After Alibaba and Meituan, ought to Tencent be sweating China’s antitrust drive?
Alibaba’s antitrust investigation marked a milestone for the country’s tech sector. This was underscored by the $ 2.8 billion fine the state administration of market regulation (SAMR) imposed on the e-commerce juggernaut in April. Now that the SAMR has its eyes on Meituan, many are wondering about another tech titan – Tencent – who was largely absent from regulatory scrutiny after being one of 12 companies fined small in March.
The Shenzhen-based social and gambling giant with a market capitalization of $ 740 billion, which even surpasses arch-rival Alibaba at $ 576 billion, has so far flown under the cartel radar. However, this does not mean that the company is still clear.
While Tencent has a more harmonious relationship with Chinese regulators compared to its Hangzhou rival, the company’s oversized presence has created monopoly problems in areas such as gaming and social media. SAMR is reportedly already preparing a fine of RMB 10 billion (US $ 1.74 billion) for Tencent, according to Reuters, citing two unknown sources with knowledge of the matter.
The likely fees? Past antitrust review acquisitions and investments, anticompetitive link blocking practices on WeChat competing apps from Alibaba and ByteDance, and other anticompetitive measures, particularly those related to Tencent’s music streaming unit that went public in the US, are not properly reported almost three years ago Years.
The fine should “be significant enough for the state market regulation administration to set an example,” said sources speaking to Reuters.
While Alibaba tried to allay investor concerns in its latest earnings report, Tencent will announce its first quarter earnings on Thursday. Investors will look for an update on the company’s position as part of China’s broader antitrust campaign.
PUBG Mobile has been a key revenue driver for Tencent’s gaming business. Photo courtesy of the Anadolu Agency.
An investment company masquerading as a technology company
Tencent’s investment strategy has always been central to the company’s philosophy and development since its inception in 1998. When Tencent’s legendary product developer Allen Zhang released WeChat in China in 2011, the company accelerated its expansion into a variety of industries including healthcare, e-commerce, education and mobility. According to Traxcn, Tencent had made 23 acquisitions and invested in 565 companies by May 2021.
With the Chinese government tightening restrictions on reporting investment deals for review – even by variable rate companies (VIEs) that have long been in the industry – Tencent’s dynamic investment portfolio may be subject to tighter government scrutiny.
The company’s core gaming business is a prime example of Tencent’s investment network. In addition to notable deals like Tencent’s 40% stake in Epic Games and the acquisition of Riot Games in 2015, the company funded 31 startups in the gaming sector in 2020 alone. Tencent’s investment momentum even accelerated in 2021, as the company invested in a gaming startup almost every three days during the first quarter of the year.
Tencent was also the orchestrator of a merger between China’s two largest live streaming gaming platforms, Huya and Douyu. The two platforms, which are essentially Chinese versions of Amazon Twitch, together occupy over 90% of the Chinese gaming broadcast network. The two US-listed companies announced their merger plan on October 12th and plan to complete the process in the first half of this year. However, China’s SAMR announced a review of the agreement in December 2020 to investigate possible violations of antitrust and privacy laws. The investigation is still ongoing, but reports suggest that the move could soon get the green light from regulators.
Imagine a scenario where Apple and Amazon are in a bitter war of defiance and you, as a consumer caught in the crossfire, can no longer open the links from Amazon via iMessage on your phone. This is essentially what has been going on in China for years.
Chinese consumers are too familiar with getting a link to a product on Alibaba’s Taobao marketplace through WeChat. However, clicking on the link will result in an error, as Tencent has blocked access to links from competing companies in order to “optimize the user experience and protect the legitimate rights of users,” according to WeChat’s 2019 guidelines. The same applies to Alibaba’s corporate communications platform DingTalk, whose links have also been blocked by WeChat.
To get around this minor dispute between China’s richest tech companies, users need to copy the link to their clipboard and then open Taobao, DingTalk, or other restricted links in their mobile browsers.
Tencent also blocked links to ByteDance products like Douyin and TikTok, and even the work collaboration platform Feishu. This led to a lawsuit by ByteDance in September 2019 accusing Tencent of abusing its dominant position in an apparent violation of antimonopoly laws. In one of the first of many legal disputes between the two companies, ByteDance sought compensation of RMB 90 million (US $ 13.94 million) in January.
These types of anti-competitive measures are likely to attract the attention of the SAMR and its antitrust authorities, and although Tencent has stated that it will comply with regulations and work with officials, the outcome of a possible investigation, even if it does not have a devastating impact on Tencent’s business, could be felt Have consequences for the company’s business strategies and practices.