Big tech crackdown: the winners and the losers
China’s latest crackdown on some of its largest internet companies should raise a critical question — who are the real beneficiaries of reining in the country’s technology titans?
The saga began last year with embattled financial services company Ant Group and its ubiquitous mobile app Alipay. In November 2020, just days before Ant was set to start trading in Hong Kong and Shanghai with the world’s largest ever IPO, the Chinese government decided it was too big to be left unchecked and blocked the listing. In early April, regulators hit Alibaba Group Holding, co-founded by high-profile businessman Jack Ma, with a $2.8bn fine for violating anti-trust laws.
China’s latest move came on April 29, when the central bank and other regulators called in 13 companies, including internet firm Tencent Holdings, e-commerce platform JD.com, ride-hailing group Didi Chuxing Technology, and ByteDance, owner of short-video app TikTok.
They are all now required to undergo restructuring that will see them adhere to much tighter regulation around the use of big data for lending, money-management and other financial services.
There is some method to the madness. While the government has shown that the size or standing of a company cannot save it from scrutiny, it has thrown light on how it picks its targets — increasingly tech leaders in various industries that have moved into financial services, often unlicensed.
The regulator’s approach is two-pronged: help the government get a grip on what is becoming an increasingly consumer-debt laden economy, while lending a hand to traditional finance.
As big tech enjoyed years of rapid growth and innovation in financial services, China’s large and lumbering banks have not quite been able to keep up. This is while banks have continued to take on the bulk of the risk in the country’s financial system. Ant, for example, has put up only about 2% of the more than $260bn of loans on its balance sheet, with the bulk of the funding coming from its bank partners. But under the new regulatory system, online lenders must provide at least one-third of the funding for loans jointly offered with banks. Microlenders will also face additional capital requirements.
Last week, the People’s Bank of China, the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission and the State Administration of Foreign Exchange said publicly that there are problems in the fintech sector — including unlicensed financial businesses, unfair competition, and practices that harm the rights of consumers.
To rectify the problems, companies must apply for financial business licences, while cutting the “improper link” between payment services and other financial products, and ultimately abolishing data monopolies of many tech giants.
The 13 companies that were hauled in did what was expected of them: they pledged to abide by strict anti-trust laws and said they will refrain from the type of monopolistic behaviour that has been common in China, such as e-commerce companies forcing vendors to exclusively use only their platform.
In theory, this should be good news for competitors and tuned-in consumers. When virtual monopolists are forced to play fair, there will be opportunities for new entrants and a freer and more competitive landscape.
The reality, however, is different. The big payment platforms, such as super-apps WeChat and Alipay, and other tech giants, are so integral to Chinese society that consumers, who will continue to use these platforms as their way to do business, will probably not feel much impact.
Large, traditional banks will likely see some benefits as they can now share more of their lending risks with the fintech companies. In the long run, however, whether they can keep up with the competition is a big question.
This means that, for the time being at least, it is just the regulators that have emerged as the winners — by flexing their muscles, making clear that companies need to toe the line and showing that the government has the power to bring about rapid upheaval to their businesses at short notice. Message received.