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China tightens control over internet sector, fines Alibaba and Tencent

China tightens control over internet sector, fines Alibaba and TencentChina tightens control over internet sector, fines Alibaba and Tencent

On Monday, China warned its internet giants that it would not tolerate monopolistic practices and would be ready for more scrutiny. The regulator imposed fines on industry leaders and announced an investigation of transactions involving Alibaba Group and Tencent Holdings.

The State Administration for Market Regulation (SAMR) said it would fine Alibaba, Tencent-backed China Literature and Shenzhen Hive Box 500,000 yuan ($ 76,464) each, the maximum under the 2008 antitrust law, for they did not properly report the transactions.

He said he will also consider a merger between broadcasting companies Huya Inc and DouYu International, which was announced in October. Tencent is a major investor in both companies, which is why the Chinese tech giant pushed this deal..

In addition, SAMR said it will review and investigate other transactions based on information that some firms have gained more operational strength in certain sectors – a process that is expected to be lengthy and involving a large number of companies..

«Fines in three cases signal to society that Internet antitrust supervision will be strengthened», – stated to SAMR, although admitted that these fines were relatively small.

«The internet industry does not go beyond antitrust laws», – added in the statement.

Alibaba and Tencent, both listed on the Hong Kong Stock Exchange, fell after the news: Alibaba closed 2.6% and Tencent closed 2.9%.

China Literature said it has received SAMR notification and will undertake related compliance work. Alibaba and Tencent were able to provide prompt comments to Reuters.

This is the first time that Beijing has fined an internet company for violating the 2008 antitrust law by failing to report transactions for antitrust review..

SAMR warned that companies should not wait and see before reporting deals, stating that some did not even after reminders.

Last month, Beijing released draft regulations aimed at preventing monopoly behavior by Internet companies, China’s first major regulatory move against the sector..

This issue has also become a priority for the top leadership of China. At a meeting of the Politburo chaired by the President Xi Jinping Last Friday, it was announced that Beijing would step up its antitrust efforts.

Alibaba Ant Group financial subsidiary founded by billionaire Jack Ma, also became the object of increased attention. Its $ 37 billion listing, which was supposed to be the largest in the world, was abruptly suspended last month after regulators warned its online lending business was undergoing stricter scrutiny..

Deals fined by SAMR on Monday include Alibaba’s $ 692 million investment in Intime in 2014 and e-commerce giant’s bid to privatize Intime for $ 2.6 billion in 2017..

China Literature was fined for failing to report its 2018 acquisition of New Classics Media. Shenzhen Hive Box, sponsored by logistics giant S.F. Holding Co criticized for acquiring China Post Smart Logistics.

While the 2008 antitrust law permits the regulator to unbundle businesses, SAMR said it has made the decision not to sever the three deals as they do not eliminate or restrict competition..

Chinese tech companies closed 8,702 deals worth $ 507 billion in the decade to 10 December, according to Refinitiv.

«Over the past 12 years, the internet sector has been excluded from antitrust reviews, resulting in prosperity … as well as chaos due to unregulated mergers and acquisitions», – said Liu Xu, researcher from the Institute of National Strategy, Tsinghua University.

«Starting with the simplest, least controversial cases is the fastest way to signal that … antitrust law enforcement is ready to take action», – he added.