Innovation and monopolies, you always need to pass “Go”

Michele Caprini
28/09/2021
In brief
The Chinese government has taken a series of steps to stop the discriminatory practices of blocking rival’s links and interference in the services operated by them. The targeted groups are national web giants such as Alibaba Group, Tencent, ByteDance, Baidu and Huawei Technologies. The new measures fall within the expectations of analysts, who criticize the lack of innovation and competitiveness induced by monopolistic behaviours over the last decade.

The opposition between monopolies and innovation is an ancient story, which now recurs in China where the government took action to force national web giants to stop discriminatory practices of competing links and interference in the services managed by them.

Monopolies in China and “market order”

The reasons officially invoked by the Ministry of Industry and Information Technology are explicit: prevent unfair competition and consolidate an open market system for the long-term development of industry. Monopolies are of course a major obstacle to this, and Chinese authorities have therefore set their sights on tech giants such as Alibaba Group, Tencent Holdings, ByteDance, Baidu and Huawei Technologies.

Announcing the measures in Beijing, Zhao Zhiguo, spokesman for the Ministry, said that restricting normal access to internet connections without an appropriate reason “affects user experience, damages users’ rights and disrupts market order”. All platforms must therefore be unblocked by a certain time or face penalties under the law.

It seems strange this antitrust move in the largest natively digital nation in the world, which has made substantial progress in the global technology market, but the new order is part of the expectations of analysts who criticized the lack of innovation and competitiveness due to the monopolistic behaviours that prevailed over the decade.

A “necessary reform”

Zhang Yi, CEO of iiMedia Research Institute, one of the leading Chinese market analysis companies operating from Canton to Silicon Valley, put it this way: “After 20 years of rampant growth, a drastic reform of China’s internet industry is urgently needed”. These were the words reported by the Global Times, the state-run tabloid published by the official organ of the Chinese Communist Party, the People’s Daily.

In February, ByteDance, owner of the Douyin platform (known in the West as TikTok), launched a lawsuit against Tencent, claiming it is blocking content sharing on the WeChat and QQ platforms. In other cases, Alibaba’s Taobao and Tmall e-commerce platforms do not allow using Tencent’s WeChat Pay service as a payment option.

For Zhang Yi, monopolies make innovation difficult. If at the beginning of the web boom the competition between companies was relatively fair, with a commercial practice aimed at attracting new and large segments of users, with the increase of market concentration, things have changed radically. In Zhang’s opinion, allowing users to access links from rival sites can be seen as a positive shock that in the long term will stimulate internal innovation, which would benefit small and medium-sized enterprises today excluded from the ecosystem built by the internet giants.

The words of Liu Dingding, another leading industry analyst, go in the same direction: “Openness and cooperation are the main themes of our times. By blocking their rivals, the internet giants are ruining their own development prospects. The internet should never develop toward the direction of a local area network”.

Between state and market

The belief of Michael Norris, head of research and strategy at Shanghai-based consultancy Agency China, is that the “forced cracks in China’s walled gardens have the potential to re-write China’s digital advertising and e-commerce landscapes”.

The move by the Chinese authorities, however, seems to be part of a general plan to redefine the relationship between state and market, which has manifested itself with particular force over the past year, when Jack Ma, leader of Alibaba, was personally involved. Other points of the plan may be attributable to the “Common Prosperity Drive”, which closely affects the Chinese digital market giants.

An old story always young

In May 1911, telephone and typewriter were recent discoveries. The world had not yet known the horrors of the trenches and the People’s Republic of China was almost forty years away from its foundation.

On the 15th of the same month, the United States Supreme Court ordered the breakup of J. D. Rockefeller’s Standard Oil Company into 34 smaller companies to prevent the monopolization of the oil industry. Theodore Roosevelt vigorously enforced the Sherman Act of 1890, the first antitrust law of the United States of America to limit monopolies and cartels, affirming the right of everyone to “equal opportunities in the market”.

Later, in the middle of the century, the electronics market was liberalized in the same way, making patent licenses easily accessible. In 1952, AT&T patented the transistor, ancestor of the microprocessor. Fearing that large corporations could hinder the spreading of innovation, the U.S. government forced the company to allow competitors to participate in design specification and production criteria. The consequence of this was the explosion of consumer electronics. A few years later, it was IBM’s turn, forced to allow external programmers the opportunity to write programs for its computers, which is generally accepted as the starting point of the software market.

Nothing new then. The film that is being screened in China is not a preview, but a replica of what was screened in other times, in other cinemas and with other operators, even if it is difficult to predict the effects on the cost of the ticket and the related queues at the box office. “Same old story, same old song” were the lyrics sung by the legendary blues guitarist, B. B. King, in 1979. Whichever way you look at it, you always need to pass “Go”, as in Monopoly.

Innovation and monopolies, you always need to pass “Go”

Innovation and monopolies, you always need to pass “Go”