Alibaba, Tencent, JD.com among those most affected by China's proposed antitrust rules

  • China's internet sector saw a $260B selloff on Wednesday after Beijing signaled its strongest intention yet to rein in Big Tech by drafting a slew of new anti-monopoly laws.
  • "We believe potential implementation of the new antitrust regulations has negative implications for major Internet companies with dominant positions across segments," Morgan Stanley said in a research note. "That said, competition has already intensified in recent years, with 'incumbents' (e.g., Alibaba, Tencent) losing market share to 'disruptors' (e.g. Pinduoduo, Bytedance), so the consequences will likely be less meaningful given reduced dominance across segments compared to a few years ago."
  • Analysts at the firm also broke down the possible impacts on each company affected by the legislation.
  • Alibaba (NYSE:BABA): The new proposed regulations will not have much of an impact on the company "because of the already fierce competitive environment in e-commerce nowadays," and some of its market share has already been chipped away.
  • Tencent (OTCPK:TCEHY): The conmpany's "focus on online entertainment involves a wide range of content innovation and can be less relevant to antitrust scrutiny. Thus, the impact on Tencent could be relatively manageable except for the potential misuse of user data across platforms, or blocking competitors access to the WeChat ecosystem."
  • Pinduoduo (NASDAQ:PDD): "Should the rules eventually limit the use of subsidies provided by platforms, we think that the potential limitation will affect Pinduoduo in particular, because 'Rmb10bn subsidy' is one of its central strategies to drive user engagement." Pinduoduo is one of the fast-growing challengers to Alibaba and JD.com.
  • JD.com (NASDAQ:JD): The new anti-monopoly rules could reduce JD.com's bargaining power over its suppliers in the future. It also employs a subsidy plan as part of its promotional activities, but it does not play as crucial a role for the company as it does for Pinduoduo.
  • Meituan (OTCPK:MPNGF): "We note the potential implementation of new antitrust regulations could also weigh on Meituan's take rate charged to merchants. On the other hand, Meituan has been shifting gears to focus on promoting a food delivery membership program to cultivate user behavior and raise order frequency."

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