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Meeting on "Platform Economy" and new SAMR rule on e-commerce
with implications for Alibaba
After three lengthy newsletters devoted almost exclusively to translation, let’s get to some news reading and analysis today, focusing on a key meeting involving 平台经济 Platform Economy and a key document governing e-commerce - both from Monday, with implications for Jack Ma’s Alibaba and Ant Group.
The meeting received some coverage in English, while the document has been surprisingly underreported after 30-odd hours.
Usual disclaimers: This is NEITHER official NOR authoritative, as it’s a PERSONAL newsletter which does not represent the views of your Pekingnologist’s day-job employer Xinhua News Agency, let alone “China.” Also NEITHER legal NOR investment advice.
Chinese President Xi Jinping on Monday, March 15 chaired the ninth meeting of the Central Committee for Financial and Economic Affairs, where he, according to the meeting readout in English via Xinhua, stressed efforts to promote regulated, healthy and sustainable development of the platform economy and incorporate the peaking of carbon emissions and carbon neutrality into the overall layout of building an ecological civilization.
(Carbon emission and carbon neutrality are immensely important, but let’s save it for another day.)
The term “Platform Economy,” as far as your Pekingnologist is aware, is a recent Chinese invention rarely seen in Anglosphere.
The description below from Deloitte in 2018 is recommended thanks to its relevancy and accuracy in the Chinese context:
The rapid development of digital technology has revolutionized the way business is done today. At the heart of this change is the new platform economy. In the Internet platform economy, platform, consumers and service providers form a collaborative network. Platform is the foundation of the entire ecosystem, providing a space for the exchange of information, trading, logistics and other facilities to consumers and service providers. A large number of consumers and service providers constitute the major players of the platform economy. They perform various economic activities on the platform including information exchange, demand matching, payment and receipt and delivery of goods. The participants of the platform economy interact and cooperate with each other, which enables to create greater value.
The best example in China’s platform economy is Alibaba and its affiliates, which boasts an entire ecosystem, from marketplace (Taobao and Tmall), payment (Ant Group’s Alipay), logistics (Cainiao), to finance (Ant Group’s lending to both businesses and consumers). Other Chinese Big Tech players are also trying but generally fall short of Jack Ma’s empire.
With that in mind, what does Monday’s meeting say on the platform economy?
(Before diving into it, let’s be clear: the meeting readout is originally issued in Mandarin; after that, various media put it into English, and in this stage, the English version can be a literal translation or just a summary. This can be observed simply by comparing the published Mandarin and English versions. So if you are looking for the details that are already in the public domain, the Mandarin version is much more comprehensive. )
Xi Jinping delivered an important speech at the meeting, stressing that the development of China's platform economy is in a critical period. (Xi said) we should focus on the long term while taking into account of the status quo, fill the shortcomings, strengthen the weaknesses, create an innovative environment, solve prominent contradictions and problems, and promote the regulated, healthy, and sustainable development of the platform economy.
NOTE: The Chinese leader sets the overall direction and tone here. A wise reader should reflect after reading this paragraph: what’s the shortcoming, weakness, prominent contradictions, and problems? That’s where the key measures will fix. Notice there are 突出 prominent 矛盾 contradictions, not just contradictions.
The meeting heard the National Development and Reform Commission, the People's Bank of China, the State Administration of Market Regulation on the promotion of the healthy development of the platform economy
NOTE: Notice the departments. The NDRC is often described in English as China’s economic planner, meaning it usually takes the macro view. The PBoC covers the financial regulatory part (and also there is the China Banking and Insurance Regulatory Commission). The SAMR, as literally known, regulates the market - anti-monopoly is also in its jurisdiction.
The meeting pointed out that in recent years, our country’s platform economy has developed rapidly, and its status and role in the overall economic and social development have become increasingly prominent. The platform economy is conducive to improving the efficiency of resource allocation of the whole society, promoting the accelerated evolution of technology and industrial changes toward informatization, digitalization and intelligence, helping to penetrate all links of the national economic cycle, and also helping to improve the level of national governance in terms of intelligence, comprehensiveness, personalization and refinement. The overall trend of the development of China's platform economy is good, the role is positive, at the same time there are some prominent problems. The development of some platform enterprises are not regulated, there are risks, the platform economy is yet to be fully developed, and there are shortcomings. That the regulatory system is not adaptive to is also more prominent.
NOTE: This deserves more attention than it currently gets in the English-language discourse. Overall, China’s starting point is that the platform economy - and by extension, its key Big Tech players in general, despite they are apparently deemed to have problems - is positive and constructive. So Beijing is not hell-bent to break the “ecology” or the “chain.”
But that’s easy to forget when mainstream English-language coverage focuses on this or that issue with which the authorities reportedly have a problem. Over time it’s easy to feel this sector is all bleak and gloomy in regulatory outlook.
(This is not meant to be a criticism at news reporting, where contradictions, problems, and risks are rightfully the target and highlight, but a call for cool-headedness and composure when looking at the bigger picture.)
平台经济发展不充分 the platform economy is yet to be fully developed also shows Beijing believes there is further potential.
The meeting stressed (we shall) adhere to the correct political direction; start from the strategic height of building a new national competitive advantage; adhere to giving equal importance to development and regulation; grasp the laws of the development of the platform economy; establish a sound platform economy governance system; clarify rules; set base lines; strengthen supervision; regulate/maintain order; better co-ordinate development and security, domestic and international; promote fair competition, oppose monopoly, and prevent the disorderly expansion of capital.
(We shall) strengthen regulation and supervision, safeguard public interests and social stability, and form a governance synergy.
(We shall) strengthen openness and cooperation, build a dynamic and innovative institutional environment, and strengthen international technology exchanges and R&D cooperation.
(We shall) adhere to the "two unwavering", and promote the healthy development of private enterprises in the platform economy.
1) How important is the platform economy and its regulation? “Start from the strategic height of building a new national competitive advantage.” Beijing sees the whole thing as China’s edge over other economies, given the maturity of the platform economy in China compared with in others.
2) A high-level meeting of the Central Committee for Financial and Economic Affairs attended by top leaders tends to set the agenda and general tone, rather than specific technicalities. So this is mainly about, say, setting the framework and direction:
adhere to giving equal importance to development and regulation; grasp the laws of the development of the platform economy; establish a sound platform economy governance system; clarify rules; set base lines; strengthen supervision; regulate/maintain order; better co-ordinate development and security, domestic and international; promote fair competition, oppose monopoly, and prevent the disorderly expansion of capital.
Regulators are thus empowered to flex their muscles where they see necessary, especially to check the Big Tech.
adhere to giving equal importance to development and regulation: previously, the emphasis was perhaps “let them grow;” but now regulation is just as important.
clarify rules; set base lines: to put it plainly, there are things that Big Tech can do, there are things that they can’t.
better co-ordinate development and security: development can’t be at the expense of security, but your Pekingnologist has a difficult time in pinning down the specifics of the security here.
Could mean things like security of data, privacy, etc., where the breach could endanger both personal but also public - if breached on a massive scale, as some Big Tech have accumulated huge data on too many fronts - security.
It could also mean things like their influence - maybe particularly outside their traditional for-profit businesses - cannot grow unchecked, especially to the point that they are likely to threaten acceptable social governance.
The Wall Street Journal has recently reported that Alibaba is being asked to shed its media businesses (this is NOT a confirmation). The report explicitly named an incident in May last year when scores of Weibo posts about a senior Alibaba executive’s alleged involvement in an extramarital affair were deleted.
Other information in the report aside, the citation of only one high-profile information-deletion incident might appear thin, but that was perhaps careful, prudent journalism practiced by the Journal. Since this is a PERSONAL newsletter, your Pekingnologist would like to add that here in some media circles there are always (but understandably difficult to verify and hence print) rumors that the corporate behemoth has long been able to suppress unfavorable domestic coverage and guide public opinion towards its favor, not least at the expense of its rivals in the market, or the complaints from consumers or clients which include small and micro businesses. To quote a friend: there is hardly much sympathy.
3) Public interest and social stability appears to mean the market entities, especially Big Tech’s profit-seeking, must be balanced with consumer protection and labor rights. Governance synergy appears to mean there shall be more coordination between regulators such as those named above - your Pekingnologist is less sure - and even other stakeholders like media oversight, consumer groups, etc.?
4) (We shall) strengthen openness and cooperation…strengthen international technology exchanges and R&D cooperation. Openness emphasized.
5) The seemingly abrupt Two Unwaverings is a reassuring signal to private enterprises, which Pekingnology explained in Detailed breakdown of PBoC deputy governor's Q&A on Ant Group on Dec. 29:
Unwaveringly consolidate and develop the public-sector economy, and unwaveringly encourage, support, and guide the development of the non-public-sector economy
Xi highlighted the Two Unwaverings, a 提法 set phrase, in a speech to private entrepreneurs (CHN) on November 1, 2018, where he said
The non-public sector's status and functions in the country's economic and social development have not changed. The principle and policies to unswervingly encourage, support, and guide the development of the non-public sector have not changed, and the principle and policies to provide a sound environment and more opportunities to the sector have not changed either.
Despite it’s two unwaverings, for anyone immersed in Pekingology, the emphasis was squarely on boosting private enterprises’ confidence, as the title of Xinhua’s English-language report at the time shows: Xi stresses unswerving support for development of private enterprises.
That it made into this occasion, where the platform economy is overwhelmingly built and dominated by private enterprises, sends the signal from Beijing - this is not a blanket campaign to squeeze or crackdown on private enterprises.
You are welcome to buy me a coffee or pay me via Paypal. All the money goes to Zichen Wang’s personal account. Full disclosure: you are paying a natural person who Twitter calls “China state-affiliated media.”
The meeting pointed out that (we shall) improve the rules and systems, accelerate the improvement of the platform economy laws and regulations, timely remedy the gaps and loopholes in the rules, strengthen the construction of data property rights system, and strengthen the responsibility of the platform enterprise in data security.
(We shall) enhance the regulatory capability and level, optimize the regulatory framework, achieve pre-operational, operational, and post-operational supervision that covers the entire chain, boost the anti-monopoly regulatory capacity, enhance the regulatory authority, and financial activities should all be included in financial supervision.
(We shall) promote the platform economy for high-quality development and high-quality life services, accelerate the use of the industrial Internet platform to transform and upgrade traditional industries and the development of advanced manufacturing, support the consumer sector platform enterprises to explore market potential, increase the supply of quality products and services.
(We shall) strengthen the protection of the rights and interests of various market entities on the platform, urge platform enterprises to assume responsibility for product quality, food safety and other responsibilities, to safeguard the rights and interests of user data and privacy rights, clarify platform enterprises’ responsibility in labor protection.
(We shall) strengthen the key, core technology research, support and guide platform enterprises to increase investment in research and development, strengthen basic research, solidify the roots in underlying technology, and support the innovation of small and medium-sized tech companies.
(We shall) strengthen the construction of network infrastructure.
1) (we shall) improve the rules and systems, accelerate the improvement of the platform economy laws and regulations, timely remedy the gaps and loopholes in the rules, strengthen the construction of data property rights system, and strengthen the responsibility of the platform enterprise in data security.
Basically a lot of rule-making. The platform economy is a new thing, with not many rules to refer to. But if you connect the dots, recently there are new rules on, online loan (Reuters), online payment (Bloomberg), online deposit (Reuters), online insurance (Reuters), and e-commerce Monday, which this newsletter will get to later.
2) enhance the regulatory capability and level, optimize the regulatory framework, achieve pre-operational, operational, and post-operational supervision that covers the whole process, boost the anti-monopoly regulatory capacity, enhance the regulatory authority, and financial activities should all be included in financial supervision.
It’s not easy to regulate Big Tech, as developed economies are well aware of, sometimes simply because on the tech side the authorities just lag far, far behind. Things get even trickier when it’s interdisciplinary, merging tech and finance. Hence the call for improving the regulator’s capability, capacity, authority, jurisdiction, etc.
3) strengthen the protection of the rights and interests of various market entities on the platform, urge platform enterprises to assume responsibility for product quality, food safety, and other responsibilities, to safeguard the rights and interests of user data and privacy rights
Chinese e-commerce giants have been growing their own brand and selling their own products, but oftentimes they act solely as a third-party marketplace facilitating deals between sellers and buyers. In these scenarios, should they be responsible for the quality of products that independent sellers? Well, they are now urged to assume responsibility for product quality, food safety, and other responsibilities, which this newsletter will get to later.
strengthen the protection of the rights and interests of various market entities on the platform could mean that the platforms would have less leeway in making demands to its sellers and buyers on data, loyalty, etc.
明确平台企业劳动保护责任 clarify platform enterprises’ responsibility in labor protection, registers a note of the increasingly vocal complaints from the Chinese public and media of the deep-pocket platforms’ widely-perceived ill-treatment of its overburdened workers - contracted but not directly-employed deliverymen, perhaps in terms more familiar with Meituan or Eleme.
strengthen the key, core technology research, support and guide platform enterprises to increase investment in research and development, strengthen basic research, solidify the roots in underlying technology, and support the innovation of small and medium-sized tech companies.
This is Beijing’s call to action for Chinese Big Tech: Instead of spending too much time, energy, and money on infighting with one another, competing with mom-and-pop businesses or subverting traditional harmless sectors, you guys should open your deep pockets to “real” innovations.
What kind of “real” innovations would likely conform to the expectations here? They may look like the Top 10 Tech Trends Shaping 2021 by DAMO Academy, Alibaba’s global research arm.
You are welcome to buy me a coffee or pay me via Paypal. All the money goes to Zichen Wang’s personal account. Full disclosure: you are paying a natural person who Twitter calls “China state-affiliated media.”
Another key development on Monday was the publication of 网络交易监督管理办法 Measures for Supervision and Management of Online Transactions.
The State Administration for Market Regulation (SAMR) formally published this rule with great fanfare - on the China Central Television’s annual 315 (March 15) Gala, a highest-profile must-watch and sometimes nightmare for public relations professionals in China because of its expose of consumer violations.
SAMR published the full text, its own press release, and an official Q&A. Note the Q&A is attributed to 网监司, short for 网络交易监督管理司, or the Department of Supervision and Management of Online Transactions. Chinese media also wrote a lot about it on Tuesday.
It’s a bit surprising there hasn’t been much English-language coverage besides this story from the South China Morning Post, which by the way is owned by Alibaba :)
Business activities that sell goods or provide services in social networking, live streaming, and other information network activities, the measures apply.
NOTE: Pretty much every part of e-commerce?
The SAMR is responsible for organizing and directing the supervision and management of online transactions nationally
Local administrations for market regulation above the county level are responsible for the supervision and management of online transactions within their administrative regions
To look for the specific rules governing the platforms, or the Chinese Big Tech, look for 网络交易平台经营者 Online Transaction Platform Operators. There is a whole section 第二节 网络交易平台经营者 devoted to them.
Article 32 The online transaction platform operators hall not violate the provisions of Article 35 of the E-Commerce Law of the People's Republic of China, the operator of the platform in the platform transactions, transaction prices and transactions with other operators, such as unreasonable restrictions or additional unreasonable conditions, interfering with the independent operation of the operator of the platform.
NOTE: This appears to be tailor-made for what the SAMR has been terming as “二选一”, or “er xuan yi”.
Here is the explanation from a Journal report last week: “er xuan yi”—literally, “choose one out of two”—under which, regulators believe, the tech giant punished certain merchants who sold goods both on Alibaba and its rival platforms, including JD.com.
Article 52 If the online transaction platform operators knew or should have known that goods or services provided by (third-party) in-platform sellers on the platform do not meet the requirements of personal and property safety, or other violations of the legitimate rights and interests of consumers, did not take the necessary measures, the online transaction platform operators shall bear joint liability with the in-platform businesses according to law.
Concerning the life and health of consumers of goods or services, if online transaction platform operators did not meet the obligation in vetting the (third-party) in-platform sellers, or if the online transaction platform operators did not meet the obligation of protecting the safety of consumers, and result in damages to consumers, the online transaction platform operators shall bear corresponding responsibility according to law.
NOTE: This reads pretty far-reaching, given the terms like “should have known,” “other violations of the legitimate rights and interests of consumers,” “necessary measures,” “the obligation of protecting the safety of consumers,” and “corresponding responsibility.” Chinese Big Tech now faces an elevated burden over the goods and services sold on its platform by third-party businesses.
Does this sound familiar? Look above in the meeting readout for 督促平台企业承担商品质量、食品安全保障等责任 urge platform enterprises to assume responsibility for product quality, food safety, and other responsibilities,
Online transaction operators shall not use force consumers to agree to the collection and use of information not directly related to business activities by general authorization, default authorization, authorization bundled with other authorization, cancellation of installation or use, and other means. Collection and use of personal biometric, medical and health, financial accounts, personal whereabouts and other sensitive information, should be based on the consent of consumers on a case-by-case basis.
NOTE: Following this, the collection of user data would be more difficult.
There are other Articles worth watching. For example, studies have shown that consumers rarely change the default settings, so making an option a default increases the likelihood that it is chosen. Thus, in e-commerce, whether Chinese Big Tech can freely set in default its desirable options is quite significant. But Article 17 now makes it more difficult.
For more details, you should consult your lawyer (or write your Pekingnologist with easier questions). It’s extremely easy to conflate some of the terms.
For example, the measures rampantly use both 网络交易经营者 Online Transaction Operators and 网络交易平台经营者 Online Transaction Platform Operators in the same document, but aside from the highly identical spelling, the two terms are NOT independent of each other! By the measures’ own definition, in Article 7, 网络交易经营者 Online Transaction Operators 包括网络交易平台经营者 include Online Transaction Platform Operators!
The last Article offers a hint to analyze changes or additions in the measures, effective in May, saying the《网络交易管理办法》Measures on Regulating Online Transaction published on Jan. 26, 2014, by the late State Administration for Industry and Commerce is now invalidated. So you - well, better be your lawyers - should compare the two Measures and find the major differences.