China to crank up anti-trust heat on Big Tech after unprecedented fines

Tencent

China’s unprecedented anti-trust squeeze onto its technology giants isn’t only just beginning.

Having levied fines and announced a research on Monday into deals backed from the likes of Alibaba Group and Tencent, China’s economy regulator is now gearing up to put more trades under evaluation, turning a once laissez-faire approach towards its enormous online space.

The regulator is very keen to “make an example” of a $3.5 billion program for research engine Sogou Inc to be taken private by Faith Tencent Holdings, two individuals with direct knowledge of the issue said.

Also in its areas is a bidding by private-equity firm MBK Partners to purchase China’s top online car rental company, because of concerns it may cause competition problems as MBK already owns the industry’s No.2 participant, a third source said.

For your Sogou-Tencent tie-up, the State Administration of Market Regulation (SAMR) is planning a comprehensive inspection that could signify the deal may miss a July 2021 finish deadline, just two of the sources said.

“The deal now faces big uncertainty and there’s a big chance that it may not close as planned,” one of these added.

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Internet research is a sensitive issue in China along with the SAMR will take into consideration the fact that Tencent already has a major position in many industries, the individual said.

The high profile of the bargain also makes it a target for evaluation, the person added. All 3 sources spoke on condition of anonymity as they were not authorised to speak to media.

Sogou said in a filing this month it had filed that the bargain to get antitrust evaluation, a rare movement in China’s tech industry in which firms until recently had not proactively sought consent from rival authorities.

MBK also has submitted a plan to buy CAR Inc to the SAMR for analysis, according to a government announcement.

MBK, that controls eHi Car Services together with its own chairman, plans to merge the two, among those sources mentioned.

Tencent, Sogou and MBK declined to comment. The SAMR, Car Inc and also eHi did not respond to requests for comment.

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‘NEW CHAPTER’

China has vowed to strengthen supervision of its own big tech firms, which rate among the world’s largest and most precious, citing concerns they have built market power that stifles competition, misused consumer data and violated consumer rights.

Last month, Beijing issued draft rules aimed at preventing monopolistic behaviour by internet companies, marking China’s very first serious regulatory move against the industry.

Regulators globally, including in the United States, Europe and India, have already been carrying out harder anti-trust reviews of technology giants such as Google and Facebook.

SAMR had so far produced less “headline-grabbing” cases compared with global regulators, Jiaming Zhang, a partner at law firm Allen & Overy, said.

NO LONGER EXEMPT

SAMR on Monday made it very clear that the “Internet industry is not outside the oversight of the anti-monopoly law” because it penalized three prices between Variable Interest Entity (VIE) ordered firms – the first time it’s done so.

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VIE structures permit listed foreign entities to control a Chinese firm by means of a set of contractual arrangements while circumventing China’s overseas exchange limitations.

Until Monday, it had been unclear whether such firms were not able to report deals beneath China’s 2008 anti-monopoly law.

SAMR’s latest move shows it anticipates VIE-structured organizations to submit their deals for vetting, attorneys said.

Most large Chinese tech companies like Alibaba, Tencent, Didi Chuxing, Meituan, ByteDance, Baidu, JD.com and SINA Corp utilize VIE structures.

Said Adrian Emch, partner at law firm Hogan Lovells.

The team at Platform Executive hope you have enjoyed this news article. Initial reporting via our official content partners at Thomson Reuters.

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