Illustration: Peter C. Espina/GT

After years of turning a blind eye to the rapid consolidation in emerging high-tech industries, China's antitrust regulator has finally adopted a more active stance with its recent decision to review the proposed landmark merger of homegrown car services firm Didi Chuxing with the Chinese unit of US rival Uber. The announcement by the Ministry of Commerce that the deal would require its approval caught Didi and Uber by surprise since such a review would be the first for a major Internet deal since China rolled out the Anti-monopoly Law eight years ago.

Despite a relatively small size at present, many such emerging industries have huge growth potential and could easily become multibillion-dollar businesses in the future, supplanting older sectors, like taxi services and traditional retail stores. Accordingly, it's quite appropriate that the regulator become more aggressive about preventing individual companies from becoming too dominant during their formative years.

Didi Chuxing and Uber China were the nation's two leading players in an emerging car-hailing sector that is challenging traditional taxis when they announced their surprise merger last month. That deal would create a $35 billion company that controls the majority of the Chinese market that links urban commuters with privately owned car drivers using global positioning technology.

The deal was driven by the huge losses that were being incurred by both companies, as each offered generous subsidies to drivers and passengers in a bid to quickly build share in the fast-growing market. Uber recently said it lost $1.2 billion in the first half of the year, with a big portion of that in China. Didi Chuxing, itself the product of a merger between China's previous two leading private car service operators, is believed to have lost a similarly large amount of money and had just raised a massive $7 billion in new funding in June to continue its battle for market share.

In a sign of things to come if the latest merger plan is given the go ahead, media recently reported that Didi was raising the price for its Shunfeng car service by 20 percent to bring it roughly in line with the cost of taxi fares. Didi probably felt confident about making the hike due to its pending merger with Uber, which is under similar pressure to reduce its losses.

But shortly after the deal was announced, the Ministry of Commerce announced the union would require its approval for anti-competitive consideration. Didi said at the time it believed such a move was unnecessary because the industry was still too small to meet minimum review requirements. For the ministry to have jurisdiction over such deals, each company must have revenue of at least 400 million yuan ($60 million), and the combined new entity must have at least 2 billion yuan in annual revenue.

At a regular news briefing last week, a commerce ministry spokesman reiterated that the deal must receive antitrust approval, saying it "will protect fair competition in the relevant market and safeguard the interests of consumers and the public." The spokesman said that Didi had not initially notified the ministry of the deal because it believed it did not require a review, but that subsequently both sides have held two meetings to discuss the situation.

The ministry's more aggressive stance contrasts sharply with its past behavior, when it stood by and did nothing as similarly large players emerged on the nation's booming Internet. Two of the earliest of those were Baidu and Alibaba, which used their large size and aggressive tactics to grab well over half of the lucrative online search and e-commerce markets, respectively. Other recent mergers that have created companies with similar market clout include former rivals Meituan and Dianping in group buying services and Ctrip and Qunar in online travel services.

All of those mergers created companies that could have easily qualified for antitrust reviews. And yet the ministry did nothing to intervene, to the detriment of consumers and third-party merchants who suddenly found themselves being squeezed for more money due to dwindling competition.

Such mergers are often necessary and an important part of the development of new industries since long-term losses are unsustainable in any emerging sector. But a more controlled consolidation process that leaves at least 2 or 3 major players in each new industry should be the more desired long-term outcome, and only a more active role by the regulator can ensure such development.

The author is an associate professor with the School of Journalism at Fudan University. He also writes about China's business news at www.youngchinabiz.com. bizopinion@globaltimes.com.cn