The move comes just after several notable events in the sector—the $2.8 billion fine against
Alibaba Group Holding
(BABA) for similar alleged infringements, and the summoning of 34 leading online platforms to regulators’ offices, where the firms were warned about abusing their growing market might.
The current issue largely focuses on the so-called exclusivity requirements e-commerce leaders have imposed on their merchants—in China called “choose one from two”—in which the companies refuse to allow merchants to sell on platforms other than their own.
Angela Zhang, director of the Center for Chinese Law at the University of Hong Kong, and author of “Chinese Antitrust Exceptionalism,” told Barron’s that the legal and business community suspected that Meituan has engaged in the alleged ‘choose one from two’ practice. “So it is natural that the firm is the next target,” she said.
Meituan said in a statement on Monday that the company will cooperate with the investigation “to further improve the level of business compliance management, protect the legitimate rights and interests of users and all parties, promote the long-term and healthy development of the industry, and earnestly fulfill its social responsibilities.”
Meituan is China’s third-most valuable internet firm, behind videogame developer
(700:Hong Kong) and Alibaba, with a market value of more than $200 billion, according to The Wall Street Journal. Meituan’s biggest rival in takeout delivery in China is Ele.me, which is owned Alibaba.
“The Meituan case clearly shows that the antitrust agency won’t just stop there,” Zhang said, adding that if the agency doesn’t take swift action, “it could be criticized for selective enforcement which could harm its reputation and undermine its enforcement campaign.”
The alleged practices, particularly among bigger firms, could undermine the health of not just China’s tech space but the wider economy as well.
“The news simply indicates that China is enforcing its antimonopoly law against its own Big Tech companies,” Eleanor M. Fox, a professor of trade regulation at the New York University School of Law and a former antitrust expert at the U.S. Department of Justice, told Barron’s. “If a dominant firm requires its customers not to do business with its rivals, that is a typical, classical antitrust violation. It suppresses competition and hurts consumers.”
But the issue is nuanced. Some monopolistic practices—including exclusivity agreements—are legal and permitted for firms that lack market dominance. It’s when firms typically reach something near 50% market share that such activities become illegal and detrimental to the economy, experts said.
“Exclusivity is generally considered as pro-competitive when entered into between companies with low market power, for a short period of time and in presence of strong competition,” François Renard, head of international law firm Allen & Overy’s Greater China Antitrust Practice, told Barron’s.
“The internet sector has developed so rapidly in China that some companies may have decided to adopt and to keep applying aggressive exclusivity arrangements despite their growing market power and without enough business justifications,” Renard said. Some may have dismissed the rules since China has not been active on enforcement for a few years, he said.
Authorities are now issuing guidance documents for firms, with the expectation they will seize the initiative and reform as expected on their own, experts said. There are signs this is happening. In the wake of the Alibaba and Ant punishments, Chinese firms have hired high-profile antitrust specialists.
“All of these companies are now engaged in a serious antitrust compliance exercise,” said Frank Fine, head of international antitrust at Beijing-based DeHeng Law Offices, and executive director of the China Institute of International Antitrust and Investment, under the auspices of the China University of Political Science and Law.
“If anyone had any doubts, these new developments should open everyone’s eyes,” Adrian Emch, Beijing-based partner at American-British law firm Hogan Lovells, said in an interview. “Chinese antitrust law has entered into a new era. Chinese ‘Antitrust law 2.0’ is here.”
DeHeng’s Fine, whose institute has held events in China with judges and antitrust experts examining the country’s evolving legal practices, told Barron’s that this forced “growing up” would make Chinese firms that adapt more competitive globally.
“If they’re able to keep their profits going, grow their markets, improve their services, in such a way as to offset the antitrust pressure that they’re facing, they’ll have won,” Fine said. “The likelihood of them succeeding globally becomes much greater.”
For the near term, several experts agreed that more scrutiny is to come for highflying Chinese firms.
The regulator’s “high profile antitrust investigations and other actions against digital platforms fit into this broader political imperative,” and it may have the emboldened the State Administration of Market Regulation to not be so constrained in taking action, Wendy Ng, senior lecturer and director of the Competition Law and Economics Network at the Melbourne Law School, said in an interview.
“Even though digital platforms have now all publicly committed to cleaning up their business practices and to falling into line, I would not be surprised if SAMR did take antitrust actions against more digital platforms in the future,” she said.
Investors aren’t concerned yet. Alibaba’s stock rose after its large fine. Meituan’s shares rebounded 2.6% on Tuesday, more than making up for the one-day dip following Monday’s announcement. Shares were down slightly on Wednesday and are up 5% so far this year.
Tanner Brown covers China for Barron’s and MarketWatch.
Corrections & Amplifications
Frank Fine, the head of international antitrust at Beijing-based DeHeng Law Offices and executive director of the China Institute of International Antitrust and Investment, has held events in China with judges and antitrust experts examining the country’s evolving legal practices. A version of this article published April 28 incorrectly spelled the name of the law firm and misstated the institute’s objectives.