Chinese tech, social media and gaming juggernaut Tencent has emerged as a next target after Beijing’s monopoly busters tackled rival Alibaba last week.
Alibaba was hit with a record 12.8 billion yuan (US$1.2 billion) fine for asking merchandisers to sell exclusively on its online marketplaces to reduce and undercut competition.
Tencent’s products including messaging and networking app WeChat are dominant for Chinese smartphone users, putting in the potential sights of the State Administration for Market Regulation (SAMR).
Tencent shareholders sensed as much this week when talk of looming regulatory scrutiny caused its share price to swing widely in Hong Kong trading.
Tencent founder and CEO Pony Ma was likely tipped to the scrutiny when state media called out his company’s “mercenary, devious stratagem and approach to market dominance.” He was sighted by local media leading a vanload of Tencent’s senior executives to call on SAMR director Zhang Gong in early March.
Ma, who is also a member of the National People’s Congress, reportedly absented himself from breakout panel discussions during the annual parliamentary session for a closed-door meeting with Wu Zhenguo, director of SAMR’s anti-trust taskforce.
The meeting was first revealed by a WeChat account maintained by the app’s corporate client team and confirmed by a Reuters report at the end of last month.
Ma reportedly assured Wu of Tencent’s full compliance to surrender all data and files for SAMR to determine if WeChat’s business practices constitute monopolistic behavior in the regulator’s view.
Those potential monopolistic practices include WeChat’s banning of links to competing and third-party platforms like Alibaba’s Taobao and Tmall, and to Douyin, the domestic version of TikTok. Another, analysts say, are supposedly high commission fees for transactions made on the app now that almost all brands run their virtual shops on WeChat for sales.
In an olive branch move, WeChat reached out to Alibaba to open the app to the latter’s Taobao virtual mall and soon WeChat users will be able to place orders on Taobao when the two apps and the hundreds of millions of accounts on them are cross-linked. Alibaba’s senior vice president Wang Hai has confirmed the move.
SAMR has recently come down hard on tech giants with the launch of a probe of other related online platform operators in November. So far it has only singled out Alibaba for punitive fines and put it on notice for three years during which Alibaba must submit detailed annual reports on its compliance.
Some observers suggest that Pony Ma’s modest, self-effacing public image and his overtures to embrace regulation may score Tencent points with the SAMR.
That, they say, is in contrast with Alibaba’s Jack Ma, who is more known for enjoying the limelight and whose earlier blunt views on market supervision of his businesses likely rubbed Beijing the wrong way.
“The problems with Tencent, especially its WeChat app, may be less complicated than Alibaba’s apparent monopolistic acts like requesting vendors to stay loyal only to its own platforms,” said former Xinhua business reporter Liu Xiaobo, a financial commentator now based in Tencent’s home city of Shenzhen.
“Now that Tencent has taken the initiative to contact watchdogs for guidance and given Pony Ma’s low-key style, Tencent stands a decent chance of passing the test and emerging largely unscathed.
“The fact that only Alibaba was targeted when the SAMR fired the first salvo is already an indication that Tencent may be let go lightly. Its shenanigans may not warrant severe punishment as long as it can cease practices already red-flagged by the authorities,” said Liu.
He believed that lobbying by Shenzhen’s municipal government would also play a role in mitigating any punitive measures against Tencent.
China’s food delivery app Meituan may also see some headwinds given its market share of almost 70% and its years-long feud with Alibaba that led to its ban on the latter’s AliPay mobile payment system.
Didi Chuxing, China’s equivalent of ride-sharing app Uber, is also bracing for a possible bumpy ride after industry associations and labor unions representing Chinese cabbies and taxi operators repeatedly lodged complaints with the SAMR accusing the app of unfairly cutting prices and safety corners. Didi is now counting down to an IPO in New York.
To be sure, SAMR faces a delicate balancing act in implementing China’s anti-trust law in previously loosely regulated online spaces. Analysts say if regulators come down too hard on successful business models pioneered by Alibaba, Tencent and others, they run the risk of stymying private sector innovation and wider economic growth.
Fang Xingdong, director of Zhejiang University of Communication’s Institute of Internet and Social Studies, was quoted in local media saying that SAMR has its work cut out to enhance supervision and forestall the formation of monopolies while also staying abreast of fast-evolving technologies and markets.