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How China’s big tech companies upset Beijing

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The climate is cooling rapidly for China’s tech giants.

After years of warily allowing companies such as Alibaba and Tencent the freedom to grow without significant interference, Beijing has signalled it does not like how Big Tech is behaving.

Last week, Chinese tech stocks lost hundreds of billions of dollars in value, with Alibaba falling 12 per cent in Hong Kong, after the release of new antitrust guidelines for the sector and analysts predicted that pain was on the way.

The “extensive list of well-defined monopolistic practices . . . could be a strong signal of regulatory tightening,” said Dan Baker at Morningstar.

The guidelines came after Beijing’s last-minute halt on Ant’s $37bn initial public offering, and were followed by more rules on Friday for online shopping through livestreams, one of the fastest growing areas of Chinese ecommerce.

Observers suggested that Alibaba was the biggest target, since it now accounts for three-quarters of the country’s online sales — and nearly a fifth of China’s total retail sales. It is also moving rapidly to buy up bricks-and-mortar shops across a range of categories.

“Beijing has felt that tactics by ecommerce companies are not leading to healthy development of the retail industry . . . They don’t want three or four companies [dominating], they want 1,000s of companies,” said Wong Kok Hoi, chief investment officer at APS Asset Management. “This is big, this is a game changer,” he added.

Another analyst said the new guidelines were “totally comprehensive” in scope, covering everything from how companies should use customer data, to how they should price their offerings, to what sort of promotions and subsidies they could use to attract customers.

Walled gardens

One problem that Chinese regulators are targeting is the high barriers that tech companies have erected around their empires.

For example, WeChat, the ubiquitous messaging app from Tencent, does not allow its users to share videos from Douyin, TikTok’s sister app, or to click on links that would take them to products on Alibaba’s Taobao ecommerce site.

China's unique internet ecosystem (sharing)

Meanwhile, shoppers who want to buy goods from Alibaba’s sites, such as Taobao or Tmall, or even from its Freshippo grocery stores, or its Intime department stores, cannot use WeChat Pay, the payments service owned by Tencent which is a rival to Alipay, run by Ant, Alibaba’s sister company.

One shop assistant at an Intime department store shrugged: “We’re part of the Alibaba group.”

Alibaba chief financial officer Maggie Wu told investors this autumn: “There are many businesses within this ecosystem, so that the longer people stay, the more activities they have conducted.”

The reverse is the case at JD.com, China’s largest online retailer, in which Tencent has a stake. JD.com does not take Alipay.

Wang Qingrui, an independent internet analyst in Beijing, said companies often put up barriers as they tried to “infinitely expand their own ecosystem to squeeze their competitors”.

“They claim customers are king, but in a lot of cases they just see them as assets and they don’t want other platforms to access them,” said Mr Wang.

Under the draft regulations such tactics may be deemed as abusing market dominance. Larger platforms may also be forced to open up to rivals and even share some data.

Liu Bo, an Alibaba executive, said the regulations were meant for the internet industry generally and not targeted specifically at the company. 

“Over the past ten years new regulations have frequently been put forward and we are very welcoming of them,” he said.

China’s unique internet ecosystem (payments)

Different prices for different customers

The huge amount of data collected by Chinese tech companies through their platforms as they offer services from loans to car rides to food delivery to travel tickets, allows them to treat every potential customer differently.

A journalist at China’s state Xinhua news agency reported using three different phones to look at the same hotel room on one booking site and being quoted three different prices.

The level of subsidies offered to shoppers by tech companies, such as online shopping site Pinduoduo, can also vary as they try to win new customers.

The draft rules take aim at such price discrimination and suggest that subsidies are illegal if they hinder market competition.

Pick one of two

For years, China’s tech platforms have forced their merchants and suppliers, and even start-ups they invest in, to choose which side they are on, a practice known as “pick one of two”.

Last year, for example, the world’s largest microwave oven maker, Galanz Group, accused Alibaba of directing traffic away from its store on Tmall after it started selling on rival site Pinduoduo. Galanz said its sales dropped calamitously after it failed to show loyalty to Alibaba.

JD and Pinduoduo, both backed by Tencent, have sued Alibaba for such behaviour, alleging the company abused its dominant position to prevent merchants from selling on their platforms. Alibaba declined to comment on the lawsuit.

The same phenomenon has been reported by restaurants trying to sell their food through delivery apps. The two main participants in the Chinese market, Meituan and Ele.me, are part-owed by Tencent and Alibaba respectively. Local operators for both companies have been fined for asking restaurants to choose between the apps under existing ecommerce laws, and the new guidelines ban such practice more clearly.

“It aims to protect the interests of smaller merchants — they face challenges surviving and can easily be pressured by big platforms like Meituan,” said Li Chengdong, chief executive of tech-focused think-tank Haitun. 

Banishing grey zones

More takeovers will be subject to competition reviews under the new rules, as Beijing closes a longstanding loophole.

Many big Chinese tech groups are structured as “variable interest entities”, a complicated structure that allows them to list overseas while maintaining crucial licences for doing business in China.

But Beijing has never officially sanctioned the VIE structure and antitrust regulators have turned a blind eye to their acquisitions for fear of endorsing it.

“The practice gave tech giants an excuse not to file with regulators for those transactions which may have had competition concerns,” said Scott Yu of Zhong Lun law firm. “It has been an unspoken practice.”

Lawyers pointed to Alibaba’s takeover of food delivery company Ele.me as one deal that may have met the requirements to file for approval with competition authorities but which proceeded without a filing.

The new guidelines make clear that companies structured as VIEs such as Alibaba and Tencent must also submit their acquisitions for antitrust review. Mr Yu noted that he had received a flood of inquiries from tech companies this week.



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A harrowing brush with Covid as India is ravaged

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As a foreign correspondent, my job is to tell India’s stories, not be part of them. But when I started feeling feverish while writing an article about Covid-19 vaccine policy last month, I had a gut feeling that the Sars-Cov-2 virus had found me.

I hoped it was exhaustion that I’d sleep off but the next day, still feverish, I was urged to take a Covid test. A leading diagnostic lab chain, which earlier had run an efficient home-testing service, had stopped answering its phones and responding to online requests. But a doctor friend persuaded one of the lab’s phlebotomists to collect my sample. Two days later, the results confirmed I was part of the ferocious coronavirus wave battering India and pushing its healthcare system to breaking point.

Over the following days, my physical symptoms remained mild. But it was still harrowing to be sick from a notoriously unpredictable virus knowing that drugs, hospital beds and oxygen were scarce. I suffered constant anxiety knowing I’d struggle to get medical help if I took a turn for the worse.

I quickly discovered that I’d been so focused on avoiding infection that I had no clue what to do once sick. A friend connected me to a Kolkata-based infectious disease specialist, who felt I was at low risk for severe illness. I’d had the first dose of a Covid vaccine 10 days before my fever started. But the doctor urged me to treat the illness aggressively from the start, given the chaos at hospitals.

He prescribed the antiviral drug, favipiravir, now undergoing clinical trials in the UK as a potential Covid-19 therapy but already approved in India for emergency use. Many of his patients had taken it, he said, and none suffered severely, including people in their 90s.

Normally, I’m reluctant to medicate. I knew favipiravir’s effectiveness as a coronavirus treatment wasn’t yet scientifically validated. But with hospitals turning away ailing patients, the logic of taking an experimental drug made sense. The challenge, I discovered, was to get hold of it.

I called five pharmacies, but all had run out of stock. A friend called six more to no avail. I panicked — the doctor wanted me to start the drug fast and Delhi was hours from the start of a weekend curfew. Then a friend, who’d heard I was Covid-19 positive, called.

“I’m looking for this drug,” I told her. “Any idea where I can get it?” She said she’d check. It turned out that people with foresight had prepared small emergency drug stashes. Her friend had such a stash and was willing to share it.

I was elated to get the pills to start treatment that night. But it wasn’t enough for the prescribed course. Days later I spent hours calling pharmacies in an unsuccessful hunt for more, before finally begging an industry friend to help.

My difficulties pale in comparison with the desperation, anger and grief beyond my sickroom. My Twitter feed was filled with pleas for hospital beds, oxygen cylinders, the antiviral remdesivir, plasma or a place in an intensive care unit. Top hospitals begged on Twitter for refills of dwindling oxygen supplies. Friends and many professional contacts were fighting for their lives. Doctor friends were weeping with impotent rage.

There was much grim news of death. A former Indian ambassador died after hours waiting in a hospital parking lot for admission; inpatients whose oxygen ran out; a top politician’s 34-year-old son, young journalists. Crematoriums struggled with an unprecedented flow of bodies.

I decided I had to tune out of the unfolding crisis, to ensure my physical recovery and to protect my mental health. I stopped checking Twitter. Newspapers piled up, unread.

Once I felt better and tuned back, I saw Narendra Modi’s government had cynically expanded eligibility for vaccination to all over the age of 18, despite an acute shortage of jabs.

And with thousands dying daily, often for want of medical help, the health minister was callously citing dubious official data to claim India’s Covid fatality rate was lower than richer countries — hardly consolation to grief-stricken families.

Today, I’ve recovered from my encounter with the virus. It will take far longer to get over the trauma of watching this calamity engulf the place I call home.

amy.kazmin@ft.com



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Indian foreign minister self-isolates after Covid cases detected in G7 delegation

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India’s foreign minister on Wednesday said that he was self-isolating after two members of the country’s delegation to the G7 meetings in London tested positive for coronavirus.

The face-to-face meetings in the UK capital began on Monday and are scheduled to end on Wednesday. Representatives from G7 countries such as Canada, Germany and France are attending alongside Australia and India as the UK seeks to strengthen its ties within the Indo-Pacific region.

Subrahmanyam Jaishankar, India’s external affairs minister, confirmed on Twitter that he was informed on Tuesday evening that he had been exposed to a possible Covid-19 case.

“As a measure of abundant caution and also out of consideration for others, I decided to conduct my engagements in the virtual mode,” he added. It is understood that the rest of the Indian delegation will self- isolate for the remainder of the G7 meetings.

Jaishankar held a socially distanced meeting with UK home secretary Priti Patel on Tuesday, where two agreed on a “migration and mobility deal” which will provide a “bespoke route” for young professionals from India looking to live and work in the UK. He met Antony Blinken, the US secretary of state, earlier this week.

“We deeply regret that foreign minister Jaishankar will be unable to attend the meeting today in person,” a senior UK diplomat said. “(He) will now attend virtually, but this is exactly why we have put in place strict Covid protocols and daily testing.”



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Blinken rejects claims of ‘cold war’ between US and China

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America’s top diplomat Antony Blinken has rejected claims the US is entering a cold war with China during a visit to London to discuss with G7 counterparts how best to respond to the challenges posed by Beijing.

In an interview with Financial Times editor Roula Khalaf for The Global Boardroom, Blinken said he resisted “putting labels on most relationships including this one, because it’s complex”.

“This is not about initiating a cold war, this is all about doing our part to make sure that democracy is strong, resilient, and meeting the needs of its people,” he said, referring to Washington’s intention to hold a “democracy summit” later in the year.

Joe Biden, US president, has promised to “win” the 21st century in what he has portrayed as a “battle” between democracies and autocracies and has pointed to Chinese activities that the US says are damaging the international order.

Relations between the US and China deteriorated under the Trump administration and the countries remain at loggerheads over security, human rights, intellectual property, and rules governing trade and commerce.

“We’re not asking countries to choose [between the US and China],” Blinken added in remarks at the FT Live event on Tuesday, which were broadcast after G7 countries opened their meeting with a session on China.

Ahead of the event, a US state department official said the G7 session on Tuesday morning was intended to be a forum to discuss how to work closely with allies and partners to address shared challenges from a position of strength.

Antony Blinken, US secretary of state, far right, is meeting with G7 leaders in London to discuss how best to respond to the challenges posed by Beijing © Stefan Rousseau/Pool/Getty

Blinken said the US recognised that countries have complicated relationships, including with China, and that the US did not believe other countries’ economic relationships with Beijing “need to be cut off or ended”. However, he said the US wanted to foster and protect basic rules governing commerce, the environment, intellectual property and technology.

Biden has surprised many foreign policy experts by taking an approach to China that has more in common than not with the harsh stance taken by former president Donald Trump. One big difference has been a significant effort to work with US allies and partners to create more leverage to deal with Beijing.

His approach has been welcomed by allies in Asia, such as Japan and Australia. But there is concern in the EU about the bloc being caught between the US and China, particularly in Germany.

Angela Merkel, German chancellor, has said the EU and the US do not agree on everything and that it was “absolutely clear” that their interests were “not identical” when it came to China.

The G7 comprises the US, Canada, UK, France, Germany, Italy and Japan, and this year the UK has also invited Australia, India, South Korea, Brunei and South Africa to attend as guests.

Biden recently convened the first leader-level meeting of the Quad — a group that includes the US, Japan, India and Australia — as part of this effort to work with allies to counter Beijing.

Evan Medeiros, professor of Asian studies at Georgetown University, said the Biden team’s engagement with the G7 formed part of its effort to assemble coalitions to tackle the China challenge.

He said the administration was pursuing the right strategy by saying the US did not want a cold war and did not want countries to pick sides, but he added: “The reality is everybody is going to have to make choices when it comes to China.”

But Bonnie Glaser, Asia programme director at the German Marshall Fund of the US, highlighted concerns among some that Washington’s stance was “too aggressive and too confrontational”.

“I definitely have the impression that the Germans and some other Europeans are really quite unhappy about the US approach to China,” she said.

In March, the US, EU, UK and Canada co-ordinated the imposition of sanctions on Chinese officials over the country’s treatment of Uyghur Muslims in the western Xinjiang region, triggering retaliatory sanctions from Beijing.

Biden administration officials including Blinken frame the future of the US relationship with China as “competitive, collaborative and adversarial”, depending on the issue in question.

Washington wants to co-operate with Beijing on foreign policy issues including Iran, North Korea and climate change while also defending US interests in the military, technological and economic spheres and pushing back on human rights abuses in Hong Kong and Xinjiang.

Blinken said that “a democratic recession around the world” had occurred over the past 15 years, but admitted the US had its own challenges “visible for the world to see” when it comes to democracy, in a thinly veiled reference to the disputed presidential election and January 6 Capitol attacks.



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