Platform for spurring innovation, growth

After a healthy correction, e-marketplaces, services set to ride new opportunities

Having undergone a healthy correction, China's platform economy is expected to play a greater role in promoting innovations and driving global economic recovery amid COVID uncertainties, industry experts said.

Platform economy refers to tech-driven online marketplaces and other similar operations or businesses. They allow consumers, entrepreneurs, businesses and the general public to connect, share resources, or sell products or services. In China, Tencent Holdings Ltd, Alibaba Group and Meituan figure among the most prominent platform enterprises.

China has pledged support for the sector as well as the digital economy, experts said at recent high-level conferences.

New moves in the recent past suggested supervision of the platform economy will be normalized following the strict measures seen earlier to rein in errant behavior of some players in the market.

All this signals an easing of regulations related to the sector with a view to spur its stable growth and sustainable development, experts said.

Last month, Chinese jobs platform Boss Zhipin and truck-hailing platform Full Truck Alliance said they have started to register new users again, after the Cyberspace Security Review Office completed its investigation and review of the two companies in accordance with related laws.

Reuters reported that Chinese ride-hailing firm Didi Chuxing is also taking the necessary corrective actions in order to make its apps available again on various mobile app stores. Last year, Didi was barred by the authorities concerned from listing its apps on app stores due to concerns related to national security.

"For China now, it is necessary and urgent to improve the governance of the platform economy. The ultimate goal of governance-related policies is to promote platform companies and make them stronger and better," said Jin Guang, deputy dean of the National School of Development at Peking University.

Jin noted that most of the country's top platforms are important innovators, reformers and drivers of the Chinese economy, and will play an active role in promoting both domestic industrial innovation and global market competition.

"Therefore, the country's supervision of the platform economy must actively be integrated with international rules, and at the same time, participate in the formulation and reform of international rules," Jin said.

In April, Vice-Premier Liu He said at a symposium organized by the National Committee of the Chinese People's Political Consultative Conference, the nation's top political advisory body, that the country will support the sustainable and healthy development of the platform economy and the private sector.

More measures will be rolled out to help drive the orderly and sound development of the platform economy, and encourage platform companies to participate in the country's major scientific and innovation projects, Liu said.

He said the government will also beef up support for direct investment in the digital economy and support the listing of technology companies on domestic and overseas securities markets.

His remarks have been widely seen by industry insiders as a signal that the antitrust authorities are unlikely to initiate fresh investigations or impose hefty fines on platforms in the near term.

"Over the past year and more, authorities have conducted intensive and special rectifications of improper behaviors in the platform economy and have achieved the desired effect of a fairer market environment. Now, it's time for China to return to normalized and predictable supervision in the sector," said Wang Xianlin, a member of the expert advisory group of the State Council's anti-monopoly commission.

The State Administration for Market Regulation has looked into over 100 cases of improper behavior and levied fines on 98 monopolistic instances in the internet sector, involving companies like Tencent, Alibaba, Meituan and JD.

Gan Lin, deputy head of the SAMR, said platform companies' earlier propensity to unfairly compel merchants to make either-or kind of choices, or force them to pick one option from just two on offer has "basically disappeared", after strict regulations kicked in.

The binary practice refers to platforms forcing merchants to have exclusive partnerships or distribution channels with them alone in a sort of monopolistic or restrictive manner. The unfair trade practice has bedeviled China's e-commerce sector for years.

"To make the platform economy normalized means regulatory efforts will become routine and avoid fragmented supervision, which had earlier led authorities to ignore illegal or improper behavior during the sector's nascent phase, only to start regulating it in sudden spurts," said Wang, who is also director of the Center for Competition Law and Policy at Shanghai Jiao Tong University.

He likened the evolution of the supervisory process to modern health management practices. "When you are sick, of course you need to go to a doctor or even an emergency room to get cured. After targeted treatment, you are expected to return to daily health management like exercising to keep healthy."

In late June, Chinese lawmakers amended the Anti-monopoly Law to improve rules related to the platform economy, clarifying that platform operators with clear market dominance shall not abuse such leading positions through data, algorithms, technologies or platform rules.

"For years, it has been a global trend that anti-monopoly authorities were striving to strike a balance between supervision and development," said Li Chao, chief analyst at Zheshang Securities.

"Global practices showed that antitrust efforts relating to the platform economy didn't crack down on any specific giant, but stimulated innovation and entrepreneurship, and furthermore ensured the market in general prospers."

In the 1970s and 1980s, US antitrust measures led to tech giant IBM giving up bundled sales of software and services and disclosing its personal computer technical standards, after which Microsoft and Intel, upstream and downstream suppliers to IBM, grew rapidly. Tech companies such as Dell also began to rise, helping lay the foundation for the US internet boom at that time, he said.

In addition, leading foreign brokerages and investors are also reviewing their stand on shares of Chinese internet and technology companies after a sharp selloff earlier this year.

Wind data showed that among all the 280 US-listed Chinese companies, only 27 saw their share prices rise since the beginning of this year, accounting for less than 10 percent of the total. The market value of US-listed Chinese companies including Pinduoduo and JD shrank by more than $20 billion.

But in mid-May, investment bank JPMorgan upgraded its outlook on a slew of Chinese internet and tech companies including Alibaba Group, Tencent Holdings, NetEase Inc and Meituan to overweight, and that on JD, Bilibili and several other Chinese companies from underweight to neutral.

Overweight, underweight and neutral are performance indicators used by analysts to rate the stocks' foreseeable future. An overweight rating, for instance, is mainly a recommendation to hold more of the stock than the relevant benchmark index.

JPMorgan's mid-May stance was in sharp contrast to its March view when the brokerage downgraded 28 Chinese internet stocks to neutral or underweight. JPMorgan analysts led by Alex Yao explained in a report that the new classification came because the so-called significant uncertainties facing the sector should begin to abate on the back of recent regulatory announcements.

"We had originally forecast that these various uncertainties would continue for six to 12 months, with the earliest relief possible in the second half of the year. We expect early-cycle sectors such as digital entertainment, local service, and e-commerce to be the first batch of outperformers," the analysts said.

Pan Helin, co-director of the Digital Economy and Financial Innovation Research Center at Zhejiang University's International Business School, said the rating upgrades are based on the low and attractive price of the shares of China's leading platform companies.

"But more importantly, the platform economy is ushering in a new era and will focus on high-quality performance. Many of the platform companies still have great growth potential in earnings and returns," he said.