Chinese authorities initiated a regulatory storm against the country’s Big Tech firms in late 2020 out of concerns that the country’s major internet platforms were becoming too large and powerful.
Beijing’s discipline of the tech sector wiped out trillions of dollars in market value from Chinese tech companies, kneecapped one of the most dynamic sectors in the world’s second largest economy, and accelerated US-China decoupling. As a result, China’s large tech companies, which once rivalled their US counterparts in size, are now much smaller.
Here are the major milestones of China’s Big Tech crackdown that kicked off 32 months ago.
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An initial public offering from Ant Group, which would have been the world’s largest on record, was called off at the last minute in Shanghai and Hong Kong, sending shock waves through the global investment community. The IPO was quashed after a controversial speech the previous month from Alibaba Group Holding co-founder Jack Ma. Ant is the fintech affiliate of Alibaba, owner of the South China Morning Post.
China’s financial watchdogs rushed to bring Ant’s operations under the purview of conventional financial regulations, forcing the tech giant to undergo internal restructuring.
Later in the month, Chinese authorities summoned 27 major internet companies, including Tencent Holdings, food delivery giant Meituan, as well as TikTok owner ByteDance and Alibaba, lecturing them to correct alleged monopolistic practices, unfair competition and counterfeiting. China’s antitrust watchdog, the State Administration for Market Regulation (SAMR), rushed an antitrust guideline to rein in internet-based monopolies.
China’s top leaders highlighted at the annual Central Economic Work Conference that the country must prevent the “disorderly expansion of capital”, a goal used to curb the influence and size of Big Tech. The message to investors and entrepreneurs was that the “barbaric” growth of China’s internet industry was over.
On Christmas Eve, the SAMR announced that it had officially launched an antitrust investigation into Alibaba.
In a speech at the Bund Summit in Shanghai on October 24, 2020, Alibaba co-founder Jack Ma Yun compared Chinese banks to pawnshops. Photo: WEIBO alt=In a speech at the Bund Summit in Shanghai on October 24, 2020, Alibaba co-founder Jack Ma Yun compared Chinese banks to pawnshops. Photo: WEIBO>
China’s market regulator fined Alibaba a record 18.2 billion yuan (US$2.8 billion), equivalent to 4 per cent of its 2019 revenue, for abusing “its dominant market position in China’s online retail platform service market since 2015”.
The antitrust authority then summoned 34 technology companies, including Alibaba, Tencent and Meituan, for a meeting and demanded they “pay full heed to the warning of Alibaba’s case”.
China’s market regulator started to look into merger cases dating back to the early 2000s and fined Big Tech firms for failing to report certain deals for an antitrust review. It issued at least 22 fines of 500,000 yuan each – the maximum penalty allowed under China’s anti-monopoly law – against Alibaba, Tencent and ride-hailing giant Didi Global.
As a result, Big Tech mergers and acquisitions plummeted, and companies started to divest previous investments to downsize their balance sheets.
China’s powerful internet regulator, the Cyberspace Administration of China (CAC), also launched an unprecedented probe into Didi for violations of data and national security, two days after it launched a US$4.4 billion IPO on the New York Stock Exchange. The move opened a new front in the Big Tech crackdown, bringing Chinese IPOs in the US to a halt.
Didi was ordered to stop registering new users on its main app. Two months later, China’s Data Security Law came into force.
Signage at the Didi Global offices in Hangzhou on August 2, 2022. Photo: Bloomberg alt=Signage at the Didi Global offices in Hangzhou on August 2, 2022. Photo: Bloomberg>
China fined Meituan 3.4 billion yuan for abusing its dominant market position using what it referred to as a “pick one from two” practice that forced merchants into exclusive deals. The fine was equivalent to about 3 per cent of Meituan’s total domestic revenue of 114.7 billion yuan in 2020.
China’s regulatory storm started to ebb when authorities released a guideline promoting the “healthy and sustainable development” of the platform economy. It reaffirmed Beijing’s commitment to cracking down on monopolies, unfair competition and abuse of data, but the document also struck a more positive tone by recognising the role Big Tech firms play in the economy and encouraging their development.
Vice-Premier Liu He told a few tech executives that the government would support the development of the sector and public listings, giving tech stocks a shot in the arm and raising hopes that the worst of Beijing’s regulatory scrutiny was over.
The CAC imposed a fine of 8 billion yuan on Didi Global for data violations, ending the year-long investigation.
President Xi Jinping addressed the Central Economic Work Conference in Beijing. The meeting concluded that internet platforms will be supported to “fully display their capabilities” in boosting the economy, job creation and international competition.
Didi Global said it had resumed new user registrations for its ride-hailing app, after getting approval from the CAC.
The same month, Ant Group and 13 other platform companies said they “have basically completed business rectification” under the guidance and supervision of financial regulators after being ordered to address various compliance issues in late 2020.
Two-and-a-half years after the government killed Ant Group’s IPO, financial regulators fined the fintech giant a total of 7.1 billion yuan for breaking rules related to “corporate governance and financial consumer protection”. The move was seen by industry experts as the end of China’s crackdown on the tech sector.
Chinese Premier Li Qiang later offered support to major tech companies at a symposium while China’s powerful economic planning agency praised Alibaba, Tencent and Meituan for their contributions to the country’s growth and technological progress.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP’s Facebook and Twitter pages. Copyright © 2023 South China Morning Post Publishers Ltd. All rights reserved.
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