It has been reported on December 24 that the State Administration for Market Regulation (SAMR) has opened an investigation into Alibaba Group's alleged monopolistic practices. Xinhua News Agency reported that this is an important measure for China to strengthen anti-monopoly regulation on the internet industry, which is conducive to regulating the industry's order and promoting the long-term healthy development of the platform economy. In addition, the People's Bank of China, the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission, and the State Administration of Foreign Exchange will interview Ant Group in the near future, so as to urge and guide Ant Group to follow the principles of marketization and rule of law. This is also to ensure the company to implement the requirements of financial regulation, fair competition, and protection of consumers' legitimate rights and interests, as well as to standardize the operation and development of its financial business.
After Ant Group's IPO was suspended in November this year, the regulatory authorities then investigated Alibaba and its subsidiaries for anti-monopoly and demanded a rectification. Affected by this news, Alibaba's Hong Kong shares plunged 5% at the opening on December 24, closing down 8.132% and losing about HKD 433.4 billion in market value. Alibaba's share price will face continued downward pressure as the regulatory action against the company has just begun.
In an attempt to calm market sentiment, the People's Daily said today that the investigation into Alibaba is an important measure to strengthen anti-monopoly regulation in the internet industry. This investigation does not mean a change in the state's attitude of encouraging and supporting the platform economy, but rather to better regulate and develop the platform economy, and to guide and promote its healthy development. The People's Daily's statement was both to explain the purpose of the regulatory action and to reassure the market that the country's support for the development of the platform economy remains unchanged.
Nevertheless, the shock to markets at home and abroad is large. CNBC said the market was surprised that Chinese authorities would investigate Alibaba Group for alleged monopolistic practices. Internet companies like Alibaba used to be the star highly valued by the Chinese government. They were regarded as representatives of China's new economy and the application innovation of internet technology with huge domestic market as its base. It must be admitted that Alibaba, Tencent, JD.com, and other internet giants of China have indeed made contributions to changing the market and consumer habits in internet platform economy covering e-commerce, network sharing economy, electronic payment, and others.
From heaps of praises in the past to a sudden shift to "rectification", the attitude of government departments seems to have changed all too quickly. There is a view that China's massive platform economy is not built by the government or state-owned enterprises, but by market forces, which not only have a certain influence on the world, but also are closely related to the lives of hundreds of millions of people. Therefore, if all departments work together at the same time, it will form a wave of national inhibition of the internet giants. On the other hand, if this is mishandled, it could create a wave of strikes that "resonate" with the external pressure exerted by the United States, to create more damages. Therefore, relevant departments must be careful in their policy actions to regulate the online platform economy.
Figure: Controlled investments by China's Internet giants in numerous sectors
Source: Bloomberg
However, these views are superficial comments on the economy of internet platforms and do not touch on the core issue. Chan Kung, founder of ANBOUND, has pointed out that the core of the internet platform economy is network traffic economy, therefore that policies on the development and regulation of the internet economy should focus on this aspect. The internet once brought people a vision of freedom, openness, and sharing with its boundless nature. Yet, the popularization of the internet has also brought the internet economy, and the characteristics of its network traffic economy makes the internet economy further and further away from the original intention of its inventors.
According to Chan Kung, network traffic economy is the key characteristic of the internet economy. The so-called internet traffic is essentially the attention of internet consumers or visitors. As the internet can be freely browsed, the way to obtain traffic has become the key foundation of the internet economy. According to incomplete statistics, there are as many as 3.2 million various online platforms in China, but the traffic of these platforms varies greatly. Some platforms (such as Taobao, Weibo, TikTok, etc.) have tens of millions or even hundreds of millions of daily active users; while some platforms are browsed by just a few or a dozen people every day. Obviously, there is a huge difference in the weight of different platforms in the eyes of consumers. With traffic as the core, the internet economy has now formed a chain and ecology of "network traffic economy - traffic industry - traffic enterprise". Some Internet researchers have concluded that traffic is the basis for understanding the business logic of the internet, and that traffic is the core of the Internet enterprises, and the core logic of internet economic growth is traffic.
In an internet world that depends on traffic, a monopoly is bound to emerge. From the perspective of internet business, traffic is concentrated on the more attractive platforms as consumers can choose freely on the internet. Internet enterprises rely on the development of traffic, successful platform enterprises can attract larger traffic, effectively maintain and control it, and utilize its commercial value. The openness of the internet enables traffic to freely choose the flow, and companies that are able to attract traffic will surely move towards monopoly as they develop. In this model, it would be impossible to "fight" against monopoly in the internet economy if only rely on "after-the-fact" anti-monopoly, and the cost of anti-monopoly would be very high. It should be noted that "after-the-fact" anti-monopoly is likely to deter investors because companies and investors have no idea whether their business is involved in a monopoly.
Therefore, the key issue for government departments exercising the responsibility of regulation is to examine the policy management of the network traffic industry. It should be clear to what extent network traffic companies will trigger antitrust. To regulate the network traffic industry, an important object of regulation is the traffic platform, which is the infrastructure construction in the network traffic economy. It is important to acknowledge that it is a good thing that the market has grown so large without the country investing money in the infrastructure of the network traffic economy. However, this virtual "infrastructure" must also be managed. As ANBOUND has previously suggested, the construction of traffic platform should be managed with reference to infrastructure construction, either controlled through equity relationship or put forward anti-monopoly requirements through special industry regulation.
We would like to emphasize that the essence of the internet economy is the network traffic economy, and if some kind of anti-monopoly regulation can be applied to the "infrastructure" of traffic platforms, it will grasp the core of all internet economy management.
Final analysis conclusion:
China's regulatory authorities has begun to step up their anti-monopoly investigations into the Alibaba Group and its affiliates, which is an obvious signal of enhanced management of the internet economy. The essence of the internet economy is network traffic economy, and better management of the traffic platform will become the key to anti-monopoly regulation.
