On March 12, China’s top antitrust regulator said it had issued fines to 12 Chinese companies over 10 investment deals in the internet sector that were in violation of the Anti-Monopoly Law. The State Administration for Market Regulation (SAMR) disclosed the 20 companies that were involved in those deals. 

Nearly all of the companies mentioned were Chinese companies considered “big tech,” or their subsidiaries. They include Alibaba, Tencent, Didi Chuxing, Baidu, JD.com, ByteDance, Meituan, and Suning. Those firms were fined for failing to report merger and acquisition (M&A) deals in advance, which is considered a violation of China’s antitrust law.

Bottom line: The penalties—RMB 500,000 (around $76,095) each—were trivial for companies of such size. But the regulator’s move was a warning: China’s tech antitrust campaign, which began in November, has not ended and will only grow in scope and severity.

A brief timeline

  • August 2016: Chinese regulators open an investigation into the merger deal between Chinese ride-hailing platform Didi Chuxing’s merger with US rival Uber. The investigation appeared to be unofficially suspended by the time Uber filed for a public listing in April 2019.
  • January 2019: SAMR launches an antitrust probe into Tencent Music Entertainment’s dealings with the world’s three largest record labels. A year later, the regulator decided to suspend the investigation.
  • January 2020: SAMR proposes an overhaul of China’s 2008 Anti-Monopoly Law and introduces a set of antitrust regulations tailored for the internet industry. The revision of the law is in the pipeline to be approved by China’s legislature.
  • November 2020: The Shanghai technology bourse halts an initial public offering for Alibaba’s Ant Group, citing “changes in the regulatory environment.”
  • November 2020: SAMR proposes new guidelines targeting anticompetitive behavior to include internet companies. The new rules widen the reach of certain antitrust terms that previously only applied to the physical economy.
  • December 2020: SAMR imposes antitrust-related fines on three acquisition deals involving Alibaba, Tencent, and SF Express, a move that legal experts described as the country’s first batch of antitrust enforcements against tech firms.
  • December 2020: SAMR announces an anti-monopoly investigation targeting Alibaba.
  • February 2021: SAMR’s guidelines targeting internet companies come into effect.
  • February 2021: SAMR imposes a RMB 3 million penalty on the operator of Chinese flash sale online retailer Vipshop.com for unfair competition.
  • March 2021: Reuters reports that SAMR is looking into Tencent’s WeChat for monopolistic practices and how the popular messaging app had possibly squeezed smaller competitors.
  • March 2021: SAMR issues fines to companies including Tencent, Didi Chuxing, and Baidu over 10 investment deals in the internet sector that were in violation of the Anti-Monopoly Law.

Most fines are about unreported deals: SAMR issued three rounds of fines to tech companies over anti-competitive practices. Except for the Vipshop case, the fines were all related to a clause in the 2008 Anti-Monopoly Law that requires companies to report investment or acquisition and merger deals that could create a “market dominant player,” or one that will hold more than 50% share of its relevant market. 

  • In those cases, firms were fined the maximum amount allowed by the existing legal framework, or RMB 500,000 each.
  • SAMR’s overhaul of the Anti-Monopoly Law will allow regulators to issue fines up to 10% of the offending company’s annual revenue.
  • Most deals in question can be traced years back. For example, Baidu’s 2014 acquisition of smart home equipment maker Ainemo was fined in the March action.
  • SAMR hasn’t, so far, asked any of the companies to reverse the deals in question. But lawyers we talked to said the companies may be asked to do so as SAMR steps up enforcement.

SAMR is waiting for the law to catch up: The regulator is pushing for an overhaul of China’s Anti-Monopoly Law and other regulations—its punitive concentration on unreported M&A deals is evidence that it may lack the essential legal vehicles to rein in internet companies. It also may explain why the regulator dropped investigations into the Didi-Uber merger deal and the Tencent Music Entertainment case.

  • China on Feb. 7 formalized SAMR’s internet antitrust guidelines and, on Feb. 8, the regulator used it to fine Vipshop over unfair competition behaviors identified by the new guidelines.
  • The guidelines, dubbed the Antitrust Guidelines for the Platform Economy, specifically targets internet companies. It forbids internet platforms from forcing merchants into exclusivity deals, offering different prices based on user data, and using algorithms to manipulate the market.
  • Vipshop was fined based on clauses about exclusivity deals, according to SAMR.
  • SAMR’s proposed amendment to China’s Anti-Monopoly Law also asks authorities to consider factors such as network effects—services that rise in value as their user bases grow—as well as company size and data assets when determining whether a company is a dominant player. But the amendment—different from SAMR’s guidelines which were active starting in February—is not effective yet. China’s legislature said in March that it would review and approve the revision “this year.”

What’s next? Growing quickly by buying smaller competitors is a common practice in China’s tech industry. Giants created by merger deals include Meituan, which merged with rival Dianping in 2015; and classified advertising site 58.com, which merged with rival Ganji in the same year. 

  • Didi Chuxing, China’s largest ride-hailing platform, also established its dominance in the market through the 2016 deal with Uber.
  • The problem is that companies are usually not aware that they may be obligated to report those deals for antitrust review. As China steps up anti-competitive regulations in tech, M&A deals will be more and more subject to market regulator review, potentially stopping tech companies from scaling in size by merging with rivals.

The worst is yet to come: While China’s antitrust regulators have been taking relatively mild measures against tech firms, signs show that more serious moves are on the horizon.

  • In September, Tencent offered to take NYSE-listed search engine Sogou private in a $3.5 billion deal as its sole owner. In December, Reuters reported that SAMR wanted to “make an example” using the deal and is “planning a thorough review that could mean the deal may miss a July 2021 completion deadline.”

However, existing monopolies may not have to worry about being broken up. “There are no such provisions for breaking up monopolies in China’s antitrust law,” Deng Zhisong, an antitrust lawyer at Dentons law firm in Beijing, told TechNode in December. What the regulator can do is issue steep penalties and veto deals that don’t pass muster. 

Writing about semiconductors and telecommunications.