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China’s Big Tech clampdown: Why some companies stand to profit

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Shenzhen, China – For Nicole Gao, Taobao Live is a lifeline.
The Shenzhen-based businesswoman makes use of the live-streaming platform owned by Alibaba, China’s dominant e-commerce firm, to promote magnificence merchandise akin to facial masks, pores and skin tightening lotions, and moisturisers to on-line audiences of as much as 30,000 at a time.
That might sound like lots, however her income of greater than $71,000 for the primary two weeks of 2021 is lower than half of what it was earlier than the coronavirus pandemic struck a 12 months in the past. Back then, she had constructed up a profitable enterprise supplying greater than 200 spas throughout mainland China, Hong Kong, Singapore and Indonesia. COVID-19 has shuttered a lot of them, and it stays unclear as to when – or if – they are going to reopen.
Even although her enterprise has slumped, Gao has little possibility however to proceed utilizing Taobao Live due to its monumental reach, regardless of the corporate taking a Three p.c slice of her gross sales and charging a service charge, additional squeezing her margins.
Nonetheless, Gao takes a reasonably sanguine view of the scenario.
“I think it’s fitting that they charge us because we’re using their platform to promote our products but of course, we do hope they can charge us less,” Gao, 33, instructed Al Jazeera from her workplace, surrounded by packing containers of skincare merchandise and pc {hardware}.
“[I use] Taobao Live because it accurately connects us with clients who need these kinds of products,” she mentioned.
But another companies haven’t been as accepting of Alibaba’s potential to dictate phrases.
With its digital platforms Taobao and Tmall, Alibaba has develop into the world’s greatest retail and e-commerce firm.
Alibaba controls nearly two-thirds of China’s on-line retail market [File: Qilai Shen/Bloomberg]In China, it instructions 62 p.c of the nation’s on-line retail market, based on funding agency Daiwa Capital Markets. Its closest competitor, JD.com, controls about 20 p.c. Alibaba’s estimated 750 million energetic customers are greater than double the quantity for United States-based e-commerce big Amazon, which claims to have greater than 300 million energetic customers.
Alibaba’s progress has been meteoric. For occasion, Taobao Live’s gross merchandise worth, a measure of gross sales, has expanded by about 150 p.c a 12 months for 3 years, Alibaba mentioned in a report final March.
Where giants roam
That sort of progress – and market dominance – of digital conglomerates akin to Alibaba has been adopted by a sudden crackdown by Chinese regulators who fear their measurement may result in much less alternative for shoppers and small companies akin to Gao’s, or worse, destabilise China’s monetary system and financial system.
The first signal of Beijing’s wariness of the rise of e-commerce and monetary expertise giants got here shortly after Alibaba’s flamboyant billionaire founder, Jack Ma, made a speech in Shanghai on October 24 by which he criticised China’s monetary regulators for not being progressive sufficient.
As he was talking, his monetary expertise agency, Ant Group, was making ready for what was slated to be an preliminary public providing (IPO) to lift about $37bn, the world’s largest ever.
On November 3, 10 days after his Shanghai speech, Chinese regulators blocked the IPO, stunning buyers world wide and sending share costs falling.
The authorities have since known as for an overhaul of Ant’s enterprise and launched an antitrust investigation into Alibaba. They have additionally revealed a draft checklist of latest antitrust rules aimed toward curbing monopolistic behaviour by big web platforms, overlaying all the pieces from e-commerce to meals supply and extra.
Ma went quiet after his speech, and was not seen in public till January 20, this time in a brief, quite extra muted on-line tackle to lecturers about philanthropy.
While President Xi Jinping’s authorities has not defined what led to the draft rules, the move is prone to have an effect on among the greatest web companies in China, together with e-commerce giants Alibaba, JD.com and Pinduoduo, in addition to meals supply platform Meituan, and social media and gaming big Tencent, amongst others.
Alibaba and Tencent dominate China’s rising ecosystem of tech platforms that permit customers to talk with family and friends, switch cash, store on-line, take out loans, order a ride-hailing automobile, stream music and films, play on-line video games and far more.
[Bloomberg]Some of the issues these companies have been accused of doing embody the obligatory assortment of person knowledge, treating clients otherwise based mostly on their spending habits and setting algorithm-based costs favouring new customers.
One of essentially the most egregious examples of supposed arm-twisting by tech companies includes a “pick one of two” tactic, by which distributors – normally small enterprises – are pressured to decide on between Alibaba and e-commerce platforms akin to Pinduoduo, by which Tencent is a shareholder.
While many companies, akin to magnificence merchandise vendor Gao, settle for the established order, one firm determined to take Alibaba head-on. Microwave maker Galanz sued the e-commerce big for abusing its dominant market place in October 2019 however then settled the case final June.
When requested to remark about Beijing’s makes an attempt to clamp down on tech giants, an Alibaba spokesperson directed Al Jazeera to a press release the corporate made on December 24 saying: “Today, Alibaba Group has received notification from the State Administration for Market Regulation that an investigation has been initiated into the Company pursuant to the Anti-Monopoly Law. Alibaba will actively cooperate with the regulators on the investigation.”
Referring to Beijing’s draft web rules, Pinduoduo instructed Al Jazeera in an emailed assertion: “Fundamentally, the spirit of the paper is about fair competition and promoting innovation, and our principle of being ‘More Open’ is very much aligned with that.”
Controlling the patron
Some analysts say they don’t seem to be stunned that Ma’s web empire has lastly come beneath such intense regulatory scrutiny, a lot as they’re stunned it has taken this lengthy for regulators to take action.
A recording of a live-stream of Jack Ma addressing lecturers at an annual occasion on January 20 after months out of public view [Justin Chin/Bloomberg]“This is what happens when you don’t have enough competition. The platforms really control the consumer and that can really affect small businesses,” Ma Rui, a San Francisco-based expertise analyst, instructed Al Jazeera.
“This is a huge part of the economy that you have to take care of, and if anything [the regulators] have been really slow. That should be the complaint, and not that they’re being very harsh, at least on the antitrust stuff,” Ma mentioned.
Regulators are actually digging by Ant’s cost platform Alipay and its lending practices. It has grown far past merely dealing with funds, diversifying into asset administration, insurance coverage and different lending companies, elevating warning indicators of potential dangers to the nation’s banking system.
After trying the opposite means relating to Ant Group’s use of an area licence within the municipality of Chongqing to have interaction in its cost enterprise nationwide, officers on the People’s Bank of China (PBOC) – the nation’s central financial institution – had, apparently, seen sufficient.
“I’m not surprised that the pendulum swung one way and there was all this room for experimentation and now it’s swinging back the other way and you actually can’t do these things,” mentioned Shazeda Ahmed, a visiting researcher at New York University’s AI Now Institute who has extensively studied the relationships between China’s tech business and the native, provincial and central authorities.
Ahmed mentioned there had lengthy been an implicit understanding that the Chinese authorities would permit tech entrepreneurs to experiment domestically as they constructed their firms up in preparation to compete overseas. But, Ahmed says, in some unspecified time in the future success can breed envy and fear.
[Bloomberg]“I always felt like [Ant Group] were in the position the PBOC wanted to be in,” Ahmed mentioned. [Ant Group] have such an enormous chunk of the market captured with their wealth administration merchandise. What the PBOC and others don’t perceive is that [Ant] makes it so comprehensible to customers.”
Not too huge to control
While Alibaba could also be too huge to fail, it’s not too giant to control, and the current regulatory crackdown is a warning to different huge tech companies in China that they, too, had higher fall into line, analysts say.
China’s State Administration for Market Regulation signalled that after Alibaba, extra firms can be in its crosshairs, as antitrust actions can be its prime precedence for 2021, based on a Xinhua information company interview with market regulation head Zhang Gong revealed on January 9.
Angela Zhang, an affiliate professor of regulation on the University of Hong Kong, likens the actions towards Alibaba and Ant Group as much like “mass campaigns” launched by the federal government up to now on meals security, air air pollution, and different company behaviour it felt was getting out of hand.
“So basically it is to create a kind of deterrent effect so people understand this is serious and it is trying to deter them from committing violations,” Zhang mentioned.
Nicole Gao says she is going to discover methods to hold on her enterprise no matter regulatory hurdles [File: Nicole Gao via Michael Standaert/Al Jazeera]“There are legitimate reasons for the government to start thinking about regulating these firms because they are so big and have a significant market position,” she added.
Recent anti-monopoly actions within the United States and the European Union towards huge tech have additionally given the Chinese authorities extra legitimacy to take actions at home, Zhang mentioned.
And even when the federal government doesn’t dole out any actual punishment associated to the antitrust investigation into Alibaba, the harm has already been completed, with a 30 p.c drop in its share worth because the rumblings started, Zhang mentioned.
But magnificence merchandise live-streamer Gao says she is assured that she is going to discover methods round any regulatory roadblocks that seem.
“Most of my clients outside of China are overseas Chinese, and they do use Alipay a lot,” Gao mentioned. “But they also have many other means of money transfer, like through relatives and using bank accounts, things like that. It’s definitely going to be less convenient if that ban comes into effect, but they’ll find another way.”
Additional analysis supplied by Jonathan Zhong.

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