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China’s Big Tech crackdown

The market implications of Beijing's regulatory turn

Like Washington and Brussels, Beijing is worried about the growing power of large technology companies. But China’s regulators are taking swifter, more radical action than their peers in the West.

Founded in 1999, Jack Ma’s company Alibaba quickly grew to become the dominant Chinese e-commerce firm. It also expanded into other areas, including artificial intelligence, cloud software and even filmmaking. An affiliate firm, Ant Group, controls Alipay, a leading mobile payments platform.

Ma himself became a globally recognised personality, criss-crossing the world in a private jet to ink joint ventures, buy real estate and glad-hand with foreign leaders. But in October 2020 he finally overreached, making a speech in which he likened state-run banks to pawnshops and branded financial regulators “an old people’s club”.1

The response was swift. The following week, the Shanghai Stock Exchange cancelled Ant Group’s $37 billion initial public offering (IPO) – which would have been the world’s biggest – citing “changes in the financial regulatory environment”.2 In December, the State Administration for Market Regulation (SAMR), an antitrust body, started investigating Alibaba over alleged monopolistic practices.

Ma disappeared from public view, prompting rumours he had been detained by the authorities. After a three-month absence, he posted an online video on January 20: striking a humble note, he said he and his colleagues would devote themselves to “education and public welfare”.3

Fall of the house that Jack built

Ma’s downfall is emblematic of a wider shift in Beijing’s attitude towards China’s tech giants and the tycoons who run them. Over recent months, a raft of new financial, antitrust and data-protection laws have been introduced, leaving tech bosses scrambling to comply. The sudden clampdown has sent shivers through the country’s equity markets and beyond.

Beijing is trying to balance the interests of China’s national tech champions with its own policy objectives

On April 10, 2021, regulators fined Alibaba a record $2.8 billion for abusing its dominant market position and called on other tech giants to conduct “comprehensive self-inspections” to ensure they are adhering to competition law.4 It was not an idle warning: the following week, the regulator opened a new antitrust investigation into takeaway delivery platform Meituan.5

For many years, Beijing took a hands-off approach to the technology sector, willing to countenance the rapid growth of national champions that provided convenient services to the population at home and commanded respect on the world stage. But now the government has changed tack, and for reasons that differ from those driving recent regulatory moves in the West.

“Beijing is trying to balance the interests of China’s national tech champions with its own policy objectives,” says Alistair Way, head of equities at Aviva Investors. “The factors behind this regulatory tightening are threefold: The first is political, about affirming who’s in charge; the second is economic, and has to do with stabilising the financial system; the third is the antitrust element, motivated by concerns over competitiveness.”

The battle for power

The clampdown on tech giants can be seen to reflect the all-powerful nature of central government under President Xi Jinping, who has cemented control over the Communist Party and the state since constitutional term limits on his office were abolished in 2018.

The regulatory blitz on Ma’s businesses could be the first step in what The Economist calls a “de-tycoonification” of the tech sector. March saw the surprise resignation of Colin Huang, founder and CEO of fast-growing e-commerce firm Pinduoduo, ostensibly to pursue new interests – reports suggest he was wary of leading the company at a time of greater scrutiny from regulators – while other moguls, such as Tencent founder and CEO Pony Ma, have sought to prove their loyalty to the government by calling publicly for tougher regulation on their own businesses.6

Regulators are battling tech firms seeking to make inroads in finance

While Jack Ma’s speech might have been the immediate catalyst for some of these developments, they also represent the latest episode in the long-running battle between regulators and tech firms seeking to make inroads in finance.

The key selling point for investors in the lead-up to the ill-fated IPO was Ant’s consumer lending business. Ant’s lending to consumers ballooned to over 1.5 trillion RMB ($250 billion) as of June 2020, according to Reuters data. This made it the country’s largest lender, surpassing traditional retail banks that faced stricter capital requirements.7 Now regulators have moved to level the playing field.

“Although the timing was dramatic, the intervention to thwart Ant Group’s IPO shouldn’t have come as a surprise. It looked as though Ant was trying to aggressively push through its IPO on a wave of publicity from investment banks and hysteria among retail investors, before regulators could properly assess the implications for financial stability,” says Way.


In their public statements, China’s regulators have argued these measures are not simply about financial stability, but also about bringing tech companies into line with the country’s modernised competition and data protection laws. As in the West, the government is concerned these firms are using the information they collect on users to manipulate online behaviour and outmuscle smaller competitors.

The SAMR investigation into Alibaba found it guilty of using its “market position, platform rules and data, and platform position” to reward merchants that used its shopping sites exclusively, and to punish those that did not. Meituan also stands accused of forcing exclusivity on partner firms and implementing algorithmic price discrimination.8

China’s antitrust regulator can be wielded by the central government as a powerful strategic tool

In a separate case, platforms backed by Alibaba, Meituan and Pinduoduo have been fined for running so-called “group-buying schemes” that became popular during the pandemic, whereby communities would club together to purchase heavily discounted groceries via the major e-commerce platforms. The schemes sparked concerns over employment, because smaller food retailers were being squeezed out.

This points to a difference between China’s regulatory approach and Western counterparts. Although the group-buying schemes were good for consumers, who benefited from lower prices, this did not stop SAMR putting in measures to control them.

By contrast, US and European regulators are typically constrained by the need to prove companies’ activities have hurt consumers before they bring antitrust action. This suggests that China’s antitrust regulator can be wielded by the central government as a powerful strategic tool.

Control of data

A similar tension between the rule of law and the government’s strategic objectives is evident in China’s recent moves to update its data protection regime, which should curb technology firms’ ability to hoard user information. The government has introduced a Cybersecurity Law, a Data Security Law and a draft Personal Information Protection Law since 2017.

Chinese companies are getting much better at informing the user and authorities when there is a breach

Non-profit organisation Ranking Digital Rights finds that China’s 2017 Cybersecurity Law has been particularly effective at improving tech companies’ record on reporting data breaches to users. The report also finds that investor engagement with Chinese companies on environmental, social and governance (ESG) criteria can be effective in encouraging these firms to improve their standards.

“Chinese companies have improved significantly in that, when there is a breach, they are getting much better at informing the user as well as the authorities. That is not something that you see as standard practice across the world by any means,” says Louise Piffaut, senior ESG analyst at Aviva Investors. “Nevertheless, governance experts are still concerned by the government’s access to data in China.”

On the one hand, Beijing has brought in laws to protect consumers, perhaps wary of a social backlash if big companies continue to indiscriminately hoover up personal data. On the other, Beijing is trying to preserve its own access to private data – a major concern in a country that is already notorious for its surveillance of citizens.

Market impact

Unlike in the US, where the announcement of antitrust investigations into Google and Facebook barely dented share prices, Beijing’s regulatory tightening has had a pronounced market impact.

Alibaba’s shares fell sharply in the wake of the cancelled Ant IPO and the start of the antitrust investigation in late 2020. During this period, some of Alibaba’s rivals, such as JD.com and Pinduoduo, rose in value, reflecting a view that Alibaba was an isolated case and its rivals would be able to grab market share.

But the widening of the regulatory crackdown has impacted these other firms, as reflected in the sharp decline in the Hang Seng Tech Index of Hong Kong-listed stocks, on which many of mainland China’s largest internet and e-commerce firms are represented (see Figures 1 and 2).

Way says other factors were partly responsible for this decline, including a wider rotation of portfolios out of “growth” towards “value” stocks, but the shift in regulation is undoubtedly “the biggest driver of stock prices at the moment”.

Figure 1: Hang Seng Tech Index
Hang Seng Tech Index
Source: Hang Seng Indices, as of April 21, 2021
Figure 2: Relative equity market performance of China’s major tech firms
Source: Bloomberg, as of April 30, 2021

Levelling the playing field?

The crackdown on Big Tech may bring some market benefits. For one thing, the meteoric rise of the Chinese tech giants had distorted wider emerging market indices and brought possible concentration risk. At its peak in October 27, 2020, shortly before the response to Jack Ma’s fateful speech, Alibaba accounted for almost nine per cent of the index; as of May 20, 2021, its index weighting was just below five per cent, according to Bloomberg data.

The crackdown on Big Tech may bring some market benefits

This suggests one consequence of the antitrust action would be to bring about a more balanced, diversified and competitive economy that would probably benefit markets in the long run. Other Chinese companies whose business models are better suited to the government’s strategic objectives could find opportunities in this new environment.

The crackdown on Ant Group, meanwhile, could permanently reshape China’s fintech sector and potentially insulate traditional lenders from disruption. By forcing Ant to separate its payments and consumer loans businesses – and potentially making it share its data – the government has provided banks with a competitive moat.

“Ant’s story serves as a reminder of something investors in China should have known already: you always need to be aware of subtle shifts in the tone of statements emanating from official bodies. No company – not even a tech goliath – is big enough to defy the state,” says Way.

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