The Chinese government is moving to seize the power of some of China’s most influential internet companies. The country’s top market regulator announced Monday that it is penalizing Alibaba and China Literature, Tencent’s e-book spin-off fan, for failing to report their previous acquisition deals for clearance.
The cases include Alibaba’s equity investment in the acquisition of film studio New Classics Media by major Chinese mall operator Parter Intown and China Literature. According to the notice, the companies will pay a fine of 500,000 yuan (76,000,000) each. Despite the amount of poultry compared to the size of the company’s multi-billion-dollar deal, the fine is expected to sound frightening for players in other industries, a market regulator spokesman told a news conference.
Alibaba has been expanding into offline flight retail, in part, through aggressive acquisitions in recent years. Tencent, which has built the digital entertainment empire, has similarly invested in outside partners to help expand its reach.
The companies failed to obtain regulatory approval, although neither deal was considered “excluding or restricting market competition.” As such, the Market Authority ordered fines rather than violations of China’s anti-trust laws.
China Literature says it is strictly following the regulatory order to work on compliance and clearance requirements. Alibaba could not immediately be reached for comment.
The merger between streaming giants Hua and Duo, both Tencent-backed games, is also under investigation by anti-trust regulators.
The Alibaba and China Literature cases mark the first time that China has fined companies as “variable interest companies” for violating market concentration. The VII Internet Corporate VI template is popular among Chinese Internet companies because it allows them to operate as domestic companies controlled by foreign companies, but the setup is controversial because it allows companies to find regulatory loopholes.
The Chinese anti-trust law, which was launched in January to seek public comment, is currently under amendment, the market director said in a press conference. Last month, the government unveiled a set of draft rules targeting monopolistic behavior between Internet companies, though industry experts have noted the rules are expected to be complex.
… Stop when these bigcos they also clearly offer a lot of advantages, and the geopolitical realities, make it all very complicated. Will the platform be more regulated in China? Yes. Will they break? Doesn’t it look like he’s still going in that direction? / End
– Rui Ma 马 睿 (@ Ruima) November 16, 2020
