China’s digital economy has advanced rapidly over the past two decades, with services, communications and commerce moving online.
The Chinese government has generally encouraged its citizens to embrace high-tech change. Today, the world’s second-largest economy has around a billion internet users.
China has also made it clear it aims to be a global leader in digital infrastructure and technologies deemed critical to future economic growth – domestically and internationally.
Like Western countries, the country has seen the rise of dominant digital platforms or “big tech” internet companies. We studied China’s efforts to regulate them, which may hold lessons for Western nations trying to manage their own big tech problems.
China’s ‘big four’ tech companies
The quartet involves Baidu, Alibaba, Tencent and Xiaomi – often collectively called BATX for short. Broadly speaking, Baidu is built around search and related services, while Alibaba specializes in e-commerce and online retail. Tencent tends to focus on messaging, gaming and social media, while Xiaomi makes phones and other devices.
Similar to their Silicon Valley counterparts Google, Amazon, Facebook and Apple, the BATX group dominates its competitors. This is largely thanks to the enormous network effects and economies of scale in data-driven, online business.
BATX businesses – again, like America’s GAFA group – are also known for gobbling up potential competitors. In 2020, Tencent reportedly made 168 investments and/or mergers and acquisitions in domestic and international companies.
Alibaba made 44, Baidu 43 and Xiaomi 70.
In the past 18 months, BATX companies have come under increased scrutiny from the Chinese government. In November 2020, an IPO planned for Ant Group, an affiliate of Alibaba, was effectively canceled.
Ant was forced to restructure after Chinese regulators “interviewed” the company’s founder.
The following month, Alibaba’s Ali Investment and Tencent’s Literature Group were fined 500,000 yuan (US$74,343) each for issues relating to anti-competitive acquisitions and contractual arrangements.
At the same time, China’s General Administration of Market Supervision opened a case against Alibaba for abuse of its dominant market position in the online retail platform services market.
In March 2021, more fines were issued including to Tencent and Baidu. They were fined 500,000 yuan each for anti-competitive acquisitions and contractual arrangements.
Then in April 2021, Chinese authorities met with 34 platform companies, including Alibaba and Tencent, to provide “administrative guidance sessions” for internet platforms.
That month Alibaba was also fined a spectacular 18.228 yuan billion ($2.71 billion) and Tencent another RMB 500,000 for anti-competitive practices.
In July 2021, Chinese authorities prohibited a merger between two companies that would have further consolidated Tencent’s position in the gaming market.
The government’s efforts are ongoing. Earlier this week, regulators imposed new fines on Alibaba, Tencent and others for violating anti-monopoly rules about disclosing certain transactions.
What’s motivating Chinese authorities?
The evolution of China’s digital giants shows how data-driven markets work on a “winner takes all” basis in both state-managed and capitalist economies.
The BATX companies now wield significant social and economic power in the country. This conflicts with China’s ideological commitment to state-managed social order.
In January 2022, President Xi Jinping called for stronger regulation and administration of China’s digital economy. The goal, he said, was to guard against “unhealthy” development and prevent “platform monopoly and disorderly expansion of capital.”
State-orchestrated social order is not possible where there is an excessive accumulation of private power.
China’s digital policy agenda is designed to achieve strong economic growth.
But the Chinese Communist Party also seeks to maintain strong state control over the structure and function of digital markets and their participants to ensure they operate according to values of the government’s values.
What can we learn from China’s approach?
How can we regulate digital platforms, particularly to improve competition and public oversight? This remains a largely unsolved public policy challenge.
The European Union and countries such as Australia, like China, have demonstrated significant willingness to take up this challenge.
In Europe, for example, where the US platforms dominate, policymakers are actively seeking to achieve independence from foreign technology companies.
While the European Union and China are aiming at very different goals, both are willing to take a significant role in regulating digital platforms in accordance with their stated economic, political and social values.
This stands in stark contrast to the situation in the United States, which has so far had little appetite for meaningfully restricting the behavior of tech companies.
In theory, China’s centralized political power gives it space to try different approaches to platform regulation. But it remains to be seen whether Beijing authorities can successfully overcome the tendency for monopolies to form in digital markets.
If China succeeds, there may be valuable lessons for the rest of the world. For now, we must wait and watch.
Joanne Gray is a lecturer in digital cultures at the University of Sydney. Yi Wang is an Early Career Researcher and Sessional Academic in Creative Industries, Digital Platforms and Knowledge Exchange at the University of Sydney.
The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy of China Factor.