A homestay runner introduces her business through short video-sharing platform Douyin in Ji'an, Jiangxi Province in east China, on October 21, 2020 (XINHUA)
The State Administration for Market Regulation (SAMR) has recently imposed administrative penalties on 12 companies conducting 10 deals, signaling strengthening of anti-monopoly regulation on domestic firms, especially Internet-based platforms. The penalties were announced on March 12, the day after the close of China's annual legislative session, during which proposals to amend the Anti-Monopoly Law were contemplated.
Eight of the cases concern equity acquisition, including Internet company Tencent, which acquired online education firm Yuanfudao, and Baidu, which acquired Ainemo Inc., a maker of consumer electronics. Ride-hailing company Didi Chuxing and TAL Education Group were also fined for illegal concentration of business operations.
According to Xiao Huilin, Deputy Secretary General of the China Association of International Trade, monopolies are defined as enterprises manipulating the market from an advantageous position to maximize profits. With the emergence of the digital economy, monopolies have expanded to Internet-based companies, leading to unfair competition and profiteering practices. Some enterprises monopolizing big data have even leaked private data of users for profits.
"The monopolies of Internet giants have a greater influence than those of conventional ones. They can easily squeeze the space for new startups and small and medium-sized enterprises and harm consumers' interests," Fang Xingdong, founder of Beijing-based technology think tank ChinaLabs, told China Business Journal. Fang stressed that increasing prices based on big data analyses of customers and forcing retailers to sign contracts with single online platforms have become notable problems.
On February 7, the State Council unveiled anti-trust guidelines for the platform economy. According to Pan Helin, Executive Director of the Digital Economy Academy at the Wuhan-based Zhongnan University of Economics and Law, more such rules and regulations need to be put in place to clamp down on the abuse of market dominance. "The regulations will not adversely affect the development of new modes of industry. They can help bolster confidence in the marketplace, boost small and medium-sized enterprises, and shore up technological innovation," he told Beijing Review.
In recent years, the government has stepped up efforts to enforce the Anti-Monopoly Law and introduce new regulations, particularly since the boom of online platforms that has been driven by COVID-19. According to data from the SAMR, a total of 108 monopoly-related cases were processed in 2020, with the value of fines reaching 391 million yuan ($60.1 million). The government has also introduced anti-monopoly guidelines for the automobile industry and intellectual property rights, and last year unveiled a draft for revising the current Anti-Monopoly Law, which went into effect in 2008.
In 2020, anti-monopoly punishments for pharmaceutical and Internet-based companies were launched with a special focus on providing benefit to small and medium-sized companies and consumers. The SAMR has also been conducting anti-monopoly investigations involving Republic of Korea-based electronics manufacturer Samsung and U.S. chemical giant DuPont.
In April last year, the administration imposed a fine of 325.5 million yuan ($50.1 million) on three suppliers that charged unfairly high prices to supply active pharmaceutical ingredients for injectable calcium gluconate. Simcere Pharmaceutical Group, a manufacturer and supplier of branded generic pharmaceuticals, was fined in January this year for refusing to make deals with downstream enterprises in order to achieve market dominance. Simcere's refusal to make the deals had led to the shutdown of the enterprises.
In late December 2020, the SAMR fined Internet company Alibaba and China Literature, a Tencent-backed digital reading platform, for not gaining approval before making acquisitions, which is against the Anti-Monopoly Law. It also imposed 3 million yuan ($458,791) in fines on online retailer Vipshop earlier this year. From August to December last year, Vipshop implemented a system to gain information about the brands on its website in order to limit those brands from opening stores on other platforms.
At the end of last year, Internet companies like Alibaba, Pinduoduo and JD.com made an attempt to enter the burgeoning group-buying sector, in which group discounts are negotiated on WeChat, Tencent's multifunctional app. Given concerns regarding the squeezing of individual vegetable vendors out of the market and possible monopolies in the long term, the practices were discouraged. On March 11, the SAMR announced punishment for five group-buying platforms for selling products at prices below costs and misleading consumers into buying products with fake discounts.
As anti-monopoly enforcement progresses, new issues are surfacing. Internet company ByteDance announced on February 2 that it had filed a case against Tencent for blocking links to ByteDance's platform, Douyin, from Tencent's platform, WeChat. Video-sharing platform Xigua has also lodged the same complaint. These cases, which are still under adjudication, are firsts in China.
According to Zhang Jiangli, an associate professor of law at Beijing Normal University, the case between ByteDance and Tencent may proceed along the same lines as previous cases against Microsoft, whereby Microsoft released some of its data to software and hardware producers as per the U.S. anti-monopoly law. While firms that have not gained market dominance can be allowed to undertake exclusive operations, the monopolies of large platforms with great numbers of users should be cautioned.
"Detailed analyses of the influences of monopolies on markets and on the experience of users need to be conducted before a judgement is made. It is necessary to identify whether [Tencent's blocking of links to some other platforms] is aimed at shielding users from spam or whether it was conducted to target possible competitors," Zhang told Beijing Review.
In January, the government pledged to build a high-standard market system, stressing its intention to improve law enforcement against monopolies and unfair competition. Targeting the platform economy, the guidelines issued in February further clarify that anti-monopoly regulations can be adopted to curb the abuse of market dominance by Internet firms, including unfair pricing, selling below cost, refusal to deal, tie-in sales and different prices targeting different consumer groups.
Fang said legislators need to move faster to improve anti-monopoly regulations for Internet companies, and strengthen law enforcement to regulate the digital sector and protect consumers' rights. Doing so may improve these companies' awareness of the possible harms caused by data monopoly and serve as a deterrent.
Improvement of supervision is not meant to constrain the development of Internet companies. As the government continues to deal with monopolies, it must also provide the sector with adequate space for growth, Zhao Ping, Vice President of the research institute at Beijing-based China Council for the Promotion of International Trade, told People's Daily.
Anti-monopoly laws are insufficient to address problems such as the abuse of pricing rights and leakage of private data. Legislation of e-commerce, pricing and the protection of consumers' rights also needs to be improved, Zhao said.
According to Pan, a key issue to be addressed is to formulate detailed standards for identifying Internet platforms' monopolistic practices. "While laws and regulations can help improve market fairness, enterprises in China need to redouble their efforts in innovation for stronger competitiveness," he added. BR
(Print Edition Title: Leveling the Field)
Copyedited by Garth Wilson
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