We have updated our Terms of Use.
Please read our new Privacy Statement before continuing.

Heal thyself

15 Apr 2021 By Yawen Chen

What’s left for Chinese internet companies deprived of the ability to leverage user data, offer subsidies or abuse market dominance? Days after fining Alibaba a record $2.8 billion for anti-competitive behaviour, the antitrust watchdog has sent an ultimatum to dozens more, giving them a month to rectify behaviour and warning of severe consequences. Some companies can change easily. Others will have to find new revenue streams in a jiffy.

President Xi Jinping’s cleanup of so-called platform companies, a large community of internet middlemen facilitating online retail, travel bookings, short-form video, real estate sales and so on, is aimed at common practices they used to expand their market share. These include price subsidies to attract users, excessive collection of personal data and aggressive contracts demanding exclusivity from merchants and content providers.

Alibaba can absorb its fine, which was only 4% of 2019 revenue, and its e-commerce business can live without exclusive contracts. Tencent’s core business is video games, which is relatively insulated from the antitrust campaign. But newly-minted unicorns like fresh produce delivery app MissFresh may be in more trouble.

Some companies are using deals to diversify away from the risk, or to vertically integrate. Tiktok owner Bytedance, for example, was the most active deal-maker in China in the first quarter according to data provider IT Juzi. The company acquired five startups to broaden its portfolio, including spending $4 billion on a mobile-game developer.

But M&A risks raising regulatory eyebrows too. Better, perhaps, to invent related products or services that customers will pay for, instead of relying solely on taking a cut of sales by other merchants.

Unfortunately some of these companies’ investment in research and development has been low. Take real estate portal Ke, a major regulatory target that earned 97% of its 2020 revenue from transaction fees. Its R&D expenditure rose to 3.5% of revenue in 2020 from just 1% in 2017, but that is still incredibly low for a technology company. Travel agent Trip.com, on the other hand, appears to have gotten the message after being targeted for forcing exclusivity on hotels and other infractions. It put 7 billion yuan ($1.1 billion), or two-fifths of sales, into development last year. That’s expensive, but shareholders will appreciate the foresight.


Email a friend

Please complete the form below.

Required fields *


(Separate multiple email addresses with commas)