China’s tech crackdown is spreading like wildfire

TAIPEI — The latest rounds of China’s campaign against its tech companies make one thing clear: Jack Ma’s companies aren’t the only ones under the regulatory microscope.

What started as a government crackdown on anti-competitive practices among China’s internet giants has turned into a broader effort to clean up the functioning of the fast-growing and, until recently, freewheeling tech sector.

Not a week seems to go by without Chinese regulators calling tech companies for alleged violations ranging from inconsistent pricing and endangering user privacy to harsh working conditions. In May, the Chinese cyber regulator accused 105 apps, including short videos and recruiting apps, of illegally collecting and using personal data. He ordered the companies to fix their problems within three weeks or risk legal action.

The guidelines came days after 117 other apps were asked to troubleshoot user data issues. Regulators have also met with ridesharing services for potential driver abuse, while internet companies have been ordered to reform their data and lending practices. Authorities have also criticized delivery platforms for what they see as deceptive pricing tactics.

In less than six months, Chinese tech giant Ant went from planning a successful IPO to restructuring in response to pressure from the central bank. While the United States is also targeting big tech, here’s how China is moving faster. Photographic illustration: Sharon Shi

For tech companies, being called in to meet with regulators signals to the public and investors that authorities are giving companies a chance to solve their problems instead of launching formal investigations, people familiar with the investigations say. This has made some tech companies anxious for their own turn in the hot seat, people said, straining the investigative workforce.

China’s goal “is to get companies to comply with regulatory demand without formal intervention,” said Angela Zhang, associate professor of law at the University of Hong Kong and author of a book called “Chinese Antitrust Exceptionalism “.

China’s mobile app regulation previously focused on controlling controversial or inappropriate content. The latest round of regulations target a wider range of offenses, many of which have long been considered norms in a booming and poorly supervised industry.

China has one of the thinnest antitrust regulatory histories among the world’s major economies and has historically used antimonopoly rules to limit the influence of foreign companies in the market. Domestic internet companies have been largely left alone as China seeks to develop its own tech industry.

That started to change late last year, when fintech giant Ant Group Co.’s initial public offering was canceled days after its controlling shareholder, Mr. Ma, gave a speech that infuriated government leaders. In December, China launched an investigation into Alibaba Group Holding Ltd.

BABA 0.91%

, which Mr. Ma also co-founded.

In April, regulators imposed a record fine of $ 2.8 billion on Alibaba, determining that it had abused its dominant market position by indulging in “er xuan yi” – literally translated as “choose the one of the two ”- a practice that requires traders to sell exclusively on a platform or risk retribution on the part of the business. Such accusations have harassed China’s e-commerce industry for years, resulting in public complaints and lawsuits, but little hard evidence.

A worker in Meituan uses his phone to scan his face before starting work. The food delivery giant is the target of an antitrust investigation by the main Chinese market regulator.


Photo:

tingshu wang / Reuters

Main Chinese market regulator opened antitrust investigation into food delivery giant Meituan 3690 -1.69%

on the same tactic. Meituan said he would cooperate with the investigation and that his activities would continue to function normally.

“The government would like to send a very clear message to all these tech conglomerates that the government is in charge,” said Mark Natkin, managing director of Beijing-based industrial research firm Marbridge Consulting. “Any idea otherwise will ultimately not be tolerated.”

The warnings have so far stopped demanding complete corporate overhauls except for Ant. For some companies, appeasing Chinese authorities means tweaking certain features of the app, while others could suffer more if a large portion of their profits are based on data collection and sharing, according to employees at five of the companies. applications targeted by regulators last month.

Some employees said they have become more cautious about compliance and anything that could be considered to be against the regulations. ByteDance Ltd., whose short video app Douyin was among those targeted for inappropriate data collection, hired legal and compliance experts, tasked with reviewing the terms of service and various features of the app. to check for rule violations, employees said. ByteDance declined to comment.

Social media influencer and grandmother Ruan Yaqing records a video in a Beijing park for her channel on Douyin. The video-sharing app is among those targeted by regulators for inappropriate data collection.


Photo:

Greg Baker / Agence France-Presse / Getty Images

Local agencies have also become more involved in policing technology platforms, Ms. Zhang said.

The Shanghai Municipal Administration for Market Regulation recently fined Alibaba-owned delivery app Ele.me 500,000 yuan, the equivalent of approximately $ 78,000, for breaking the laws. Chinese policies on prices and food security. Alibaba did not respond to a request for comment.

Shanghai Consumer Protection Committee said they interviewed Meituan and e-commerce newcomer Pinduoduo Inc.

in May regarding issues such as allegedly misleading online claims, product quality and non-deliveries. Meituan and Pinduoduo did not respond to requests for comment.

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Chinese regulators have also called on the country’s citizens to help oversee the behavior of tech companies. According to announcements from regulators, many of the recent warnings were based on user complaints.

“These complaints have been going on for a long time and they would inevitably lead to actions to protect consumers and small and medium-sized businesses,” said Francois Renard, partner and head of Allen & Overy’s antitrust practice for Greater China. “Where it’s quite impressive of course is that everything comes at the same time.

Last month, eight government departments, including the Chinese Ministry of Transport and the Ministry of Public Security, summoned eight transport companies, including transit giant Didi Chuxing Technology Co. and Meituan, citing growing concern over the public regarding the rights of drivers.

China attacks tech companies

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Didi did not respond to a request for comment. The company detailed its pricing mechanisms in a WeChat article in May and thanked the public for their oversight and criticism.

Tech companies have responded to the reprimands by pledging to be good corporate citizens.

In a May 28 conference call, Meituan chief executive Wang Xing said the company has set up a team to cooperate with the regulators’ investigation and remains committed to social responsibility. Mr. Wang donated shares worth HK $ 17.3 billion, the equivalent of $ 2.3 billion, to his personal foundation, according to a document filed Thursday. The donation would fund projects related to education and scientific research, Meituan said.

In April, Tencent Holdings Ltd.

TCEHY 1.53%

Chief Executive Officer Pony Ma said the company will set aside $ 7.7 billion to fund projects related to public welfare, rural revitalization and carbon neutrality, among other initiatives. The gaming and social media giant has been singled out by regulators this year for issues such as financial services risks and failure to properly report past acquisitions.

“If we leverage our technology and our products to provide greater social good, I think overall we will be better received by our users, by our customers, by the government and by our employees,” said Martin Lau, president of Tencent, said on a call last month.

Write to Stéphanie Yang at [email protected]

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