Thu, Jan 07, 2021 page8

• Casualty of China’s antitrust probe

  • By Pei Minxin 裴敏欣
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  The Chinese government’s newly launched antitrust probe into Alibaba is probably warranted. The e-commerce giant undoubtedly has a dominant market share and engages in monopolistic practices, such as forcing merchants to make the company their exclusive online distributor or be delisted from its platforms.

  However, other Chinese e-commerce companies have the same rule, and there are worse monopolists in China than Alibaba. So, why is Alibaba being targeted?

  One of Alibaba’s apparent offenses is the expansion of financial services offered by its affiliate — financial-technology giant Ant Group, which owns Alipay. Beyond being the world’s most popular payment app, with 730 million monthly users, Alipay allows people to invest, purchase insurance and secure loans on its platform.

  In October last year, Ant Group was poised to launch a record-setting US$34 billion initial public offering (IPO). However, it was abruptly halted by Chinese authorities, in what was portrayed as a prudent attempt to limit the company’s exorbitant market power. The decision to block the IPO reportedly came directly from Chinese President Xi Jinping (習近平).

  Now it appears that Xi’s government wants Ant Group to abandon financial services altogether and confine itself to payment processing.

  Chinese regulators have provided a litany of justifications for this decision, but the real reason did not make the list: Payment processing is a low-margin business, and no Chinese state-owned bank bothers with it. Financial services, by contrast, are highly lucrative — and the territory of state-owned enterprises (SOE).

  If the Chinese Communist Party (CCP) was genuinely committed to breaking up monopolies and oligopolies that are stifling market competition, it would put those incumbents in its sights.

  After all, SOEs such as China Mobile, China National Petroleum Corp, State Grid Corp of China, and the Industrial and Commercial Bank of China — the world’s largest bank by assets — dominate China’s economic landscape to a far greater extent than Alibaba.

  Yet far from launching anti-monopoly investigations into SOEs, the Chinese government has recently been pursuing SOE “mega-mergers,” boosting their market power even further.

  The reason is simple: When SOEs succeed, the CCP benefits, economically and politically.

  As Xi made clear in April last year, SOEs are “important material and political foundations” for so-called socialism with Chinese characteristics, and he plans to make them “strong, better, and bigger.”

  Allowing private firms to erode SOEs’ market share would undermine this objective, not only by naturally weakening the regime’s control over critical economic sectors, but also by opening the way for successful private firms to challenge the CCP.

  Alibaba — cofounded by Jack Ma (馬雲), one of China’s wealthiest people — is one of the most successful (and innovative) of all. In Xi’s eyes, it thus represents a threat to the CCP’s political monopoly and the regime that represents it.

  To be sure, China’s tycoons have made extraordinary efforts to curry favor with or demonstrate their loyalty to the Xi regime.

  Ma, for one, is a member of the CCP. In 2013, he called the 1989 Tiananmen Square Massacre of peaceful demonstrators the “correct decision.”

  However, as the antitrust investigation into Alibaba shows, China’s private-sector elites will never be genuine regime insiders. For the CCP, they are merely temporary custodians of wealth that rightfully belongs to the party.

  Ma’s critics might regard the unfolding investigation as comeuppance for his past statements or business practices, but Chinese regulators are unlikely to stop at Alibaba: China’s entire private sector has a target on its back.

  This has serious implications for China’s future economic prosperity — and for the CCP itself.

  For all their flaws, private firms are the most dynamic players in the Chinese economy. If the CCP cracks down on them, while leaving SOEs alone, private-sector confidence would dwindle, and the economy would become less productive, innovative and efficient. GDP growth would falter, and the legitimacy of the one-party regime — which has long rested on the promise of prosperity — would deteriorate.

  Xi and his colleagues are probably right that, by strengthening the regime’s grip on the economy, reining in the private sector would bolster the CCP’s political security in the short term.

  However, in the longer term, the biggest casualty of China’s “antitrust” crackdown might well be the one monopoly it is meant to protect: the CCP’s lock on political power.

  Pei Minxin is a professor of government at Claremont McKenna College and a non-resident senior fellow at the German Marshall Fund of the United States.

  Copyright: Project Syndicate
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