Recently, the Chinese central bank and other financial regulatory authorities have imposed significant penalties on platform companies such as Ant Group. The People’s Bank of China (PBoC) stated that most of the prominent issues in the financial operations of platform companies have been rectified and that the focus of financial management authorities has shifted from driving concentrated rectification of platform companies' financial operations to normalized supervision. This statement essentially indicates the conclusion of the crackdown on the disorderly expansion of internet platform companies. Subsequently, with increasing support and encouragement from higher authorities towards platform companies, there has been a notable shift in policy trends.
On July 12, in a symposium on platform companies chaired by Chinese Premier Li Keqiang, he emphasized the platform economy's emergence as a catalyst for expanding demand, driving innovation, creating employment opportunities, and supporting public services. Li recognized the significant potential of the platform economy and urged platform companies to maintain confidence, enhance their internal capabilities, and drive further innovation to empower the real economy. Additionally, the National Development and Reform Commission (NDRC) has supported the development of platform companies by disclosing exemplary investment cases. The NDRC noted that platform companies have increased investments in areas like technological innovation and empowering the real economy. In the first quarter of 2023, the top 10 platform companies in China, based on market value, significantly amplified their investment efforts through autonomous or subsidiary investments. The proportion of investments in sectors such as chips, autonomous driving, new energy, and agriculture has consistently risen, with a 15.6 percentage point increase compared to the previous period.
The recent developments concerning internet platform companies indicate a shift in regulatory approach from the regulations aimed at preventing the "disorderly expansion" of capital in previous years to a more supportive approach. This policy support and reduced regulatory uncertainty are undoubtedly beneficial for the future development of platform companies in China. However, for platform companies that have endured the previous challenging time of the internet realm, the challenge remains in how to expand their market space after undergoing strict regulatory oversight.
In recent years, there have been regulatory crackdowns on the unchecked expansion of internet platforms in sectors such as finance and public services. This has led to the rectification and withdrawal of these platforms from these domains. Even prominent internet financial companies like Ant Group, once they lost their dominant market position, have transformed into ordinary loan companies lacking a competitive edge. In the realm of financial technology, both major internet platform giants and traditional financial institutions have increased their investments and fortified their positions to safeguard against customer erosion. As a result, platform companies face limited opportunities to reap substantial benefits in the financial sector compared to before, with their scope for expansion constrained.
In the consumer market where platform companies hold an advantage and internet penetration is high, despite the favorable digitalization trends in the past three years due to the impact of the COVID-19 pandemic, this sector is currently approaching saturation. The growth rate of China’s online retail sales has gradually declined from its peak in 2017, indicating limited future market space in the consumer domain. Furthermore, this field faces a competitive landscape dominated by several industry giants. Despite the large market size, further expansion encounters restrictions and intensified competition. Additionally, in recent years, new attempts in sectors such as fresh produce and instant retail have resulted in fierce competition, leading to the elimination of numerous contenders and substantial investment losses. The much-anticipated cross-border e-commerce sector, although benefiting from the strengths of domestic internet platform companies, faces regulatory challenges from sovereign nations. In an increasingly complex external environment outside of China and escalating geopolitical risks, it is inevitable for cross-border e-commerce to face various obstacles in developed countries, while in developing nations, limitations arise from factors such as local residents' income and communication conditions. Therefore, there is considerable uncertainty regarding the ability of cross-border consumption to develop rapidly.
In the realm of industrial digitization, significant opportunities lie in two areas: industry-specific digital empowerment and the digitalization of public and government services. However, unlike the rapid growth of the consumer-focused "ToC" model in the past, digital services targeting businesses and government entities require platform companies to adapt their development models, strategies, and approaches to accommodate diverse and specialized needs. Furthermore, these sectors demand substantial investment in technology research and development. Due to the high barriers to industrialization, these domains may not foster traditional giant enterprises as before, but rather a proliferation of specialized and innovative companies with a strong focus on niche segments. The limited scope for industrial digitization within these specific segments makes it challenging to expand into other industries. This challenge is evident in the development trajectory of "new forces in vehicle manufacturing" and their current position within the industry, highlighting the difficulties faced by platform companies when venturing into these domains.
In this context, researchers at ANBOUND believe that although platform companies are currently receiving more support and encouragement from policies, there has been a fundamental shift in the regulatory trend for these companies. However, as the mobile internet market approaches saturation, the era of platform companies enjoying easy success and passive gains is coming to an end, and they are entering a new phase of development. While they have gained policy space, they will face challenges in expanding their market presence.
The changing market environment means that there are limited areas where platform companies can thrive. Platform-based enterprises face greater challenges as they enter a new era. Some overseas institutions believe that Chinese platform companies currently hold a position in certain application areas, but in terms of internet infrastructure research and technology, they still rely heavily on the United States and the West. This also implies that platform companies need to do their homework in fundamental research areas, which requires substantial investment. However, the returns on such investments are limited. In a situation where profitability and cash flow are increasingly important for platform companies, it is unclear whether these companies are willing to adopt long-term strategies and invest in foundational research.
In the future, platform companies that can persist long-term and maintain market position will have two key conditions. Firstly, they need to have a solid foundation in basic technology and research, enabling them to independently drive the improvement and innovation of their application-oriented technologies. Secondly, they should possess technical accumulation and advantages in specific industry segments. In other words, technology remains the foundation for the survival and development of platform companies. However, showcasing expertise in this regard goes beyond receiving a green light from the capital. It requires time and technological accumulation, as well as talent cultivation.
Final analysis conclusion:
Currently, the phase of stringent regulation on the development of platform companies in China has come to an end, with an increasing number of policies providing a green light and expanding policy space. However, the market environment for platform company development has changed significantly. The previous approach of rapid expansion driven by technology and capital no longer has room. Moving forward, platform companies will need to focus on cultivating specific domains. Based on trends, it is expected that platform companies will inevitably experience a deceleration in their future development.
