Monopolistic practices of Internet giants could pose risks: experts

By Zhang Hongpei Source:Global Times Published: 2017/11/27 19:53:39

A shop keeper is seen at a Tmall convenience store in this photo taken in August in Hangzhou, East China’s Zhejiang Province. Photo: IC

China's Internet giants, especially Alibaba and Tencent, have been developing at an unparalleled speed over the past two years, not only by pursuing their own business growths, but also by tapping into many traditional industries ranging from finance to transportation to medical care. Experts are optimistic about their future development, however, they expressed concerns over the potential risks of eating up too many market resources.

Over the past several years, China's largest Internet firms - Alibaba Group Holding and Tencent Holdings - have been quickly developing. In particular, those companies have experienced drastic growth rates in the last two years.

Tencent, headquartered in Shenzhen, South China's Guangdong Province, posted a 61 percent jump in its third-quarter revenue, reaching 65 billion yuan ($9.85 billion) and beating expectations, according to a filing the company sent to the Hong Kong Stock Exchange on November 15. 

Similarly, the revenue rise of New York-listed Alibaba recorded 61 percent for the July-September period, reaching 55.12 billion yuan, driven mainly by its strong online sales, according to Alibaba's second-quarter earnings report released on November 2.

Tencent, the social media and gaming giant, overtook Alibaba with a breakthrough of $500 billion in market capitalization last week, with its stock closing more than 4 percent up on November 20, bringing the company's value to $511 billion. 

Meanwhile, Alibaba's shares have advanced 116 percent so far this year, bringing its market capitalization to $489.67 billion as of Friday, close to joining the $500 billion club dominated by US high-tech giants including Apple and Alphabet. 

Liu Dingding, a Beijing-based independent analyst, told the Global Times on Sunday that the two Internet giants are currently aiming to become fourth-party platforms to provide services such as cloud computing for users through cooperative third parties.

"Both Alibaba and Tencent are looking in the same direction, that is, to become global infrastructure service providers to act as the open platform linking their numerous partners, although the two companies have come through in different ways," Liu said.

The third BAT group player, Baidu Inc, China's Google-like search engine giant, seems to be lagging behind compared to the other two in terms of its revenue growth rate and market capitalization, although it did enjoy the prime spot about a decade ago, according to Liu. 

Unstoppable expansion

Beefing up efforts in the "new retail" segment, Alibaba has made remarkable progress this year by opening unmanned supermarkets in July and sinking its online sales into offline stores.

In August, the first Tmall-branded franchise convenience store opened through the Alibaba platform Lingshoutong Retail Sourcing (LST), a digital sourcing platform that has been adopted by over 500,000 neighborhood shops across China, allowing merchants to source from a broad selection of brands and products that can be delivered to their stores, especially in lower-tier cities where organized retail is less developed, Alibaba said.

Also, it announced on November 20 that, as part of a strategic alliance with Auchan Retail SA and Ruentex Group, it will invest HK$22.4 billion ($2.88 billion) to acquire a 36.16 percent stake in Sun Art Group, one of China's largest grocery operators, with nearly 450 RT-Mart and Auchan hypermarkets across the country.

Taking advantage of its aliyun, known as Alibaba Cloud, the company has extended its business from Internet finance with its mobile payment tool Alipay - which took up over 50 percent of the market during the second quarter of this year - to the logistics conducted by its Cainiao Network, media reports said.

Tencent has also been looking to apply Internet plus mode to traditional industries, for example, in the financial sector, it provides wealth management, insurance and loans to consumers and small and medium-sized enterprises. 

Also, the Shenzhen-based firm has been tapping into the transportation, medical care and police force sectors as well as others by taking advantage of its technology and big user base.

"With big influence, big money and a big user base, the two Internet platforms are no longer merely pursuing their own business growths, but also continuously investing in other sectors," Li Yi, a research fellow at the Internet Research Center under the Shanghai Academy of Social Sciences, told the Global Times on Sunday.

For instance, ZhongAn Online Property and Casualty Insurance Co, China's first Internet insurer, raised $1.5 billion through an IPO in Hong Kong in September, with its shareholders including Alibaba's chairman Jack Ma Yun and Tencent's chairman Pony Ma Huateng.

"Different from the past when venture capitals led investments, now we often see capital related to Tencent, Alibaba or Baidu," Li remarked.

"The services that these giants can provide enable them to connect with any other industry," Liu noted.

In terms of marrying Internet plus to traditional industries, Yang Delong, chief economist at First Seafront Fund said, "as [market] spoilers, the Internet giants have played the role of catfish, stimulating innovation and progress." 

"Meanwhile, their monopoly in the market is also looming, which is likely to damage the interests of consumers, as market inequality could lead to less options for consumers to resort to," Yang told the Global Times on Sunday.

Too big to fall?

According to experts, the Internet industry abides by the rule that the dominating winner eats more, allowing them to become stronger and stronger. However, some experts hold different views on whether these companies are too big to fall.

Li opined that the BAT members have indeed realized the three essential dimensions of the Internet through years of development: e-commerce, search engine and social networking. As such, he is optimistic about the prospect of their futures based on their innovation and contribution to the economy's growth.

Nonetheless, they are far outpacing other companies in the Internet industry, with annual revenue increases of 60 percent compared with the average level of 15 to 20 percent, illustrating that the whole Internet firm ecosystem is unbalanced, with some smaller firms struggling financially, according to Liu.

"Absorbing too many resources in the industry makes them too large," Liu said. 

Meanwhile, Liu predicted they might encounter some "disasters" next year, although presently, it is now hard to pinpoint those exactly.

"The Internet industry is full of infinite possibilities, and these Internet giants are never too big to fall once an industry revolution or innovative business model emerges in the future," Liu noted.

Different from Liu, Li is not particularly concerned about how the market change will affect these big tech names, but rather government policy.

"They are now enjoying being treated like a 'national team', similar to the group of State-owned oil giants including China National Petroleum Corp and China Petrochemical Corp," Li explained.

"If there is any national policy adjustment, I think these tech giants might be required to shoulder the same social responsibilities as other 'national teams'," Li said.

The Chinese government is pushing some of the biggest tech firms - including Tencent, Sina Weibo and a unit of Alibaba - to offer the country a 1 percent stake in them and a direct role in corporate decisions, the Wall Street Journal reported in October, citing people close to these companies.

Li thought the alleged move is strategic and good for the country in terms of national security.

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