China on Tuesday laid out detailed regulations for the first time to root out monopolistic practices in the internet industry, as Beijing seeks to curtail the growing dominance of corporations like Alibaba Group Holding Ltd. and Tencent Holdings Ltd.
The country’s antitrust watchdog is seeking feedback on a raft of regulations that establish a framework for curtailing anti-competitive behavior such as colluding on sharing sensitive consumer data, alliances that squeeze out smaller rivals and subsidizing services at below cost to eliminate competitors.
They may also require companies that operate a so-called Variable Interest Entity — a vehicle through which virtually every major Chinese internet company attracts foreign investment and lists overseas — to apply for specific operating approval. And they also restrict the targeting specific customers through their online behavior, a common practice adopted by players both at home and abroad.
The latest proposal follows heightened scrutiny of technology companies worldwide, as regulators investigate the extent to which internet giants from Facebook Inc. to Alphabet Inc.’s Google can use valuable data to shore up their dominance. Consumers in China — home to some of the world’s largest corporations from e-commerce giant Alibaba to WeChat-operator Tencent — have in recent years protested against the gradual erosion of their privacy via technology from facial recognition to big data analysis. Alibaba and Tencent were both down more than 3% in Hong Kong, in line with a broader tech selloff.
It’s unclear how the regulations put forth by the State Administration of Market Regulation will be enforced. Beijing is increasingly seeking to diminish the influence that a handful of its tech corporations wield over vast swathes of the economy. It investigated Tencent’s music arm’s exclusive agreements with publishers last year, and most recently modified regulations to rein in risk at fast-growing micro-lending entities such as Ant Group Co. The latter step derailed Ant’s planned IPO last week, before it was to complete what would have been the world’s largest such offering on record.
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The twin Chinese firms now dominate e-commerce and gaming, and are key backers of leaders in adjacent businesses such as food delivery giant Meituan and car-hailing leader Didi Chuxing. They’ve together invested billions of dollars in hundreds of up-and-coming mobile and internet companies, gaining kingmaker status in the world’s largest smartphone and internet arena by users. Companies like TikTok-owner ByteDance Ltd. and Tencent-rival NetEase Corp. that have risen to prominence without backing from either of the pair are viewed as rare exceptions. In other areas, Baidu Inc. dominates online search.
The new rules were proposed in accordance with China’s Anti-Monopoly Law, which included broad language governing internet companies in January for the first time. The watchdog will seek public feedback on the regulations till Nov. 30.
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