Mark Tanner
20 January 2021 0 Comments

Alvin Zhou leaves early for work in the morning. Although traffic has improved in his hometown of Hangzhou, getting on the road before 8am cuts his commute by 30 minutes. He parks his beloved burgundy 2020 SAIC in a lot close to his office, before popping in for the obligatory steamed bun breakfast and soy milk at the convenience store one door down. Not to interfere with the series he is watching on Youku, he glances up to the cashier who scans his face to pay for his food.

As Alvin is the first to the office, he reads and shares his views about cat breeds on Weibo, which reminds him that it is his Burmese’s birthday tomorrow. He jumps on Taobao and sees a recommendation for an educational cat toy that he recalls from a livestream and taps ‘buy’ so it will be delivered before he gets home in the evening. With no one else still in the office, he uses the opportunity to check his investments online. It’s been a prosperous 6-months, so Alvin decides to splash out and spoil his girlfriend with a trip to tropical Sanya. Although he is feeling flush with cash, his credit status means he gets a super deal on a deferred payment on the holiday booking, in addition to the ‘his&hers’ beach towels which popped up when he locked in the beachfront hotel. As his colleagues start to roll in he gets to work, before feeling a little peckish so he orders an early lunch delivery.

It’s been a productive and satisfying morning for Alvin Zhou, and not unlike the morning of many other Chinese consumers. What makes it all interesting is everything that Alvin did was tracked by a single company 8 kilometres down the road, Alibaba. The SUV he drives is fitted with Alibaba’s helpful smart-car operating system, Banma. The purchases in the physical store and online store, the facial scan, online video, social media, the investments, the travel booking, the loan, the food and pet toy delivery – all fed into Alibaba’s enormous vault of data to be analysed by sophisticated AI-based algorithms. Even his movements around the streets of Hangzhou are tracked by CityBrain, another Alibaba innovation deployed across many of China’s biggest cities.

There isn’t another country in the world that has companies with the same reach over almost every part of consumers’ lives as Alibaba and Tencent have in China. In most countries, corporates are broken up before they become all-encompassing giants. In China, a combination of relatively relaxed perceptions and laws around privacy, coupled with huge government ambition to build world-leading tech companies, has led them grow this way. Throw in the pivot towards digital resulting from Covid, and things had never looked better for China’s tech giants. Then something interesting happened.

In early November last year, one of the pin-ups of a world-leading-tech-from-China, Alibaba’s Ant Group, was scheduled for the largest IPO ever – not in New York, but proudly in Shanghai and Hong Kong – when it was postponed by the government less than two days before going live. Jack Ma, the face of the new ambitious, achieving China, who was Teflon-coated before then, hasn’t been seen since. That same month, Beijing unveiled draft regulations aimed at curbing anti-competitive behaviour. Legislation revisions also saw internet companies come under Anti-Monopoly Law for the first time.

Whilst China’s tech giants had had the odd inconsequential ruling against them, they had effectively been untouchable during their stratospheric rise over the past decade. After Beijing announced their antitrust probe in late-December, Alibaba stock went into free fall, contributing to $240 billion of value wiped from Alibaba’s late-October peak – the equivalent of more than the GDP of 4/5s of the world’s countries.

The Government, courts, consumer associations and consumers themselves all seem to have gathered momentum in their quest against the tech gorillas. Alibaba and JD have both received fines for irregular pricing, VIP has received two fines in two weeks. The China Consumers Association (CCA) has released 14-point document outlining how the tech giants algorithms ‘bully’ and impinge the rights of consumers. Also this month, short video giant Douyin was fined for ‘vulgar content’ further reinforcing that tech companies need to take more responsibility about monitoring third-party generated content on their platforms.

China’s big tech companies will still be across many touch points of Chinese consumers’ everyday life, but their growth and behaviour is likely to change.

A fairer, less monopolistic playing field is good news for everyone except the tech giants and will have implications for brands selling in China. The tactic of platforms forcing brands to choose their platform exclusively has been outlawed. Brands will still have the opportunity to develop exclusive products for specific platforms or their festivals, but it will be more on the brand’s terms.

Tech giants are no longer able to collude on sharing sensitive consumer data, or stamp out smaller competitors through alliances or loss-making subsidies. Consumers are likely to miss the ridiculously cheap deals from the platforms, but they should have more choice overall. New, innovative platforms will likely grow China’s digital ecosystem to increase competition, and creating hungrier platforms, giving better deals for brands. Brands will need to develop more fragmented channel strategies, which will allow them to be more targeted, resulting in a greater ROI in most cases. The overall impact of the increased pushback against China’s tech giants will show in time, but brands are a likely winner as a result. We’ll keep a close handle on how it all unfolds.

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