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The recently launched antitrust investigation by the Chinese government on Alibaba is probably justified. The e-commerce giant undoubtedly has a dominant market share and engages in monopolistic practices, such as forcing merchants to make the company their exclusive online distributor or being banned from its platforms.
But other Chinese e-commerce companies have the same rule, and there are worse monopolists in China than Alibaba. So why are you targeting Alibaba?
One of Alibaba’s obvious crimes is the expansion of financial services offered by its affiliate, the financial technology giant Ant Group, which owns Alipay. Beyond being the most popular payment application in the world, with 730 million monthly users, Alipay allows consumers to invest, buy insurance and obtain loans on its platform.
Last October, Ant Group was about to launch a record 34 billion USD (137 billion ringgit) initial public offering. But the Chinese authorities abruptly stopped it, in what was described as a prudent attempt to limit the company’s exorbitant market power. The decision to block the IPO allegedly came directly from President Xi Jinping.
Now it appears that the Xi government wants Ant Group to completely ditch financial services and limit itself to payment processing. Chinese regulators have provided a litany of justifications for this decision. But the real reason was not on the list.
Payment processing is a low margin business; no state bank bothers about it. Financial services, on the other hand, are very lucrative and belong to the territory of traditional operators.
If the Communist Party of China (CCP) were genuinely committed to breaking down the monopolies and oligopolies that are stifling market competition, it would put those headlines in its sights. After all, state-owned enterprises (SOEs) such as China Mobile, China National Petroleum Corp, State Grid Corp of China, and the Industrial and Commercial Bank of China (the world’s largest bank by assets) dominate China’s economic landscape in a much larger measure. than Alibaba.
However, far from launching antitrust investigations into state-owned companies, the Chinese government has recently been seeking “mega-mergers” of state-owned companies, thus increasing its market power even further. The reason is simple: when SOEs are successful, the CPC benefits, both economically and politically.
As Xi made clear last April, state-owned enterprises are “important material and political bases” for so-called socialism with Chinese characteristics, and he plans to make them “stronger, better and bigger.”
Allowing private companies to erode the market share of state-owned companies would undermine this objective, not only by naturally weakening the regime’s control over critical economic sectors, but also by opening the way for successful private companies to challenge the CCP.
And Alibaba, co-founded by Jack Ma, one of the richest people in China, is one of the most successful (and innovative) of them all. In Xi’s eyes, it represents a threat to the political monopoly of the CCP and the regime that represents it.
To be sure, China’s tycoons have gone to extraordinary lengths to win the favor of the Xi regime or demonstrate their loyalty to it. Ma, for example, is a member of the CPC. In 2013, he called the 1989 Tiananmen Square massacre of peaceful protesters the “right decision.”
But, as the antitrust investigation on Alibaba shows, China’s private sector elites will never be genuine members of the regime. For the CCP, they are simply temporary custodians of the wealth that rightfully belongs to the Party.
Critics of Ma might view the research in progress as a well-deserved payment for his past statements or business practices. But Chinese regulators are unlikely to stop at Alibaba; The entire private sector in China has a target on its back. This has serious implications for China’s future economic prosperity and for the CCP itself.
Despite all their flaws, private companies are the most dynamic players in the Chinese economy. If the CPC represses them and leaves state-owned companies alone, private sector confidence will decline and the economy will become less productive, innovative, and efficient. Gross domestic growth will falter and the legitimacy of the one-party regime, long based on the promise of prosperity, will deteriorate.
Xi and his colleagues are probably right that by strengthening the regime’s grip on the economy, controlling the private sector will strengthen the CCP’s political security in the short term. But in the long run, the biggest victim of China’s antitrust crackdown may well be the only monopoly it must protect: the CCP’s blockade of political power.
Minxin Pei is a professor of government at Claremont McKenna College and a non-resident senior fellow of the German Marshall Fund in the United States. © Syndicate Project 2019.
The opinions expressed are those of the author and do not necessarily reflect those of FMT.
