Chinese tech stocks, including Alibaba, Tencent, JD.com, Pingduoduo, and Meituan, all fell dramatically yesterday after China released a draft of its new anti-trust regulations on Tuesday.
• Monopolistic practices like price discrimination, forming exclusivity clauses with vendors, and practising cartel behaviour to eliminate competition can be outlawed, according to the preliminary 22-page draft.
• This will be the first time China has drawn up antitrust laws to define anti-competitive behaviour for the rapidly growing technology industry. The previous anti-monopoly law, drafted in January, had only altered its scope to encompass online businesses within the new regulatory framework.
What happened next: Despite positive signalling for markets due to Singles Day, tech stocks plunged on the HKSE following the announcement. However, businesses were able to recover some of their losses this morning.
• Alibaba fell 9% on Wednesday, closing at HKD 249, before rebounding to HKD 257.6 (up 3.5%) this morning.
• JD closed at HKD 300.6 (down 8.9%), but recovered to HKD 320 (up 6.5%) today.
• Tencent dropped 7% yesterday, closing at a low of HKD 555, but rallied to HKD 583.5 (up 5.1%) today.
• Meituan’s stock fell 9.4% by market close yesterday, but was up 8.4% today.
What it means: China has been tightening regulations around big tech companies: the implementation of stricter rules on online micro-lending last week led to the suspension of Ant Group’s IPO – which had been set to be the largest IPO ever.
• Alibaba has often been criticised for engaging in anti-competitive conduct by smaller competitors.
• Online food delivery Meituan and e-commerce platforms JD.com and Tencent have also been under fire for their monopolistic control over the markets.
• These businesses are anticipated to be scrutinised heavily by the Chinese government in light of the new regulations.
The big picture: China isn’t the only one concerned about the burgeoning e-commerce businesses and the increasing influence they appear to have over markets. Regulators in the EU and the US have also cracked down hard on big tech companies.
• Last month, the Trump administration sued Google over harming competition and stifling smaller players in the market. Google was alleged to have paid billions of dollars a year to conglomerates like Apple and Samsung to be their default search engine and signing exclusive contracts that would prohibit them from working with Google’s competitors, thereby creating a monopoly over the search engine market.
• Earlier this week, the EU also cracked down on Amazon for failing to comply with antitrust laws. The global tech giant is accused of exploiting its market power in Germany and France. A formal antitrust probe will be carried out against Amazon for abusing non-public business data of independent sellers who sell on its marketplace, to benefit its own retail business, among other claims of anti-competitive practices.
Looking ahead: Uncertainty is rife across the board as analysts remain divided on the impact that tightening antitrust regulations will have on these businesses.
• Analysts from Morgan Stanley note that the new regulations could have negative implications on the top internet companies in dominant positions. They opine their market power will be at stake due to the increasing number of disruptors entering the market, lowering entry barriers, and higher obstacles for industry consolidation through M&As, CNBC reported.
• On the other spectrum, Jonathan Rubin, a specialist in antitrust law, told Reuters that he believed tech giants like Google will remain largely unaffected by such legislation, which will cause minimal disruption, if any, to its market position. While many have consistently called these firms out for unfair practices, government efforts to curb dominance has historically remained ineffective.