Alibaba (BABA) was the top mentioned company in the Chinese market the past 3 months, and over the same time period ranked in the bottom 20 for Impact Score across all regions on our ESG Safeguard platform. Early in December in our Big Tech coverage we briefly mentioned the regulatory climate in China surrounding monopolies and antitrust issues. Now, the same regulatory environment that allowed China’s most successful companies to grow quickly has suddenly turned on them.
China’s Central Bank has never before been part of regulating monopolistic behavior in the Chinese economy. Why is it now making moves that are unprecedented in scope? Getting to the specifics, the People’s Bank of China drafted legislation defining what is a monopoly, basing it on market share thresholds. For example Alipay has 55.4% of the mobile transactions market and WeChat Pay, owned by Tencent (TCEHY), has 38.5% of the market. These two companies meet the thresholds defined by the People’s Bank of China for their new definition of a monopoly.
Only a short while ago, we briefly mentioned Alibaba and Tencent were sanctioned for mergers that did not seek the approval of government regulators. Aside from these violations it is hard to argue that these companies are doing anything explicitly out of character. The same regulatory environment that allowed them to grow so quickly, is now turning on them. Additionally, the recent absence of Jack Ma from Ant Group, who owns Alipay, and the speculation that followed points to Key Man governance risk. Ant Group’s possible IPO is being held up as well for a monopoly probe.
Although The People’s Bank of China is not authorized to take action themselves, the defining of the term monopoly puts a target on the backs of companies like Alibaba and Tencent, who meet the market thresholds the bank has defined. Moreover, It opens up the possibility of other government regulators to take potential action. The continued antitrust sentiment in China does not appear to be going anywhere and we will continue to monitor these developments on our Safeguard ESG platform.
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This communication does not represent investment advice. Transcript text provided by FACTSET and S&P Global Market Intelligence.
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