China and the U.S. Make Antitrust Moves Against Domestic Tech Giants

China continues to enhance its scrutiny of domestic Big Tech. On Dec. 14, China’s State Administration for Market Regulation (SAMR) levied its first-ever sanctions on tech companies for failing to preclear past acquisitions made under variable interest entity (VIE) structures. VIEs are ownership structures that allow companies to circumvent limits on foreign investment and to list on foreign stock exchanges. Most large Chinese tech companies—including Alibaba, Tencent, Baidu and ByteDance—use VIEs. According to a recent study, Chinese companies’ VIE structures in the Cayman Islands had a stock market capitalization of $1.7 trillion as of 2017. Earlier this year, the SAMR gave its first official approval of a merger under the VIE structure. The recent fines indicate Chinese regulators’ intent to take VIEs out of their previous regulatory gray zone. Their new legal status may make VIEs more stable for investors but less flexible for executives.

At the same time, regulators in Beijing announced an investigation into Huya’s proposed acquisition of DouYu. Tencent, a prominent shareholder in both companies, stands to benefit from the acquisition. If Huya, a Guangzhou-based live-streaming entertainment platform, is allowed to acquire DouYu, a domestic competitor in the game-streaming industry, the units would have unrivaled market share, potentially owning 80 percent of China’s game-streaming market. The SAMR also plans to “make an example” of Tencent’s proposed $3.5 billion acquisition of the search engine Sogou, according to people with knowledge of the SAMR discussions.

The actions were foreshadowed in the SAMR’s Nov. 10 publication of a draft “Antitrust Guidelines for the Platform Economy Field,” which suggested a more punitive attitude toward tech and a specific focus on VIEs. Some commentators see China’s actions as the beginning of a new era of oversight and constraints on the nation’s growing domestic internet economy.

The United States, too, is taking action against monopolistic practices in its most powerful technology companies. On Dec. 9, the U.S. Federal Trade Commission (FTC) and 40 states accused Facebook of illegally buying up rival companies to quell competition. On Dec. 17, the attorneys general of 38 U.S. states and territories announced the third antitrust suit against Google in as many months. Commentators say this flurry of cases is the most significant antitrust action by the U.S. government since the 1970s.

Analysts in the United States and Europe, which has also cracked down on Big Tech, expect protracted legal battles between companies and regulators. The tone of tech executives in China, however, is conciliatory. Last month, Alibaba’s chairman and CEO Zhang Yong expressed his “gratitude toward regulatory governance.” On Dec. 15, Ant Group chairman Eric Jing appeared “contrite and apologetic” after the collapse of his financial technology giant’s planned initial public offering (IPO). Ant Group’s IPO failed after Chinese regulators issued a slew of new rules following Ant co-founder Jack Ma’s controversial critique of regulators’ oversight of internet companies. 

The Wall Street Journal has reported that Ma offered partial public ownership of Ant to Chinese regulators when they met with him on Nov. 2. That possibility may still be on the table. It is not clear, however, that public ownership and management would augment China’s “institutional advantage” or its prowess in science and technology—two of the new “Five Fundamentals” touted since the Central Economic Work Conference.

Chinese Tech Companies Complicit in Facial Recognition Targeting Uighurs

New evidence emerged last week of Chinese technology companies’ involvement in state-sponsored actions against members of the Uighur minority, whose population is concentrated in the autonomous region of Xinjiang. The Chinese government has allegedlyBecome a supporter of IT Security News and help us remove the ads.