The State Administration for Market Regulation (SAMR), Cyberspace Administration of China, and State Taxation Administration summoned 34 internet companies to urge them to reference Alibaba’s case and correct their anti-competition practices, according to a post on SAMR’s website on Tuesday.
These companies are iQiyi, Baidu, Beike, Didi, Dangdang, Dmall, JD.com, Kuaishou, Meituan, MissFresh, Qihoo 360, Qunar, Sogou, Weidian, 58.com, Weibo, ByteDance, Bilibili, Dingdong Maicai, Ele.me, Gome, Hema, Pinduoduo, Trip.com, Xiao Hong Shu (also known as Red), China Literature, Suning.com, Ali (which likely refers to “Alibaba”), Beibei.com, Mogu.com, NetEase (Yanxuan), Yunji, VIPshop, and Tencent.
The most obvious problem in China’s internet platform industry is the so-called “select one out of two” mechanism that leads to exclusiveness, according to regulators. Just last week, Alibaba was fined a record RMB 18.2 billion (USD 2.8 billion) for that reason.
Other problems include the abuse of market dominance, mergers between top players of a sector, indiscriminate spending to acquire market share in the community group-buying sector, as well as biases when consumers are charged based on big data analysis. Fake and shoddy products, poor security for users’ personal information, and tax evasion will also draw increased scrutiny, according to the post.
All internet companies have been ordered to correct their malpractices within one month and to promise in written statements that they will operate legally. “After the rectification period, internet platform companies will be punished more severely if they are found continuing illegal practices,” the regulator warned.
On Wednesday, the administration disclosed the written promises from 12 companies, including Baidu, JD.com, Weibo, ByteDance, and Pinduoduo. Baidu promised not to interfere with merchant operations and not to illegally collect personal information, among other pledges. ByteDance vowed not to place advertisements illegally and not to dump goods or sell unfitting products, while Meituan said it will not carry out unfair competition or price its services beyond legal limits.
“It can save law enforcement costs to ask companies to self-rectify,” said Huang Kai, a partner with Commerce & Finance Law Offices in Shanghai.
It’s hard to make a case
Alibaba’s case and the RMB 1.17 million (USD 179,000) fine for food delivery platform Sherpa’s by regulators in Shanghai show that Chinese authorities can justify the existence of abusive market dominance through byzantine means, sending out warnings to all other internet companies, Huang said.
However, he believes that it is very difficult to do so since law enforcement agencies need to define the relevant market, identify how a company is exerting dominance in it, figure out whether it is hurting competition, and finally prove that the firm is acting in bad faith.
“The collection of personal information should be one of the top concerns,” Huang added, saying that he was surprised to see that most of the 12 companies placed this at the bottom of their statements.
Gong Ting, a lawyer with King and Wood Mallesons, pointed out that Meituan and Didi Chuxing are suspected of “bundling sales” by making their own tools the default payment option. “Whether they will correct it depends on how their compliance staff views this practice,” she said, predicting a high possibility for them to rectify under the current circumstances.