<Editor's Pick> The first shot from the anti-monopoly policy: Alibaba, Tencent, and SF Express were hit

At a meeting of the Political Bureau of the Communist Party of China (CPC) on December 11, guidance was given to "strengthen anti-monopoly" and "prevent the disorderly expansion of capital". No one could have guessed that within a few days, the "first shot" of antitrust punishment for the giant was fired at the national regulatory level.

On December 14, the State Administration for Market Regulation issued an announcement stating that it would impose top penalties on Alibaba Investment, a subsidiary of Alibaba, China Literature, held by Tencent, and Hive Box Technology, a subsidiary of SF Express, with each company being fined 500,000 yuan. The announcement showed that three were punished for the following reasons: Alibaba invested in acquiring shares of Yintai Commercial, China Literature acquired New Classics Media, and Hive Box Technology acquired China Post Smart Delivery Technology. According to the announcement of the State Administration for Market Regulation, the three companies were punished not for actually forming a monopoly, but for "failing to file in a timely manner and causing a bad impact".

The announcement also showed that the regulatory level is investigating the merger of two major game broadcasting platforms, Douyu TV and Huya TV, led by Tencent.

Alibaba, Hive Box, and China Literature said on the same day that they had received the notice and "will actively implement it".

 

Whether it is a monopoly, it's up to regulation

The three companies punished by the State Administration of Market Regulation are from different fields and have different ways of acquiring reasons. Alibaba and Yintai, for example, have many years of experience working together in both online and offline retail. To strengthen its control over offline, Alibaba, through its investment company, has acquired more than 70% of Yintai through three investments since 2014, becoming the latter's controlling shareholder.

In August 2018, Tencent Holdings subsidiary China Literature signed an agreement with New Classics Media and others to acquire 100% of New Classics Media's shares and completed the closing in October of that year. China Literature's main business is an online literature and online reading, with a large number of literary IPs. New Classics Media is mainly engaged in the production and distribution of video and entertainment programs, and the combination of the two can directly connect the ecology from IP to film and TV productions.

SF Express's Hive Box Technology is the leading domestic express cabinet industry, which was controversial at the beginning of the year when the "express cabinet payment incident" occurred. In May this year, Hive Box Technology acquired 100% of the shares of China Post Smart Delivery by way of the share swap and completed the delivery in the same month. Both Hive Box Technology and China Post Smart Delivery are engaged in the intelligent express mailbox business in express delivery services, operating "Hive Box" and "Express Easy" brands of intelligent express mailboxes respectively. Through the acquisition of China Post, Hive Box Technology has expanded its share in the express locker industry.

The announcement showed that all three transactions were equity acquisitions and that Alibaba Investment, China Literature, and Hive Box Technology acquired control respectively after the completion of the acquisitions, which is a concentration of operators under Article 20 of the Antimonopoly Law. However, after the regulatory investigation and assessment, the above three cases are not considered to have the effect of excluding or restricting competition.

The three companies were punished on the grounds that they "had the obligation to declare but did not do so in accordance with the law". According to the Antimonopoly Law and the Regulations of the State Council on the Declaration Criteria for Operator Concentration, operator concentrations that meet the declaration criteria should be declared to the General Administration of Market Regulation in advance, and those that are not declared shall not implement the concentration. The three companies behaved similarly to "getting on the bus and not replenishing the ticket in time", so they were punished.

And because the three companies' separate acquisitions did not create monopolies or exclude competition, the regulator did not require the three to make "a deadline to dispose of shares and assets or transfer operations" to bring "the industry back to its pre-concentration state".

 

The Internet is also subject to legal restrictions

The announcement also showed that the General Administration of Regulation is currently investigating the merger of two companies, Guangzhou Huya and Wuhan Douyu, led by Tencent, although unlike the equity acquisition of the three companies mentioned above, the merger of Huya and Douyu is a "concentration of operators with an agreed control structure", which also falls under the jurisdiction of the Anti-Monopoly Law and should have been reported to the regulator in a timely manner.

The $500,000 penalty is not a large amount compared to the three company acquisitions, and the regulator believes that such a move "releases a signal to the community to strengthen anti-monopoly regulation in the Internet field, dispels the possible fluke and wait-and-see mentality of some enterprises, and produces a corresponding deterrent effect." At the same time, the regulation also believes that the fines of the Antimonopoly Law are really insufficient and have limited deterrent effect for enterprises implementing concentration, and these improvements will be shown in the subsequent amendments.

The regulation emphasized in the announcement that the Antimonopoly Law "applies to all subjects, to domestic and foreign capital, state-owned and private enterprises, large and small and medium-sized enterprises, Internet enterprises and traditional enterprises" and that the Internet industry is not outside the Antimonopoly Law.

From the point of view of the General Administration of Market Regulation punishment, not only aimed at Alibaba, Tencent, and other large companies, and it can even be traced back to 2014, the degree of concern is evident. For the Internet industry, acquiring companies to prepare for ecological development has been a customary action for a long time, and super M&A cases led by the investment industry have been common in previous years.

However, from now on, these actions will need to be approved by the regulatory authorities before any action can be taken. Although the penalty is only 500,000 yuan, the impact of the "alarm bell ringing" obviously goes beyond that.

 

This is an article from GeekPark, written by Jingyu, translated by Linda Yang.