The Chinese government has had enough of the unbridled power of its technology giants. After heavy interventions and a billion-dollar fine for e-commerce giant Alibaba, it would also be Tencent‘s turn. Now, both rivals are forced to seek rapprochement between each other.
Duopoly in retail and (online) media
The Chinese government has summoned the twelve largest technology companies in the country. They will all be fined heavily for violating the rules surrounding monopolisation. It is no coincidence that China’s leading retail and media companies are also affected.
It is even less of a coincidence that the companies can largely be traced back to only two: Alibaba and Tencent, whose comprehensive ecosystems have created a near duopoly. Although Alibaba’s core business is e-commerce, whereas Tencent focuses on social media and entertainment, their payment systems (AliPay versus WeChat Pay) and online platforms form the backbone of the modern Chinese consumer economy.
Just about every technology player or retailer that wants to make it in China is forced to affiliate with one or the other. If not through outright takeovers, then through participations or strategic partnerships. Last year, hypermarket group Auchan had no choice but to be bought out by Alibaba after attempts at cooperation.
Alibaba must sell assets
Even though the Chinese government itself made those companies big by keeping foreign players out and firmly helping domestic innovators, the Communist Party has now had enough. This autumn, things kicked off when Jack Ma, the media-savvy Alibaba founder, openly criticised the new policies of President Xi Jinping. At the time, the president was already proposing stricter rules on free competition and against monopolisation.
Suddenly, Jack Ma disappeared from the scene for months. The competition watchdog also opened an attack on Ant Financials, the banking company behind AliPay, and the company called off the planned IPO. By now, it is known that Alibaba will receive a fine of nearly a billion dollars. Although this is a record-breaking fine for the country, it is mainly symbolic given the company has a turnover of 20 billion.
Other big news is that the e-commerce giant will have to sell its media assets, according to the Wall Street Journal. It is currently unclear exactly which parts are involved, but the often political newspaper South China Morning Post would most certainly be affected. Alibaba also has interests in Twitter-like platform Weibo and video platform Bilibili, among others. The watchdog, however, was not at all pleased with the reports on the adultery of a high-ranking Alibaba manager disappearing from Weibo.
Forced convergence
Yet, the attack is not exclusively aimed at Alibaba. It seems that the Chinese state is demanding a split: the financial activities of Tencent and Alibaba will have to be divided into separate holdings. Ironically, China is accomplishing something within the span of a few months what critics and experts have been demanding for years from Western technology giants such as Amazon and Google.
The fact that Tencent has only been fined 64,000 dollars suggests that there is more to come. Tencent, with its immensely popular app WeChat – with which the Chinese people do just about everything, from watching the news to paying in shops to making doctor’s appointments – is also a major player in the media scene.
Furthermore, several lawsuits are pending against Alibaba and Tencent, as both players have, up to now, sealed off their platforms from each other. For example, traders on Alibaba’s online marketplaces would be prohibited from also selling through Tencent, and businesses are not allowed to offer both payment systems. In November, Taobao Deals, a new shopping platform from Alibaba, briefly appeared on WeChat – only to be quickly deleted again. This kind of exclusivity is now also banned by Chinese regulators.
The result of the matter is that Alibaba and Tencent are being forced to seek a rapprochement. Bloomberg reports that Alibaba has already taken steps to make its Taobao Deals accessible again via WeChat, and has even attracted some traders to start selling through its competitors. They will also be able to receive payments via WeChat Pay, for the first time in the history of their existence. Does it herald a new era of cooperation between the Chinese duopolists? And will the government succeed, or will they become even stronger together?
