China will NOT break up tech platforms: PKU task force
"Don't be too pessimisstic," as country needs platforms to compete globally
Last year, the National School of Development at Peking University created a task force to study China’s “platform economy” and its regulation. Professor Huang Yiping of the NSD summarized the findings in a live-streamed long speech (Chinese) in November. Pekingnology provided a full translation in December.
Recently, the task force announced a 40-part commentary series on platform economy, and below is one (perhaps the first?) of them originally published on the NSD’s website on Monday, August 15. The authors are Xu Jianguo, Associate Professor of Economics, NSD, and Li Huixuan, School of Economics, Beijing Technology and Business University.
Below is not a full translation.
The first half of the piece, entitled 中国平台反垄断的基本方向 Basic Directions in Anti-Monopoly against China’s Platforms, is a summary of well-known facts in the recent regulatory moves against platforms in China, the U.S., and the European Union. It can be summarized in one sentence, which is at the beginning of the second half:
Therefore, this round of anti-monopoly against platforms is a global phenomenon and not unique to China. So, what can we say about the future of Chinese platforms? In fact, there is no need to be too pessimistic. There are two basic reasons.
And here we go.
(The Chinese platforms the authors refer to here include BABA 0.00 , Tencent, BIDU 0.00 , Meituan, Kuaishou, TCOM 0.00, JD 0.00 , PDD 0.00, and BEKE 0.00 )
First, the platform represents the future of business. Any country that wants to participate in the global competition must support the development of its own platforms.
The essence of a platform is to build a market, which is essentially different from traditional enterprises. The traditional enterprise, facing a market, strives to do a good job in products and exploit this market. With the improvement of product quality and the decrease in cost, its market share may expand, but the enterprise is still a party in the market - a supplier of goods, not a builder of the market.
Platform enterprises are different. The platform enterprise is the builder of the market, not the supplier of goods. Alibaba, for example, does not produce its own goods, but has built a hypermarket. In this hypermarket, producers, distributors, service providers, and consumers are gathered, each taking their own needs, forming a business ecosystem. In this sense, platform development is market development, which is of great significance.
In this market, Alibaba is more like a manager, charging various service fees, such as advertising fees, diversion fees, management fees, etc. Therefore, the platform provides "public services" and receives the usage fees of public services. Its nature is similar to a kind of manager or even a kind of "quasi-government".
The platform's identity as a "market builder" and a "public service provider" makes it more difficult for anti-monopoly against platforms. Traditionally, the purpose of anti-monopoly is to prevent an enterprise from being too large and the market power too strong, which will squeeze the competitors and which is not conducive to competition or the growth of the market. The approach adopted is often to control the relative size of large enterprises and, if it is too large, to break them up. Then, it will also restrain the unfair competition behavior of large enterprises and encourage competition.
However, the platform itself is the market, and the huge platform enterprise itself is the result of the development and growth of the market. If we restrict the scale of the platform, we will restrict the growth of the market, which runs counter to the original intention of anti-monopoly. Therefore, the essential difference between anti-monopoly against platforms anti-monopoly and traditional anti-monopoly is that we should not restrict the expansion of the platform, but should only restrict its unfair competition behavior.
Traditional anti-monopoly has two ideas, one is called "structuralism" and the other is called "behaviorism".
The practice of restricting the size of an enterprise is called "structuralist anti-monopoly". It’s about controlling the market share of an enterprise in a sector, using the market share as a structural indicator to control the size of an enterprise. If it is too large, it will be broken up.
Behaviorism, on the other hand, directly aims at the regulation of specific acts of unfair competition and does not impose a market share cap. For platforms, structuralism is not applicable. Only behaviorism should be adopted.
Second, China's regulatory authorities have clearly stated that anti-monopoly against platforms is to support better development of the platform economy.
High-level documents and officials have repeatedly stressed giving equal emphasis to regulation and development. In August 2021, the deputy director of the central finance office pointed out at a press conference that, on the one hand, a "traffic light" should be set up for capital, the negative list management system for market access should be improved, and some blind tendencies and harmful factors should be strictly dealt with. On the other hand, we also realize that the platform economy is an important component of advanced productive forces. [He said] we should give full play to its positive role in optimizing the allocation of resources, promoting scientific and technological progress, facilitating people's lives and participating in international cooperation and competition.
In January 2022, the National Development and Reform Commission and eight other departments jointly issued "Some Opinions on Promoting the Healthy and Sustainable Development of the Platform Economy", which once again mentioned that China would give equal emphasis to development and regulation, to establish and complete a system of rules suited to the development of the platform economy and optimize the environment for the development of the platform economy.
In March 2022, the special meeting of the Financial Stability and Development Committee of the State Council stressed that with regard to the governance of the platform economy, relevant departments should improve the established programs in accordance with the guidelines of orientation towards the market, rule of law, and internationalization, adhere to the principle of seeking progress while maintaining stability, and through standardized, transparent, and predictable regulation, steadily promote and complete/finish as soon as possible the rectification of large platform companies, to promote the stable and healthy development of the platform economy and improve international competitiveness.
In fact, we have searched through the policy documents over the past few years and could not find the word “breakup,” which indicates that the thinking behind the policy is clear and China will not use breakups in the anti-monopoly. In a complicated situation, this clear orientation of the policy is gratifying.
It’s not that there are no precedents in breakups. In the history of anti-monopoly, it is not unusual to break up large enterprises into small ones. There are countless examples of this. Standard Oil in 1911, Alcoa in 1937, and AT&T in 1984 are all famous cases.
Therefore, the regulatory authorities fully understand that they cannot break up the platforms, which is tantamount to abandoning their skills and losing their competitiveness. What the platforms should do is seriously study the “negative lists” in anti-monopoly, clearly define the boundary of their own development, adjust the strategic direction accordingly, and plan future development. We believe that the future of platforms is still broad. In a time of commerce when platforms dominate, this is not a choice but a destiny.
Full presentation of the PKU NSD task force’s findings on China’s platform economy last year
This from my friend Jiang Jiang’s Ginger River Review substack provides substantial discussion on the introduction of the Internet into China’s industries, be it retail, finance, catering, education, medical service and technology,
It was brought in before the industries fully developed. These platforms not only serve as mediums or efficiency tools, but also become the industry, and gradually develop from a small part to the mainstream and even get to make the rules in industries.
Many interesting ideas. That said, until the election is over and there has been time to allow further policy clarification, things will remain unclear. No one likes gray but black and white at this time are not possible. It is interesting that other than gaming the percentage of off shore income earned by platform firms has not yet started to escalate. One would think that further building off shore income would both fill national policy and avoid difficult issues within the domestic economy. But there is so much to clarify. Thank you all for your inputs. SC