China’s regulatory blitzkrieg in perspective

27/03/2022

China’s full frontal assault on its tech giants cannot be written off as another example of autocratic paranoia. International anti-trust action against global techbehemoths is too important.

On April 10th of last year, China’s State Administration for Market Regulation (SAMR) kicked off a regulatory assault on China’s tech companies, by slapping a fine of RMB 18.228 billion on ecommerce giant Alibaba. The dominos then began to fall as Baidu, Tencent, Xiaomi, and most recently JD.com all fell foul of SAMR sanctions. In the popular western consciousness, this crackdown has been seen within the context of a paranoid authoritarian political system, scared of the potential consequences these unregulated tech giants could have on the party’s legitimacy. While maybe part of the picture, we shouldn’t let the current state of the worlds international relations, stop us from acknowledging that anti-trust action like this is something the UK needs desperately.

A year after the storming of the Alibaba offices, as the war in Ukraine rumbles on, an increasing chorus of western businesses, commentators and politicians have been pushing for the economic sanctions levelled at Russia to include China too, for its close ties to Putin’s regime, and refusal to condemn his invasion. The basis of these calls have strong grounds. As covered in last weeks piece (scroll down), Russia and China declared a ‘no limits partnership’ in February this year, and US intelligence reports found Chinese officials to have had prior knowledge of Russia’s plans to invade Ukraine. However, as it did at the height of the trade war in 2018, this tension, along with a sharp dip in Chinese markets this week, has renewed some pretty ‘red scare’ era assessments of China regulating its tech sector.

A lot of these assessments see the regulatory blitzkrieg as caused by the same legitimacy concerns that prompted inaction on Russia’s invasion of Ukraine, the Uyghur genocide, and other CCP atrocities. Peggy Hollinger argues the current regulations are the tip of the iceberg: “The risks of doing business in China have been growing for some time, with the Uyghurs, Hong Kong ect, forcing companies to think about contingency plans. Speaking to Jeremy Goldkorn of SupChina, veteran tech investor Rui Ma, when asked what seemed to have spooked investors, also replied “a better question is what hasn’t spooked investors. The ADRs (Chinese companies listed on the U.S. stock markets), which contains a lot of Chinese internet companies have been declining pretty steadily over the last year. Covid spiking, regulators fining Tencent, Ukraine, all these are good places to start.” Max Zenglein, Chief economist at the Mercator Institute for China Studies is another analyst who sees Chinese regulations as exposing foreign companies to ‘political risk,’ as opposed to purely financial problems: “In the past year… companies have been scrambling to find a solution to maintaining their economic interests in China while realising they are exposing themselves to political risk.”

However, the behaviour of China’s major tech firms before the crackdown, suggest regulatory change is not rooted in authoritarian paranoia. Regulating multinationals, is not an isolated issue reflecting the unresolvable competing interests of autocrats and tech tycoons, but an international issue causing heated debate in the EU and US. Amazon is just one company in the west, whose unfair control over pricing, and access to financial and technological resources, have led to a weak bargaining position for independent sellers, a monopoly in the ecommerce market, as well as an increasing influence in the physical market also. Alibaba, is guilty of all these things, but to an arguably greater degree, due to the speed at which China’s internet economy exploded in the late noughties. The SAMR found Alibaba to have abused its dominance over the ecommerce market by devising a ‘choose one from two’ strategy, aimed at effectively forcing sellers to rely exclusively on its platform. Some traders on Alibaba’s platform were contractually obliged to stay off competing platforms, with others threaten with loosing promotional privileges and visibility rights.

In the niche world of Antitrust law, experts have heaped praise on SAMR’s decision. Largely because it resonates with battles ongoing in the west, against silicon valley tech firms, their abusive labour relations, and their anti-competitive monopolies. The point being here, is we don’t need to praise the CCP to recognise that regulations similar to those sweeping China, are desperately needed here in the UK too. We should try our best to stop the polarised state of global politics leading us to partisan conclusions that don’t make sense. Just as Amazon are not the good guys because they are American, anti-trust laws don’t make China ‘uninvestible’ because they were enacted by the CCP.