Friday, May 14, 2021

Big Tech crackdown in China: why some companies will benefit | E-commerce news

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Shenzhen, China – For Nicole Gao, Taobao Live is a lifeline.

The Shenzhen-based businesswoman uses the live streaming platform owned by Alibaba, the dominant e-commerce company in China, to sell beauty products such as face masks, skin firming creams and moisturizers to online audiences of up to 30,000 at a time.

It may sound like a lot, but his income of over $ 71,000 for the first two weeks of 2021 is less than half of what it was before the coronavirus pandemic a year ago. By the time, she had developed a lucrative business supplying over 200 spas across mainland China, Hong Kong, Singapore, and Indonesia. COVID-19 has closed many of them, and it’s still unclear when – or if – they will reopen.

Even though his business has collapsed, Gao has little choice but to continue using Taobao Live due to its huge reach, although the company takes a 3% share of its sales and charges a fee for it. service, which further reduces its margins.

Nevertheless, Gao has a fairly optimistic view of the situation.

“I think it’s appropriate that they charge us because we use their platform to promote our products, but of course we hope they can charge us less,” Gao, 33, said from his office, surrounded by skin care boxes. computer products and hardware.

“[I use] Taobao Live because it accurately connects us with the customers who need these kinds of products, ”she said.

But some other companies don’t accept Alibaba’s ability to dictate terms as much.

With its digital platforms Taobao and Tmall, Alibaba has grown into the world’s largest retail and e-commerce company.

Alibaba controls nearly two-thirds of China’s online retail market [File: Qilai Shen/Bloomberg]

In China, it occupies 62% of the country’s online retail market, according to investment firm Daiwa Capital Markets. Its closest competitor, JD.com, controls around 20%. Alibaba’s 750 million active users are more than double the number of US e-commerce giant Amazon, which claims to have more than 300 million active users.

Alibaba’s growth has been tremendous. For example, Taobao Live’s gross merchandise value, a measure of sales, has grown by around 150% per year for three years, Alibaba said in a report last March.

Where the giants roam

This kind of growth – and market dominance – of digital conglomerates like Alibaba has been followed by a sudden crackdown from Chinese regulators who fear their size could lead to less choice for consumers and small businesses. such as Gao, or worse, destabilizes the Chinese financial system. and economy.

The first sign of Beijing’s mistrust of the rise of e-commerce and fintech giants came shortly after Alibaba’s flamboyant billionaire founder Jack Ma delivered a speech in Shanghai on the 24th. October in which he criticized Chinese financial regulators for not being innovative enough.

As he spoke, his fintech company, Ant Group, was gearing up for what was to be an initial public offering (IPO) to raise around $ 37 billion, the largest ever in the world.

On November 3, 10 days after his Shanghai speech, Chinese regulators blocked the IPO, shocking investors around the world and causing stock prices to plummet.

Authorities have since called for an overhaul of Ant’s business and opened an antitrust investigation into Alibaba. They also published a draft list of new antitrust rules aimed at curbing the monopoly behavior of giant internet platforms, covering everything from e-commerce to food delivery and more.

Ma remained silent after her speech and was only seen in public on January 20, this time in a short, somewhat more muted online address to teachers on philanthropy.

Although President Xi Jinping’s government has not explained what led to the draft rules, the move is likely to affect some of the biggest internet companies in China, including e-commerce giants Alibaba, JD.com and Pinduoduo, as well as the Meituan food delivery platform. , and social media and gaming giant Tencent, among others.

Alibaba and Tencent dominate the growing ecosystem of technology platforms in China that allow users to chat with friends and family, transfer money, shop online, take out loans, order money. car, stream music and movies, play online games and much more.

[Bloomberg]

Some of the things these companies have been accused of doing include mandatory collection of user data, treating customers differently based on their spending habits, and setting prices based on algorithms that favor new users.

One of the most egregious examples of so-called twist of arms by tech companies involves a ‘choose one of the two’ tactic, in which vendors – usually small businesses – are forced to choose between Alibaba and platforms. – electronic commerce forms such as Pinduoduo, in which Tencent is a shareholder.

While many companies, such as beauty vendor Gao, accept the status quo, one company has decided to take Alibaba head on. Microwave maker Galanz sued the e-commerce giant for abusing its dominant position in the market in October 2019, but then settled the case last June.

When asked to comment on Beijing’s attempts to clamp down on tech giants, an Alibaba spokesperson pointed to Al Jazeera a statement the company made on December 24, saying, “Today, Alibaba Group has received a notification from the State Administration for Market Regulation that an investigation has been initiated in the company in accordance with the Antimonopoly Law. Alibaba will actively cooperate with regulators on the investigation. “

Referring to the Beijing Internet Rules Draft, Pinduoduo told Al Jazeera in an emailed statement, “Basically, the spirit of the document is focused on fair competition and the promotion of innovation, and our principle of being ‘more open’ is very much in line with this.

Consumer control

Some analysts say they are not surprised that Ma’s internet empire has finally come under such intense regulatory scrutiny, especially since they are surprised that regulators have taken so long to do so.

A recording of a live broadcast of Jack Ma speaking to teachers at an annual event on January 20 after months out of public view [Justin Chin/Bloomberg]

“That’s what happens when you don’t have enough competition. The platforms really control the consumer and that can really affect small businesses, ”Ma Rui, a San Francisco-based technology analyst, told Al Jazeera.

“This is a huge part of the economy that you have to take care of, and [the regulators] were very slow. That should be the complaint, not that they are being too harsh, at least on the antitrust stuff, ”Ma said.

Regulators are now exploring Ant Alipay’s payment platform and lending practices. It has grown far beyond simple payment management, branching out into asset management, insurance, and other lending services, raising warning signs of potential risks to the country’s banking system. country.

After looking the other way around Ant Group’s use of a local license in Chongqing Municipality to engage in its payments business across the country, officials at the People’s Bank of China (PBOC) – the country’s central bank – had, it seems, seen enough.

“I’m not surprised that the pendulum swung one way and there’s all this room for experimentation and now it’s coming back the other way and you actually can’t do these things,” said Shazeda Ahmed, Visiting Fellow at New York University. AI Now Institute, which has extensively studied the relationship between the Chinese tech industry and local, provincial and central governments.

Ahmed said there has long been an implicit understanding that the Chinese government will allow tech entrepreneurs to experiment nationally as they build their businesses to compete abroad. But, says Ahmed, at some point, success can breed envy and fear.

[Bloomberg]

“I’ve always wanted [Ant Group] were in the position the PBOC wanted to be in, ”Ahmed said. [Ant Group] have such a large part of the market captured with their wealth management products. What the PBOC and others don’t understand is that [Ant] makes it so understandable to users. “

Not too big to regulate

While Alibaba may be too big to fail, it’s not too important to be regulated, and the recent regulatory crackdown is a warning to other big tech companies in China that they too would do better. align, analysts say.

China’s State Administration for Market Regulation has signaled that after Alibaba more companies will be in its sights, as antitrust actions will be its top priority for 2021, according to an interview with the news agency. Xinhua with the director of market regulation Zhang Gong released on January 9.

Angela Zhang, associate professor of law at the University of Hong Kong, likens the actions against Alibaba and Ant Group to “mass campaigns” launched by the government in the past on food safety, air pollution and pollution. ‘other business behaviors that he feels. was getting out of hand.

“So basically it’s about creating some kind of chilling effect so that people understand that this is serious and that is trying to dissuade them from committing violations,” Zhang said.

Nicole Gao says she will find ways to continue business regardless of regulatory hurdles [File: Nicole Gao via Michael Standaert/Al Jazeera]

“There are legitimate reasons the government is starting to think about regulating these companies because they are so big and have a strong market position,” she added.

Recent anti-monopoly actions in the United States and the European Union against big tech have also given the Chinese government more legitimacy to take action at home, Zhang said.

And even if the government does not distribute any actual punishment related to the antitrust investigation into Alibaba, the damage is already done, with its share falling 30% in value since the rumblings began, Zhang said.

But cosmetics live broadcaster Gao says she’s confident she’ll find ways around emerging regulatory hurdles.

“Most of my customers outside of China are overseas Chinese, and they use Alipay a lot,” Gao said. “But they also have a lot of other ways to transfer money, like through relatives and using bank accounts, things like that. It will certainly be less practical if this ban goes into effect, but they will find another way.

Additional research provided by Jonathan Zhong.



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