Draft amendment to law promises to clean up and better regulate the platform economy

On Oct 19, for the first time, China proposed major changes to its Antimonopoly Law since its enaction in 2008. The Standing Committee of the National People's Congress, China's top legislature, received a draft amendment to the Anti-monopoly Law for the first reading.

What necessitated the proposed amendment was the fervent desire to streamline and regulate China's massive platform economy that was tending to grow too big and too fast in a haphazard way that threatened to create monopolies and destabilize the economy.

Industry insiders said when the NPC Standing Committee amends the law after due deliberations, the revised law will ensure the healthy development of the multibilliondollar platform industry, which is now considered a key part of the larger economy.

The term platform economy refers to online marketplaces and other similar operations or businesses based on computer systems that allow consumers, entrepreneurs, businesses and the general public to connect, share resources, or sell products or services.

Industry insiders roughly divide platform-based companies into two categories: information aggregation platforms and platforms providing transaction, logistics and other services.

In an explanatory note, Zhang Gong, director of the State Administration for Market Regulation, said that since 2008, the Anti-monopoly Law in its existing form has already played an important role in protecting fair competition, improving the efficiency of economic operations, safeguarding consumers' and the public's interests, and promoting high-quality development.

Zhang, however, said some problems regarding inadequate penalties for certain monopolistic behavior emerged during the implementation of the law, and more efforts should be made to improve law enforcement.

The draft amendment this time will clarify the basic position of competition policy and the legal status of the fair competition review system. Fair competition reviews shall be conducted when rules involving the economic activities of market entities are made, Xinhua reported.

The move is a response to recent developments involving a string of Chinese internet heavyweights, including Alibaba Group Holding Ltd, Tencent Holdings Ltd, Meituan, JD and Suning.com－all have been investigated or fined for alleged monopolistic behavior since last year.

"One of the main goals of recent antitrust efforts is to offer timely responses to monopoly cases that are related to platform-based companies and the overall sector," said Sun Jin, director of the Competition Law and Policy Research Center at Wuhan University, who participated in the proceedings relating to the proposed amendment to the Antimonopoly Law.

"Why recent anti-monopoly cases are focused on platform-based companies is because a group of internet platforms developed into giant platforms in the digital era and have extensive market influence, which resulted in a series of new monopolistic behaviors that needed to be regulated in a timely manner," Sun said.

The latest data from the China Academy of Information and Communications Technology showed that the number of digital platforms with a valuation of over $1 billion each hit 197 in China as of the end of last year, up by 23 year-on-year. The number of platform-based companies in China and the United States with a valuation of more than $10 billion each accounted for 84.2 percent of the global total.

Liu Xu, a research fellow at the National Strategy Institute at Tsinghua University, said the nation's market regulators have maintained a generous and inclusive attitude toward the booming internet industry over the past 13 years.

"In terms of publicly filed cases related to market dominance and undeclared operator concentration, the total number of anti-monopoly enforcement cases in traditional industries far exceeded that of the internet industry during the period," Liu said.

The State Administration for Market Regulation, China's top market regulator, imposed a fine of around 3.4 billion yuan ($534 million) on food delivery giant Meituan on Oct 8 for monopolistic behavior.

According to the administration, Meituan had abused its dominant market position since 2018 to compel merchants to sign exclusive agreements with its platform. It also leveraged merchant deposits, algorithms, data and other technical methods to ensure that merchants remained loyal to it.

As part of the punishment, Meituan will be fined 3 percent of its domestic revenue last year. The company will also have to return nearly 1.3 billion yuan in deposits paid by merchants to partner exclusively with its platform.

"The punishment of Meituan vigorously maintains the fair market order of the online take-away market. It also protected the interests of smaller businesses on the platform as it asked the company to return deposits of merchants," said Wang Jian, an expert with the advisory group of the Anti-monopoly Commission of the State Council, China's Cabinet, and a professor of law at Zhejiang Sci-Tech University.

The draft amendment proposed that operators must not abuse data, algorithms, technology, capital advantages and platform rules to eliminate or restrict competition, nor can they organize other operators or provide substantive assistance for other operators to reach monopoly agreements.

It also proposed that operators that misuse data, algorithms, technology and platform rules to create obstacles or impose unreasonable restrictions on other operators will be seen as abusing their dominant market positions for unfair advantage over other market entities.

"These newly added proposals reflect that the difficulties and other problems encountered in the implementation of the Anti-monopoly Law have been improved this time, whether it is for data, algorithms, technology, platform rules, corresponding emerging capital or industries," said Deng Zhisong, a lawyer with the multinational law firm Dentons in Beijing.

Encouraging platform-based enterprises to develop does not mean allowing their indulgence and monopoly. The greatest significance of the latest antitrust efforts is to adjust to the development of the digital economy in a timely manner, Deng said.

"But China's antitrust efforts do not aim to crack down on a single company or industry," said Zhong Gang, executive director of the Competition Law Research Institute at the East China University of Political Science and Law in Shanghai.

"Platform-based technology and internet companies are expected to jump out of the battle for demographic dividends and actively seek new development, including boosting research and development capabilities. At the same time, they should take on more social responsibilities to drive sustainable social innovation," Zhong said.

In recent months, tech billionaires, including Meituan founder Wang Xing, Pinduoduo founder Huang Zheng and Xiaomi Corp founder Lei Jun, donated sizable amounts of their personal fortunes to social causes. Tencent also pledged 50 billion yuan to help the country's initiative for common prosperity.

Last fiscal year alone, Tencent reported 482 billion yuan in revenue, up 28 percent year-on-year. It remained one of the most profitable technology companies in China for the three months ended June, earning 138.3 billion yuan in revenue that yielded a profit of 42.6 billion yuan.

China's stronger supervision of the platform economy showed the country's unswerving determination to vigorously develop the digital economy to contribute to global development, Zhong said.

Li Chao, chief analyst at Zheshang Securities, said the past few decades saw a global trend of leading countries betting on antitrust efforts, to challenge big players that tended to grow into bad monopolies. More importantly, both the US and the European Union tend to focus more on fairness than efficiency.

The EU called the platform economy a "gatekeeper". A newly introduced bill in the US saw the platform economy playing a dominant role. Japan officially passed a bill to drive the transaction transparency of digital platforms last year.

"Global practices show that antitrust efforts relating to the platform economy didn't crack down on any specific giant, but tend to stimulate innovation and entrepreneurship, and furthermore ensure the market in general prospers," Li said.

In the 1970s and '80s, US antitrust measures led to tech giant IBM giving up bundled sales of software and services and disclosing its personal computer technical standards, after which Microsoft and Intel, upstream and downstream suppliers to IBM, grew rapidly.

Tech companies such as Dell also began to rise, helping lay the foundation for the US internet boom at that time, he said.