Consider the following recent developments in China, and the new-found vigour of its antitrust watchdog for varchasva — total dominance — on the tech sector. As Deng Xiaoping put it, in China, the colour of the cat is immaterial so long as it catches mice. So, antitrust is just one more weapon in the state armoury to cow down domestic and foreign companies, and not just limit it to antitrust issues. It is used to signal the absolute power of the State to its trading partners — especially the US — and soon others, including India, may also face it.
China is out to discipline its ‘too-big-for-their-boots’ technology firms. It also appears to be its first steps towards a technologically aatmanirbhar China, as well as to have leverage over US companies in their forthcoming trade negotiations.
On April 29, Chinese authorities summoned the leadership of 13 companies, including ByteDance, Meituan, Didi and Tencent, for a ‘supervision interview’. These companies are likely to be given a dressing down on consumer protection mechanisms, data collection and management of citizens, overseas listing, ‘improper linkages’ between the parent firm and the financial services entity, etc. The push of internet economy firms into the financial services space may be in serious jeopardy.
Ant and Tencent have about one billion customers in their financial services apps. ByteDance’s valuation is now about a staggering $400 billion — three times what it was just a year ago after its Series C round of funding. Imagine if the shopping, travel and entertainment apps need to cut off ties with the payment apps, what will happen to China’s tech titans?
On December 24, 2020, China’s principal regulator State Administration for Market Regulation (SAMR) imposed a tiny $2.8 billion fine on Alibaba. This led to a market capitalisation loss of over $100 billion overnight and a scrapped IPO. The fine itself couldn’t exceed 10% of its revenues, but what is more important is publicly bringing Alibaba to heel. Jack Ma’s famous ‘last words’ on the incompetence of regulators must have forced the latter to show him their supreme competence, no matter how much Alibaba may have privately disagreed with it.
Alibaba’s antitrust action was finely coordinated — a single-sentence statement from SAMR, echoed by People’s Daily within minutes, told the company what Beijing thinks of it. Alibaba accepted the demand to crawl in line, Jack Ma vanished from public view, and things moved on. The signalling effect of SAMR’s one-liner was stunning: 34 other technology companies ‘voluntarily’ offered to fall in line on the specific clause that Alibaba was investigated for — exclusionary conduct, or ‘pick one of two’ to enforce exclusivity — at an ‘administrative guidance’ meeting.
In fact, JD.com decided not to take on SAMR in any manner, instead gave it in writing that it would comply to every other law that did not even concern antitrust, such as consumer protection law, advertising law, ecommerce rules, price laws, etc.
In China, the antitrust law grants the central government overarching powers, permitting everything from severe fines and excruciating structural changes to much more with zero judicial redressal. Antitrust is the equivalent of the Swiss Army knife for the Chinese authorities — they can use it as a chip to not just make errant foreign companies fall in line, but also to be used in global trade negotiations.
The 2018 Qualcomm-NXP deal was approved in several jurisdictions except China. Likewise, more recently, the Cisco-Acacia merger approval was inordinately delayed, which helped valuation to shoot up from $70 to $115 a share. Add to it the conditionality imposed by the authorities that both companies must honour existing contracts with Chinese clients and keep commercial terms unchanged.
In brief, China’s antitrust actions are to establish unquestioned total dominance — varchasva — on its tech sector. Indian regulators should learn from China’s idiosyncratic yet supreme ability to weaponise its antitrust watchdog and use it as a policy tool in trade negotiations with other countries. The US and Europe have always tried to impose their laws extra-territorially, and China, in turn, has much to learn from them.
Indeed, Beijing may well be entitled to use antitrust laws for ensuring competition in the markets. But is it right to use it for everything else, including foreign direct investment (FDI), industrial policy, foreign policy and trade deals? And, as it does so visibly, should India simply indulge in han-dwringing? Or should we weaponise our own competition laws to hit back on the global stage?
The writer is an IAS officer
