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April 13, 2021updated 19 Apr 2021 3:43pm

Beijing bruises China’s tech titans in battle for power

By Robert Scammell

There was once a time when China’s tech titans seemed untouchable. That picture is rapidly changing as the government of the People’s Republic of China steps up punitive actions against companies once considered the crown jewels of the country’s thriving technology industry.

Tencent, Baidu, ByteDance and Didi Chuxing are among a dozen companies recently hit with fines by Chinese antitrust regulators as they look to untangle and scrutinise previous acquisitions.

But the most severe backlash has been reserved for ecommerce powerhouse Alibaba and affiliated financial services company Ant Group, the latter of which owns Alipay – China’s largest digital payment platform.

On Monday Alibaba accepted a $2.8bn fine from China’s competition watchdog, the State Administration for Market Regulation (SAMR), after it determined the company had abused its market position.

Days later, regulators forced Ant Group to restructure its business so that it acts more like a traditional bank and is subjected to more robust regulatory oversight.

The common denominator? Jack Ma, the outspoken billionaire entrepreneur behind Ant Group and Alibaba who is accustomed to brushing shoulders with movie stars and performing on stage with Chinese pop divas.

The 56-year-old has a history of bold statements that subtly took aim at the Chinese government. But during a summit in Shanghai on 24 October Ma appears to have gone too far – at least where China’s ruling party was concerned.

He told leading financial, regulatory and political figures that regulation was stifling innovation and said Chinese banks operated with a “pawnshop” mentality.

A month later, reeling Chinese regulators torpedoed the hotly anticipated public listing of Ma’s Ant Group, just days before it was on course to become the largest IPO in history.

Nobody outside the upper echelons of the Chinese state can say for certain whether a crackdown on Big Tech was already coming, or whether Ma’s comments were a deciding factor. But the message is clear: the Chinese Communist Party (CCP) is reminding the tech titans who is really in charge.

“The Chinese government is increasingly concerned by the tech industry’s power and it’s defining new antitrust rules to be able to exert more control over it,” explains Laura Petrone, thematic research senior analyst at GlobalData. “Chinese regulators are also seizing the momentum over regulating Big Tech worldwide and today’s broad consensus around antitrust issues.”

The Ma effect

The cancellation of Ant Group’s IPO sent ripples through the rest of China’s tech ecosystem. In March, the SAMR flexed its regulatory muscles with $77,000 fines against Tencent and Baidu – small change – and similar penalties for a string of other tech players.

And while Alibaba’s $2.8bn is record-breaking, this is just 4% of Alibaba’s 2019 domestic revenue – a fact which in itself emphasises the scale and power of China’s tech titans.

Power, it seems, is what the current backlash ultimately boils down to.

China’s internet ecosystem, with its infamous ‘Great Firewall of China’, is far from the open ecosystem it is in much of the Western world. In some ways it has become an extension of the Chinese state’s grip on power, banning citizens from accessing certain information and suppressing dissenting voices.

But in the modern internet landscape data is king – and China’s tech titans are increasingly the gatekeepers to the king’s court. This is in large part thanks to all-in-one ‘super-apps’ such as WeChat, which collect troves of data on consumers in many aspects of their day-to-day lives, from the taxi journeys they take to the books they buy online. More than 730 million people used Alipay each month – roughly half of China’s population.

“The Chinese authorities fear that tech firms like Alibaba, Tencent and Meituan are gaining control over ever-larger swathes of the economy,” says Petrone. “In particular, these companies have become dominant players in the digital payments sector. Companies like Tencent have easily expanded into adjacent fields like lending and wealth management, threatening the traditional banking sector, which is under the CCP’s control.”

Alibaba steps in line

The response from Alibaba appears to be one of contrition. During an investor call on Monday, Alibaba Group’s executive vice chairman Joe Tsai said: “We’re happy to get the matter behind us, but the tendency is that regulators will be keen to look at some of the areas where you might have unfair competition.”

He added: “With this penalty decision we’ve received good guidance on some of the specific issues under the anti-monopoly law.”

The tone of his remarks contrasts with the often more combative stance taken by US tech giants such as Amazon, Google, Facebook and Apple. These companies are also facing a fresh wave of regulatory scrutiny but according to Petrone, the main objective of these probes is to protect consumer rights and protect competition from monopolies.

“In China, the government wants, first of all, to launch a political message to private companies setting the boundaries for them to operate under the CCP’s oversight,” says Petrone.

Will China’s tech titan clampdown continue? Recent developments suggest it will. This week Reuters revealed that SAMR is bolstering its staff levels and resources, indicating this may be the new normal for China’s tech players.

Chinese regulators will also need to provide the right balance between asserting their dominance and ensuring its domestic tech firms can challenge the hegemony of Silicon Valley. Huawei, for example, has benefited from Chinese public subsidies that helped it become a dominant player in the telecoms industry, yet it now finds itself ostracised among Western governments.

If the CCP goes too far in asserting its dominance, it may find itself handicapping itself in the US-China tech race.

“Of course, the government wants its national champions to thrive,” says Petrone, “but provided that they show loyalty and serve the national interest first.”