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As Chinese regulators prepare antitrust measures against internet giant Alibaba, the Judiciary Committee of the US House of Representatives made nearly identical accusations against Amazon.com, the dominant US online retailer and pioneer of the US. electronic commerce in the world. Both companies used their dominant market share to force traders to enter into exclusive deals that exclude competitors, regulators allege.
It is not often that Chinese and US regulators approach the same problem in the same way, but the economics of Internet retail poses the same problem in both countries. There is a blurry line between what economists call “natural monopolies” due to the network effect, which gives enormous advantages to a major player like Amazon, Facebook or Google, and the predatory exercise of monopoly powers to crush competitors. . Tech industry regulators around the world are in the same boat, despite radical differences in regulatory systems.
Some Western commentators claim that a power struggle between China’s communist leadership and businessman Jack Ma, founder of Alibaba, motivated the antitrust crackdown by Alibaba and other Chinese tech giants. Chinese authorities postponed a planned $ 36 billion initial public offering for Ma’s Ant Financial in early October after the billionaire publicly clashed with Chinese Vice President Wang Qishan.
The fiery Mr. Ma dismissed Chinese state banks as “pawnshops”, much to the chagrin of the Chinese authorities. Wang urged Chinese regulators for caution, stating: “We must insist that financial services serve the real economy, we must persist in preventing and dissolving financial risks, we must adhere to both financial innovation and strengthening supervision.”
But whatever the political or personality issues may have been, the underlying economic problem in China is the same one that US and European regulators are trying to address.
“Amazon’s pattern of exploiting sellers, enabled by its dominance of the market, raises serious competition concerns,” the House Committee stated in an October 2020 report. The House allegations closely resemble concerns from Chinese regulators, who have focused on Alibaba’s policy of forcing merchants to use its platform exclusively, among other alleged abuses, including selling below cost to crush rivals.
Chinese regulators have long complained about the platform’s exclusivity, where Alibaba reportedly blocks traffic to merchants listing their products on a competing platform. Last month, regulators imposed nominal fines on Alibaba and its rival Tencent.
The House Judiciary report states that Amazon used more subtle but insidious means to extract excessive fees from merchants using its platform: “In 2018, third-party sellers paid Amazon $ 39.7 billion in fees, which totaled approximately 25% of Amazon’s $ 160 billion in Gross Merchandise Volume. This amount includes commissions, fulfillment and shipping fees, and other third-party vendor services, but does not include revenue from third-party vendor advertising fees, which they are often substantial. An internal Amazon document suggests that the company can raise fees to outside sellers without worrying about them switching to another market. “
Monopoly abuse of customer data is another concern of Chinese regulators, who have warned that large Internet companies can use their customer data to model owners and create roadblocks for new market entrants.
Amazon also faces accusations that it has misused customer data. A Wall Street Journal investigation earlier this year claimed that “Amazon.com Inc. employees have used data about independent sellers on the company’s platform to develop competing products, a practice that contradicts the policies set forth by the company. The online retail giant has long claimed, including before Congress, that when it makes and sells its own products, it does not use the information it collects from the site’s individual third-party vendors – data those vendors consider proprietary. However, interviews with more than 20 former employees of Amazon’s private label business and documents reviewed by The Wall Street Journal revealed that the employees did just that. Such information can help Amazon decide how to price an item, what features to copy, or whether to enter a product segment based on its earning potential, according to people familiar with the practice, including a current employee and some former employees. who participated in it. . “
Another concern on the part of the Chinese authorities is the increased leverage of the financial system created by microlenders like Ant Financial, which has rapidly accumulated a loan portfolio of $ 300 billion. Today, Ant borrows from state-owned banks and transfers the funds to small businesses and individuals, using a proprietary Big Data algorithm to determine creditworthiness. It then resells all of the loans, except for 2%, to secondary investors, with very little credit risk. The Chinese authorities reportedly want Ant to keep 30% of his loans on his own books. Some Chinese big data analysts question whether Ant Financial’s models are as reliable as the company claims.
The Chinese government wants to reduce risk, partly because China’s debt grew rapidly after the global recession of 2009, and partly because it is concerned about the stability of the international environment. China has enjoyed record entries into its stock market as Western central banks ease monetary policy in response to the global COVID recession.
The global environment presents risks for China, wrote Peking University Professor Huang Yiping on December 11 on the popular news site guancha.cn: “Internationally, tomorrow’s economic situation is also very uncertain. The epidemic in many of the major Western countries remains very serious and how it will develop further is unknown. It may last a year, two years, or even longer; perhaps the vaccine will be successfully developed soon and fully implemented immediately, the epidemic will be complete by next spring, and the economy will recover strongly. It is difficult to determine what chance will be taken. “
“Even if the epidemic is over,” added Professor Huang, “we will still have to face the problem of excess supply of foreign exchange after the economic rebound. Will the Fed and the European Central Bank quickly withdraw from the current quantitative easing policy in the future? Once the European and US central banks return to monetary policy normalization, they will often cause a large amount of capital to flow back. This means that we may face new capital outflows and currency devaluation pressures. In this case, we must also be completely mentally prepared. “
