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 accept digital technologies in all aspects of daily life, and today China has around a billion internet users. The nation has made clear that it aims to be a global leader in digital infrastructure and technologies, and leadership in digital tech has been deemed critical to China’s future economic growth, domestically and internationally. Like Western countries, China has seen the rise of a handful of dominant digital platform or “big tech” internet companies. We studied China’s recent efforts to regulate these companies, which may hold lessons for Western nations trying to manage their own big tech problems.
China’s biggest tech firms are Baidu, Alibaba, Tencent, and Xiaomi (often collectively called “BATX” for short). Broadly speaking, Baidu is built around search and related services, Alibaba specializes in e-commerce and online retail, Tencent focuses on messaging, gaming and social media, and Xiaomi makes phones and other devices. Like their Silicon Valley counterparts Google, Amazon, Facebook and Apple (or “GAFA”), the “big tech” companies in China dominate their competitors largely thanks to the enormous network effects and economies of scale in data-driven, online business.
The BATX businesses – again, like GAFA – are also known for gobbling up potential competitors. In 2020, Tencent, for example, reportedly made 168 investments and/or mergers and acquisitions in domestic and international companies. Alibaba made 44, Baidu 43, and Xiaomi 70.
The “big tech” crackdown
In the past 18 months or so, the BATX companies have come under increased scrutiny from the Chinese government. In November 2020, an initial public offering planned for Ant Group, an affiliate of Alibaba, was effectively cancelled, with Ant Group 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 RMB 500,000 (about $73,680) 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.
Fast forward to March 2021 and more fines were issued including against Tencent and Baidu, which were fined RMB 500,000 ($7,368) 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 RMB 18.228 billion ($2.67 billion) and Tencent another RMB 500,000 for anti-competitive practices. And still yet, 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. In fact, in July, regulators imposed new fines on Alibaba, Tencent, and others for allegedly violating anti-monopoly rules about disclosing certain transactions.
What’s motivating Chinese authorities to intervene?
The evolution of “big tech” in China by way of the rise of the country’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 China, which conflicts with China’s ideological commitment to state-managed social order. Against this background, President Xi Jinping called for stronger regulation and administration of China’s digital economy in January 2022. 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. However, 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 Chinese values and Chinese Communist Party objectives.
What can be learned from China’s approach to big tech?
How can other nations regulate digital platforms, particularly to improve competition and public oversight? This remains a largely unsolved public policy challenge. Australia and the European Union, like China, have demonstrated significant willingness to take up this challenge. In Europe, for instance, where the U.S. platforms dominate, policymakers are actively seeking to achieve independence from foreign technology companies. They are doing this by improving their own domestic technology capacities and imposing rules for privacy, data collection and management, and content moderation that align with European values and norms.
While the EU and China are aiming at very different goals when it comes to big tech, 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 U.S., 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 Chinese 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. (This article was initially published by The Conversation.)