China’s market regulator on Tuesday proposed new rules targeting anticompetitive behavior to include internet companies, which have largely fallen outside of the scope of existing antitrust laws.
What’s changed: The new rules widened the reach of certain antitrust terms that previously only applied to the physical economy. One example was the definition of “relative market,” in which players may pose a “dominant position” if they control more than 50% of the market and thus fell under the jurisdiction of China’s Anti-monopoly Law. The law came into effect in 2008.
- Legal experts have long criticized (in Chinese) the law because it was designed to regulate companies in traditional industries and in most cases did not apply to companies operating on the internet, an increasingly important segment of the country’s economy.
- The new rules expanded the parameters for determining market share to include factors such as transaction volume, user base, and page views.
- The rules will subject some of China’s biggest internet companies, such as e-commerce behemoth Alibaba, social media giant Tencent, food delivery platform Meituan, and ride-hailing app Didi Chuxing, to tougher regulations. China earlier this month halted an initial public offering for fintech giant Ant Group over regulatory concerns.
- The draft (in Chinese), which is under public review until the end of November, also requires the consideration of factors such as network effect as well as market players’ scale and ability to deal with data. A draft revision of the Anti-monopoly Law unveiled in January, announced by China’s State Administration for Market Regulation (SAMR), included similar provisions. The SAMR also drafted the rules announced on Tuesday.
- The draft guidelines say that companies which force merchants to “choose one of two” online marketplaces on which to sell their products are engaging in anti-competitive behavior.
- Platforms that price their products or services differently according to customer purchasing power, consumption history, or user preference is monopolistic behavior, according to the draft rules.
Tech shares tumble: Share prices for Chinese tech companies tumbled Tuesday and Wednesday on news of the guidelines. Companies including Alibaba, Tencent, and Meituan saw their share prices dive at least 8% over the two days. The Hang Seng Tech Index in Hong Kong, where many Chinese tech stocks list, fell by more than 5% on Tuesday.
- Bloomberg estimated that the shares slump wiped out more than $200 billion of value from Chinese tech companies.
Context: Before China’s top antitrust regulator proposed revisions to the antitrust law in January and the draft rules on Tuesday, the SAMR was already working to curb potential antitrust violations from internet companies.
- The agency launched in January 2019 what is known as China’s first “internet antitrust investigation” into Tencent Music Entertainment’s dealings with the world’s three largest record labels after rivals complained that Tencent paid excessive fees for the initial rights and then passed those costs along to competitors.
- However, the SAMR decided to suspend the probe in January, according to Bloomberg. The regulator didn’t disclose how far the investigation went and why it was terminated, but it came after Tencent Music reached a music licensing deal with Bytedance, a Beijing-based startup that runs Tiktok, in late 2019.