China’s draft anti-monopoly rules’ impact on internet firms

People walk past a Tencent sign at the company headquarters in Shenzhen, Guangdong province, China August 7, 2020.

David Kirton | Reuters

SINGAPORE — China has drafted a slew of new anti-monopoly laws that will likely hit the country’s major internet companies, says Morgan Stanley.

It comes as the competitive landscape in China intensifies and tech giants continue to fend off new rivals that are taking away chunks of their market share, according to a report by the investment bank.

China’s bureau for regulating monopolies — the State Administration for Market Regulation (SAMR) — issued draft rules on Tuesday to stop anti-competitive practices in the internet sector. It said the laws are aimed at protecting fair competition in the market and safeguarding consumers’ interest.

SAMR is seeking public feedback on the draft rules until Nov. 30.

“We believe potential implementation of the new antitrust regulations has negative implications for major Internet companies with dominant positions across segments,” Morgan Stanley analysts said in a note on Wednesday.

It is likely due to rising risks of competition, lower barriers to entry, and higher hurdles for industry consolidation from future mergers and acquisitions.

“That said, competition has already intensified in recent years, with ‘incumbents’ (e.g., Alibaba, Tencent) losing market share to ‘disruptors’ (e.g. Pinduoduo, Bytedance), so the consequences will likely be less meaningful given reduced dominance across segments compared to a few years ago,” they added.

Chinese tech shares took a beating on Wednesday, a day after the draft regulations were announced, and the biggest tech names saw $280 billion wiped off their market value within days.

Here are five internet companies that will be negatively impacted by China’s potential anti-trust laws, according to Morgan Stanley.


There have been periodic complaints of merchant exclusivity on e-commerce platforms, including on Alibaba’s Tmall platform. The Financial Times reported earlier this year that some merchants were told they would be pushed off Tmall if they used a rival platform — a local home appliance manufacturer even sued Alibaba over it, according to a 2019 report from Chinese media Caixin.

But the new proposed regulations will not have as much impact on the e-commerce giant today as it would have had years ago, Morgan Stanley pointed out.

“This is because of the already fierce competitive environment in e-commerce nowadays,” the analysts said, adding that some of Alibaba’s market share have already been chipped away by competitors.

The draft law mentions the use of subsidies and discounts may potentially deter fair competition, which could affect “Alibaba’s promotional activities, although to what extent such subsidies will be regarded as a violation of antitrust rules remains uncertain,” the analysts said.



Pinduoduo is the fast-growing challenger to Alibaba and in China’s hypercompetitive online shopping market.

“Should the rules eventually limit the use of subsidies provided by platforms, we think that the potential limitation will affect Pinduoduo in particular, because ‘Rmb10bn subsidy’ is one of its central strategies to drive user engagement,” the Morgan Stanley analysts said.

Pinduoduo said last year that it launched a 10-billion-yuan ($1.5 billion) initiative with sellers and gave out coupons and subsidies to customers on its platform.