Can new antitrust laws tame the giant tech companies?
■ Ant Group is the latest tech giant to be sued by government organisations this year. It owns one of the most popular payment apps in China, Alipay, and offers online financial services including lending, insurance and wealth management.
■ The tech company owned by the richest man in China, Jack Ma, planned to issue the biggest IPO in history earlier in November. However, just like a teenager’s dream, it came fast and went away even faster, especially without your parent’s permission. Chinese regulators shut the funding down shortly after the first day of public trading.
■ The Chinese trustbuster claimed Ant Group is preventing rivals from entering the market, exploits its consumers and lacks a sound governance mechanism. Consequently, the company has been ordered to limit its activities solely to providing payment services. However, many speculated this restriction came about after Mr Ma asserted Chinese financial regulation is obsolete and requested reform.
■ The People’s Bank of China responded to his request in a way he cannot be happy with. For instance, it introduced a series of regulations on micro-lending and stricter capital requirements that directly affect Ant Group’s key business. Thus, the company was forced to establish a separate financial holding company with adequate capital and had to improve corporate governance to rectify its businesses. ■ On Dec 27, Ant Group conceded and announced it would fully implement all regulatory requirements, enhance risk management and risk control, and establish a working group to work on ratification. The Chinese government appears triumphant in this battle.
■ A winner has not been decided in a similar skirmish in the EU, an economy known for its fair competition rules that has been challenged by giant tech companies' influence. Despite having no local dominant tech company, countries in the EU were among the first to notice big tech’s power. They tried to curb its strength long ago, with varying degrees of success.
■ This time the EU passed the “gatekeeper” rule, which some see as a rope tying the hands of incumbent firms. In addition, the EU released the draft of a digital service law aimed at forcing tech companies to take more responsibility for illegal behaviours on their platforms. Firms that break these rules would face fines of up to 6% of global revenues. If these new rules become laws, they would stand as stringent regulations for the most dominant US technology companies, namely Amazon, Google, Facebook and Apple.
■ Meanwhile, in the motherland the monopoly power of US tech giants is even more pronounced than its transatlantic allies, as the sales of the five biggest tech companies accounted for only 25% of the total in the EU, compared with 50% in the US. US trustbusters are keeping an eye on Silicon Valley. Google, for example, has been battling a relentless war in the courts for all of 2020. The company was accused of exploiting its market position to gather vast amounts of user data. Many states also sued Google for a deal with phone makers to expand its search engine monopoly by making it a default, part of a preloaded bundle of Google's applications.
■ The lessons from this story are crucial. The first involves implications for big tech’s stock prices. Various regulations are projected to be introduced this year, yet giant tech’s stock prices have not seen a correction based on this information. These stocks have skyrocketed, driving the US stock market to a record high in 2020. However, such rallies are unlikely to be repeated in 2021 because of two reasons: the reverse of safety premium trade amid growing concerns regarding the resurgence of the pandemic worldwide, and mounting antitrust suits that could curb tech power and their potential growth.
■ The second lesson is related to designing a fair market for every competitor. In a capitalist world, it is essential to balance between incentives and restrictions. There are concerns that exceedingly restrictive rules will be a hurdle for economic growth. However, when an incumbent is too big, incentives alone may not be able to fully support the functioning of a free market. We reckon that trustbusters worldwide need to swiftly execute their duty as it is a lot easier to tame a young predatory firm than a mature one.