China’s rectified internet will be fairer, duller

The consumer internet boom paid off in spades for capitalists who funded entrepreneurs like Jack Ma, a former English teacher from Hangzhou

  
The logo of Alibaba Group is seen at the company's headquarters in Hangzhou, Zhejiang province, China July 20, 2018.

The logo of Alibaba Group is seen at the company's headquarters in Hangzhou, Zhejiang province, China July 20, 2018.

REUTERS/Aly Song

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

HONG KONG - China’s rectified internet will be fairer, safer, duller, and probably less lucrative. Having fined e-commerce giant Alibaba $2.8 billion, President Xi Jinping is widening his net to include other hot technology names. Entrepreneurs and investors must start pricing in the risk of an unfocused, indefinite crackdown.

The consumer internet boom paid off in spades for capitalists who funded entrepreneurs like Jack Ma, a former English teacher from Hangzhou. In 1999 Goldman Sachs and SoftBank put $25 million into his startup Alibaba; it is now worth over $600 billion. Increasingly overexcited valuations and trading pops followed – Meituan , JD.com, Pinduoduo and so on – and only seemed to validate traders’ excitement.

Beijing, however, was worried by signs of an investment bubble. And what some entrepreneurs pitched as “disruption” looked rather more disturbing. In its announcement justifying Alibaba’s fine, the competition regulator noted the firm’s share of domestic online retail service revenue comprised over 70% of that generated by the top 10 platforms between 2015 and 2019. Yet the company still tried to force merchants into exclusive agreements. In March Xi signalled he will go after other internet firms which abuse their market positions and user data.

Anti-competitive behaviour is a real problem; so too are startup revenue models that rely entirely on trawling smartphones for personal data. But in Alibaba’s case, the push to rein in the company is concurrent with a political campaign against its founder; around the same time officials fined Alibaba, they froze enrolment at Ma’s business academy.

Policy uncertainty is China’s harshest recurring business expense. Alibaba’s Hong Kong shares have risen roughly 8% in a relief rally this week as the company sought to draw a line under its regulatory headaches. But those for delivery app Meituan, widely expected to be targeted next, have dropped around a tenth.

A Reuters analysis shows over 100 companies have voluntarily suspended listing applications on the ChiNext and STAR growth boards since the initial public offering process for Ma’s financial services business Ant was squashed in November. Both boards have fallen 10% this year. Foreign investment into Chinese equities via Hong Kong slowed in March. Consumers may be better off with a fairer internet, but investors may miss the Wild West.

CONTEXT NEWS

- Chinese regulators on April 13 ordered 34 technology companies, including Pinduoduo, JD.com, Kuaishou, Bilibili and Didi to conduct a comprehensive self-inspection of their competitive practices within a month.

- China's State Administration for Market Regulation on April 10 announced it had fined Alibaba 18 billion yuan ($2.8 billion) after an anti-monopoly investigation found the e-commerce company had abused its dominant market position since 2015.

- In addition to the fine, Alibaba has been ordered to make "thorough rectifications" to strengthen internal compliance and protect consumer rights. The company is required to submit self-assessment reports for three years.

- President Xi Jinping warned in a meeting on March 15 that the central government will continue to pursue so-called platform companies for abusing their market positions and control of data, state media reported at the time.

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

(SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS http://bit.ly/BVsubscribe | Editing by Una Galani and Katrina Hamlin) ((pete.sweeney@thomsonreuters.com; Reuters Messaging: pete.sweeney.thomsonreuters.com@reuters.net))

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