News analysis

Big changes afoot for China's tech industry as govt cracks the whip

Firms offering financial services, especially, are being reined in and subject to greater scrutiny

BEIJING • Chinese regulators this past week fined 11 technology companies, including Internet giant Tencent, for violating antitrust laws after they failed to get regulatory approval for past acquisitions or joint-venture deals.

Last Thursday, 13 companies, including Tencent, Didi and TikTok parent ByteDance, were summoned to a regulatory meeting and told to adhere to tighter regulations of their financial arms.

It came after an announcement last Monday that delivery giant Meituan was under probe for monopolistic practices such as forcing retailers to sign exclusive sales contracts, with regulators using language similar to when they announced an investigation into Alibaba last December.

Coming on the back of a record 18.2 billion yuan (S$3.7 billion) fine for Alibaba, the latest moves signal a seismic shift in the way the industry will operate, sending a clear message that the days of lax oversight are over.

While a hands-off approach has allowed the industry to flourish, there are concerns that the firms, which are now thoroughly integrated into people's daily lives, could pose a challenge to existing systems through their monopoly of various sectors.

The recent moves against tech giants are twofold: Those running financial services are being reined in, while those that deal with consumers are also being told to clean up their act.

Beijing has made anti-monopoly work one of its economic targets of this year, but regulators have exponentially intensified scrutiny of Internet companies in the past two months; since March, tech executives have been summoned to regulatory meetings at least thrice and told to adhere more closely to market regulations.

Much of this stems from concerns about tech firms moving into finance, offering unsecured loans and financial products to entrepreneurs and the public, yet not being subject to the same level of regulation and scrutiny as traditional financial institutions.

Many of these tech giants leverage their immense trove of user data, ranging from chat habits in Tencent's WeChat to transport patterns from ride-hailing app Didi.

Regulators have said they will curb the "reckless push" of tech companies into finance.

Last Thursday's meeting involved several financial watchdogs, including the central bank and the State Administration for Market Regulation. Among the 13 companies summoned were a food delivery platform (Meituan), an e-commerce platform (JD.com) and a travel booking website (Trip.com). All 13 have set up financial arms that provide loans and financial products.

"The meeting underscored that the authorities will extend their recent crackdown on Ant Group to other big fintech platforms and treat these players as formal financial institutions - with stricter requirements - rather than as firms," political risk consultancy Eurasia Group wrote in a research note.

This is aimed at limiting the risk posed by tech companies and their lending practices, which Beijing fears could upset the country's financial system.

"The main concern is (about these firms) pushing people to borrow more than they need or can afford to pay back," said Mr Martin Chorzempa, a senior fellow at the Peterson Institute For International Economics who specialises in China's economy.

While companies like Alibaba - which extends loans to small businesses - help generate economic growth, personal loans are a slightly more prickly issue.

"Consumer credit is more controversial because in many cases it just leads people to buy more things earlier, but not necessarily to be more productive," Mr Chorzempa told The Sunday Times.

For several years now, regulators have felt that companies running "super apps" like WeChat and Alipay hold too much sway over people's daily lives: The apps are used for nearly everything - from utility payments to transport.

WeChat Pay and Alipay also have a virtual duopoly over e-payments in China, giving them an overwhelming advantage over their competitors.

"The Ant IPO just crystallised that view and broadened the attention that top political leaders paid to this and related issues," Mr Chorzempa said, referring to Alibaba's fintech affiliate Ant Group's planned initial public offering last year.

Regulators torpedoed the attempted listing before putting the tech company under investigation. And last month, they outlined an overhaul of Ant which will drastically revamp its business and lead to it being supervised more like a bank.

The authorities are also taking aim at the live-streaming sector, a vital part of e-commerce in pandemic-era China. Regulators have released a series of guidelines to prohibit false advertising and sales of low-quality goods.

With the coronavirus pandemic keeping people at home last year, many consumers turned to e-commerce live streams, a cross between infommercials and variety programmes.

Estimates from Shanghai market research firm iResearch last year said the market could be worth up to 1.2 trillion yuan.

Previously, platforms hosting live streams, such as the New York-listed Bilibili, would self-regulate by, for example, having algorithms that stop a feed when it detects images that appear to be promoting alcohol consumption.

According to market research provider Euromonitor International, China is the world's top live-streaming market, with 31.7 per cent of Internet users engaging in some form of it.

An executive of a tech company that runs a food delivery platform said the various moves are intended to push firms into action.

She said that the Chinese government "is really holding our feet over the fire now and we have no choice but to comply. There's a general sense among the various firms that big changes are coming, and we might not like it".

A version of this article appeared in the print edition of The Sunday Times on May 02, 2021, with the headline 'Big changes afoot for China's tech industry as govt cracks the whip'. Subscribe