Technology Regulation Updates
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China’s two largest tech companies on Monday pledged to open up their digital empires, a move that could reshape the online lives of hundreds of millions of users.
For the past eight years, Tencent and Alibaba have divided China’s internet into two rival camps, replicating each other’s services and blocking any interoperability between their platforms.
Tencent’s payment systems cannot be used on Alibaba’s sites and vice versa. Links to Alibaba’s online shopping sites cannot be posted on Tencent’s WeChat messaging app. Short videos from ByteDance, the owner of TikTok and its Chinese sister app Douyin, cannot be posted on WeChat either.
But after being summoned to a meeting with the Ministry of Industry and Information Technology (MIIT) last week, both companies said Monday they will give competitors access to their “walled gardens.” The meeting was also attended by ByteDance, Baidu, NetEase, Huawei and Xiaomi.
“We strongly support the decision of the Ministry of Industry and Information Technology and [will] implement it in stages,” says Tencent.
Alibaba said it will “fully comply” with the ministry’s demands to end the widespread practice among major internet giants of blocking consumers from links to other web services in their apps.
Under pressure from regulators, China’s big tech companies have already started working more closely this year, with analysts saying they would likely accelerate their efforts to be compliant.
“The companies will not drag on implementing the new rules. The compliance process will be swift,” said Li Chengdong, founder of Dolphin, a technology-focused think tank in Beijing. “The platforms are very cautious given the strict regulatory environment. They have no resources to fight against the regulators.”
Changes to the platforms should begin in the coming weeks, analysts said. In Hong Kong, Tencent shares fell 2.45 percent, while Alibaba shares fell just over 4 percent. Shares of Alibaba may also have been affected by a The Washington City Times report that Beijing wants to split up Alipay, its sister company Ant’s payment super app.
Analysts said the forced opening was widely anticipated and had been priced into the company’s stock prices since earlier this year.
Ke Yan, an analyst at DZT Research writing on the Smartkarma platform, suggested that the forced opening would hurt Tencent more, as its messaging app WeCh
at has been such a powerful driver of online traffic.
But Dolphin’s Li wondered if it would actually change consumer behavior. “When I want to buy things online, I go to Taobao or Pinduoduo. Just because I can access Taobao from WeChat doesn’t make me more likely to use Taobao,” he said.
Wong Kok Hoi, chief investment officer at APS Asset Management, said the move could eventually force tech companies to rethink their strategy to buy stakes in a large number of start-ups to build closed ecosystems.
“You won’t be able to make monopolistic profits, and more competition means lower profit margins and less sales,” Wong said.
Angela Zhang, an associate professor of law at the University of Hong Kong, said the MIIT, which led to this regulatory change, does not have the power to enforce anti-monopoly and competition laws.
But Zhang said MIIT’s intervention could lead to action by the powerful State Administration for Market Regulation, explaining why the tech companies have been so quick to declare compliance with the rules.