Why the CCP Is Cracking Down on Alibaba While Sparing Tencent

May 17, 2021 Updated: May 17, 2021

Commentary

The Chinese regime fined Alibaba $2.8 billion in April under anti-monopoly law, highlighting the regime’s comprehensive review of Chinese internet companies.

However, Tencent was only fined $310,000 despite its comparable monopolistic influence in China. For a mega-corporation like Tencent, a fine of this size is equivalent to pennies.

The CCP’s biggest grievance with Alibaba is its very large share of the CCP’s precious authority over Chinese banking and finance. However, this alone doesn’t justify the disparity in fines. Tencent’s monopolistic actions in many leading industries are in no way smaller than Alibaba’s.

China’s three main technology companies are Baidu, Alibaba, and Tencent, forming the acronym BAT. Among BAT, Tencent has the most amazing expansion and the most serious monopoly, far surpassing Alibaba and Baidu.

Why is the CCP showing mercy to Tencent, while so heavily fining Alibaba?

Alibaba Versus Tencent

In terms of monopolistic standing, Alibaba and Tencent both dominate the massive Chinese digital marketplace as megacorps. Both are valued at similar market capitalizations of approximately $500 billion, with slightly different industry focuses. Alibaba’s main focus is e-commerce, while Tencent leans toward digital gaming and messaging.

Under the umbrella of their massive corporations, they both hold a myriad of offshoot companies with overlapping focuses in financial technology, digital payments, wealth management, and messaging platforms.

Alibaba’s Ant Financial has subsidiaries such as Alipay, Zhaocaibao, Yu’ebao, Ant Jubao, Internet Commercial Banking, Ant Huabei, and Sesame Credit.

Among vertical payment companies, Alibaba focuses on public transportation and wealth management. In the entire wealth management industry chain, their corporate structure layout includes investment consultants (Pioneer Pilot), Robo-advisor (Alfa Financial), and social investment (Snowball).

Alibaba’s breadth of holdings certainly warrants the criticism of being a monopoly.

What about Tencent? Its payment platform includes multiple products: Tenpay, WeChat Pay, Mobile QQ Wallet, and WeChat Hong Kong Wallet. In the wealth management sector, the main product is Tencent Licaitong. Based on the huge user base of WeChat, the number of Licaitong users is increasing, and it has become a key development target of Tencent’s financial technology.

Tencent’s 2019 financial report shows that Licaitong’s capital holdings exceed $140 billion. In addition, the people’s livelihood service sector mainly includes mobile phone recharge, credit card repayment, Tencent’s Micro Plus credit card, Tencent’s blockchain, AND Tencent’s tax refund service.

Nineteen years ago, Tencent invested in hundreds of companies. In the field of financial technology, it has invested in companies such as WeBank, ZhongAn Insurance, Futu Securities, Water Drop Insurance Mall, and Weibao.

In the field of banking, Tencent Financial is invested in China WeBank, which is actually an online merchant bank that is far ahead of Ant Financial.

In the respective 2019 annual reports for the companies, WeBank’s revenue reports three times the net profit over Ant Financial.

In addition to banking, Tencent also has a strong presence in the insurance field, with its joint venture ZhongAn Insurance, as well as heavy investments in Weibao and Waterdrop Insurance Mall. In the securities sector, investing in Futu Securities, the financial report shows that Futu Holdings’ revenue in 2019 was $136 million, an increase of 30.9 percent year-on-year from 2018.

The main point is that Tencent’s monopolistic actions in the financial and banking fields are in no way inferior to Alibaba’s and its owner, Jack Ma.

Tencent’s Entertainment and Gaming Monopoly

Moreover, Tencent overtly dominates the Chinese entertainment and media industries. It has the largest market share in terms of stock copyrights, new copyright areas, and IP adaptations.

At present, there are 8,826 copyrighted drama series on the internet in China, of which Tencent covers 53 percent.

Their hold on dominating Chinese entertainment and media is only projected to increase in the coming years. Tencent is also starting to sharply increase the production of new dramas in the next two years. In 2020, Tencent’s exclusive dramas accounted for 41 percent of the copyrights in the industry. In the next two years, there are 80 premiere TV dramas scheduled, and 37 of them will be launched on Tencent platforms.

How did Tencent slowly become the leader of Chinese film and television dramas? Its strategy mainly consists of investing in upstream production companies and locking in production capacity. In the past two years, they utilized this very strategy in the field of music production and succeeded wildly. When they used it in the gaming industry, they succeeded as well.

Deloitte’s China Film Investment and Financing Report of 2020 (pdf) shows that Tencent Investment ranked #1 in equity investments in the Chinese film industry. Investment projects include Chinese film production companies such as Bona Pictures, Huayi Brothers, Maoyan Entertainment, Weiying Times, and Ningmeng Pictures.

At present, there are mainly 12 leading domestic film and television production companies, of which Tencent’s investment accounts for 42 percent.

Of course, Tencent’s most powerful industry is still gaming. The hottest computer and mobile games in China are basically monopolized by Tencent. Even in the international game market, Tencent has become a world-class player.

Tencent Business Strategies

Tencent’s business strategies are plainly monopolistic, similar to many of the leading technology companies in the West.

Its expansion model emulates these Western technology companies. It begins with creating a social platform with free services for users to acquire a massive user base. Next, it monopolizes the relevant upstream and downstream offerings by creating a copy of whatever popular products and services appear in the market, and undercutting the competitors’ cost.

Tencent is able to price its products for free due to its large cash surplus from its international IPOs and digital advertising revenue. The company promotes a free version of its dupes of market favorite services and products until the competitor is forced to sell or quit.

This Chinese model of aggressive monopolization is a replica of Silicon Valley and Wall Street. It’s just that these big internet companies in China are even more aggressive than big U.S. technology companies, have access to an even larger pool of capital from international IPOs, and operate in China’s closed system.

Why Tencent Was Spared

Despite its overt operational practices as a monopoly corporation, Tencent has been spared from harsh treatment from the CCP. The most important reason for Tencent’s more favorable treatment is its early cooperation with the Chinese regime. Tencent joined forces with the CCP’s Ministry of Security in the earliest stage of its development.

In 1999, Tencent launched QQ, a prominent social media platform in China. It offered two primary functions of instant messaging and social media. At the time, it quickly became a popular communication tool for people in China.

QQ also became the first attempt by the Chinese regime to monitor its people on a large scale through the internet and mobile devices. Tencent’s active cooperation greatly contributed to the CCP’s plan to modernize its methods of monitoring and governing the Chinese population.

This is the key difference between Tencent and Alibaba. Until recently, Alibaba did not fully share corporate data with the authorities, and Tencent shared all data with the authorities from the beginning. Now, the CCP is cracking down on Alibaba while letting Tencent slip through the cracks.

Alexander Liao is a columnist and journalist in research on international affairs in the United States, China, and Southeast Asia. He has published a large number of reports, commentaries, and video programs in newspapers and Chinese financial magazines in the United States and Hong Kong. 

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.