not mean China has changed its attitude toward supporting and encouraging the online platform economy. One commentary in People's Daily read that to regulate is to ensure better development, and that the self-examination and self-rectification are intended to prevent minor misconducts from turning into larger missteps.

Bells are ringing 

The problems and risks in the sector have triggered public concern. For example, a number of large online marketplaces have been tracking and collecting their users' digital footprints to push advertisements touting excessive consumption, Dong Ximiao, chief analyst at Zhongguancun Internet Finance Institute in Beijing, told Xinhua News Agency. Those consumers with an already fragile credit might be lured into the traps of unsecured consumer loans, he added.

"Digital platforms improve the availability of financial products, but ignore their affordability, which could cause financial risks to pile up," he said.

Another collection of latent risks, ranging from data monopoly to deliberately circumventing regulation, has also aroused wide concern. According to the Qianzhan Industry Research Institute, a market research consultancy in Guangdong, Internet platforms were able to provide financial services as a third party; however, they didn't receive the sufficient corresponding supervision.

Dong said that as the current regulation is sector-specific, a number of gaps and loopholes for regulation exist and will persist. Supervision zooming in on cross-market, cross-sector and cross-domain financial risks needs further reinforcement.

The March meeting has made it clear that all financial activities involving platform enterprises must be placed under financial supervision to rectify the situation, while regulators need to consolidate their supervisory capabilities under an optimized management framework.

Ant Group, once Alibaba's financial arm, is to become a financial holding company, the activities of which shall receive stricter regulatory supervision in a move related to an antitrust probe.

According to a joint statement by four authorities including the People's Bank of China, the central bank, a plan for the complete overhaul of Ant Group was released on April 12. The plan provides a business revamp across five aspects on which the company should work to correct its behavior of unfair competition. 

The company was asked to remove its Alipay payment app from credit products and offer customers more payment options. It should end its monopoly on information collection, improve corporate governance, and reduce the balance of its money market fund Yu'ebao.

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