[Correspondent Column] China's "Yupchan Mayun" Ahead of Market Opening

[Asia Economy, Beijing - Correspondent Youngshin Cho] Ma Su suffered a devastating defeat at the Battle of Jieting after disobeying Zhuge Liang's orders and employing a different strategy. Zhuge Liang, holding back tears, executed Ma Su. The phrase "Yupchan Masu" (泣斬馬謖), which means "executing Ma Su with tears," originates from this event.

The State Administration for Market Regulation (SAMR) in China has imposed a fine of 18.228 billion yuan (approximately 3.1124 trillion won) on Alibaba Group, the country's largest e-commerce company. This amount is equivalent to 4% of Alibaba's domestic revenue in 2019. The SAMR explained that Alibaba disrupted market order by forcing market participants to "choose one out of two" (exclusive dealing) since 2015.

This raises the question of why Chinese authorities have decided to "crack the whip" on Alibaba, a company widely regarded as highly successful. China introduced its Anti-Monopoly Law in 2008. It is unlikely that the authorities were unaware of the problematic practices of e-commerce platforms like Alibaba. The issues with platform companies surfaced publicly on November 3 of last year, when the IPO of Ant Group, Alibaba's financial affiliate, was abruptly suspended. The astronomical fundraising of $34 billion (about 38.4 trillion won) vanished like a mirage. Subsequently, the content of Jack Ma's speech at the Bund Finance Summit held in Shanghai on October 24 became widely known. Jack Ma reportedly criticized Chinese banks for operating like pawnshops in front of top national leaders, including Vice President Wang Qishan. As the details of his speech spread, speculations about "offending the authorities" and "falling out of favor" were cited as reasons for the IPO suspension.

Personally, I see things a bit differently. If Jack Ma had truly been punished simply for offending the authorities, there would have been no need for such a complicated process. China is a country governed by the Communist Party. The Chinese leadership achieved multiple goals through Jack Ma. China had promised to open its financial markets to the West, including the US and Europe. Before opening the market, the leadership needed to lay some groundwork. The "Regulations on Non-Bank Payment Institutions," released in January, exemplifies this. Under these rules, any single entity with more than 50% market share, or two entities with a combined share exceeding 66.6%, in the online and mobile payments market, becomes subject to antitrust investigation. If three entities together hold more than 75%, they are also subject to investigation. As of the end of June last year, Alipay, operated by Ant Group, held a 55.4% market share, while WeChat Pay accounted for 38.5%.

Going forward, the market shares of Alipay and WeChat Pay are bound to decrease, but no global company can overcome the barriers they have established. While the market is now open to fair competition, it remains a market with insurmountable barriers for outsiders.

Photo by Alizila capture

The analysis that the Chinese leadership was uncomfortable with private companies controlling the personal information of over one billion Chinese citizens is also valid. Through the Anti-Monopoly Law, the leadership is likely to gain access to the personal data of one billion people. Enhanced leadership over consumer rights protection is an added benefit for China's ruling elite.

The fine imposed on Alibaba, amounting to 3.1124 trillion won, is astronomical. However, considering Alibaba's 2019 profit of 140.3 billion yuan, it is not an overwhelming amount. Companies abusing their market dominance can be fined between 1% and 10% of their previous year's revenue. The choice to impose a 4% fine, rather than the maximum 10%, signals that the authorities do not intend to "kill the goose that lays the golden eggs." For comparison, the fine imposed on Qualcomm in 2015 was 8% of its sales in China.

This action against Alibaba appears to have effectively resolved the monopoly issues among Chinese e-commerce platforms. Since Alibaba, the market leader, has chosen to "submit" to the authorities, other major platform companies such as Tencent, JD.com, and Meituan will have no choice but to comply with government policies. This is why some in China have coined the phrase "Yumchan Mayun" to describe the authorities' actions against Alibaba and Jack Ma.