Tech Shares Dip With China Crackdown Set To Target EV Firms Next

Shares in China’s Alibaba Group and Tencent Holdings fell on Monday by over 6% and 3% respectively after Beijing fired a fresh regulatory shot at its tech giants.

It followed comments from the country’s Ministry of Industry and Information Technology (MIIT) telling the firms to end a long-standing practice of blocking each other’s links on their sites or face consequences.

The statement contributed to a 3% decline in the Hang Seng Tech Index and the MIIT also added – in a sign of where the regulatory crackdown might be heading next – that China had “too many” electric vehicle makers and the government will encourage consolidation.

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MIIT’s pronouncement is just the latest step in Beijing’s broad regulatory crackdown that has targeted its technology, education and property sectors and wiped billions of dollars off the market value of some of the country’s largest companies.

China’s internet is dominated by a handful of technology giants which have historically blocked links and services by rivals on their platforms.

Restricting normal access to internet links without proper reason “affects the user experience, damages the rights of users and disrupts market order,” said MIIT spokesperson Zhao Zhiguo, adding that the ministry had received reports and complaints from users since it launched a review of industry practices in July.

“At present we are guiding relevant companies to carry out self-examination and rectification,” he said, citing instant messaging platforms as one of the first areas they were targeting.

UNNAMED CONSEQUENCES

He did not specify what the consequences would be for companies that failed to abide with the new guidelines.

The MIIT did not name any companies, but China’s 21st Century Business Herald reported on Saturday that Alibaba Group Holding Ltd and Tencent Holdings Ltd were among the firms told to end the practice by an unspecified time last week.

The practice targeted by the MIIT is common. Tencent restricts users from sharing content from ByteDance-owned short video app Douyin on Tencent’s instant messaging apps WeChat and QQ. In February, Douyin filed a complaint with a Beijing court saying that it constituted monopolistic behaviour. Tencent has called those accusations baseless.

In other cases, Alibaba’s Taobao and Tmall e-commerce marketplaces do not allow Tencent’s payment service WeChat Pay to be used as a payment option.

‘WALLED GARDENS’

Tencent said it supported the MIIT’s guidance and would make the necessary changes in phases.

“Forced cracks in China’s walled gardens has the potential to re-write China’s digital advertising and e-commerce landscapes,” said Michael Norris, research and strategy manager at Shanghai-based consultancy AgencyChina.

“In the short term, all eyes will be on Tencent as it comes to grips with what it means to open WeChat to Alibaba and ByteDance.”