China ups scrutiny of tech giants with draft anti-monopoly rules

By Sophie Yu and Brenda Goh

BEIJING/SHANGHAI (Reuters) - China on Tuesday published draft rules aimed at preventing monopolistic behaviour by internet platforms, a move that will increase scrutiny on e-commerce marketplaces and payment services belonging to the likes of Alibaba Group.

China's State Administration for Market Regulation (SAMR), which issued the draft, said it wanted to prevent platforms from dominating the market or from adopting methods aimed at blocking fair competition.

The definitions it provided for internet platforms mean the new rules could apply to e-commerce sites such as Alibaba Group's <BABA.N> <9988.HK> Taobao and Tmall marketplaces or JD.com <9618.HK> <JD.O> and payment services like Ant Group's <688688.SS> <6688.HK> Alipay or Tencent Holding's <0700.HK> WeChat Pay. Food delivery platforms like Meituan <3690.HK> could also be included.

The draft rules would also consider whether a transaction treats different customers in different ways based on big data, payment ability, consumption preferences, and usage habits.

They come after China's Financial Stability and Development Committee, a cabinet-level body headed by Vice Premier Liu He, last month flagged the need to improve mechanisms to ensure fair competition and called for the strengthening of anti-monopoly law enforcement.

The move also comes after the shock suspension last week of the planned $37 billion share market listing of Ant Group, an Alibaba affiliate, not long after regulators warned the company its lucrative online lending business faced tighter government scrutiny.

The draft rules issued on Tuesday would look to prevent e-commerce practices such as "choose one between two", under which an e-commerce marketplace restricts brands from selling on multiple platforms.

A number of competitors and merchants have accused Alibaba of previously adopting such practices on its platforms. Last year, SAMR called more than 20 platforms to a meeting to ask them to stop requiring merchants to sign exclusive cooperation agreements.

Xie Wen, a former Yahoo China president turned Chinese technology critic, said China had previously avoided taking a hard line with its technology sector in order to help local tech giants grow and compete against U.S. rivals, most of whom have now been blocked from the country's cyberspace.

With the focus now turning to building up domestic capabilities, Beijing was moving to rein in these companies, he said.

"At that time people believed that Chinese internet companies were competing against the U.S. firms, and they are China's pride. But now we are switching to internal circulation," he said.

SAMR is seeking reviews and feedback from the public toward the draft rules until Nov. 30.

A separate article published on Tuesday by China internet regulator the Cyberspace Affairs Commission said it, SAMR and the tax authority had recently held a meeting with 27 internet companies including Meituan, TikTok owner ByteDance, Alibaba, JD.com and Trip.com <TCOM.O>, during which they discussed online economy practices.

Shares in Hong Kong listed Tencent dropped 4.4% and Meituan plummeted 10.5% on Tuesday, while the benchmark Hang Seng index edged up 1.1%.

(Reporting by Sophie Yu, Cheng Leng and Brenda Goh; editing by Richard Pullin, Kirsten Donovan)