The State Administration for Market Regulation (SAMR) promulgated the Anti-monopoly Guide for the Platform Economy Sector (Draft for Comment) (“Guideline”) on November 10, 2020, which put forward the rules to many new regulatory matters, reflecting the new trend of legislation and law enforcement. The Guideline will have a significant impact on enterprises engaging in the platform economy especially on giant ones such as Alibaba, Tencent, JD and other dominant e-commerce platforms in China.

With the fast-track development in the platform economy in the recent years, SAMR recognized that some legal gaps existed and needed to be watched as they materially impede the fair competition in the market, and adversely affect economic growth. Therefore, this Guideline pinpoints the key issues outstanding and guides the market development in the right track.

First, the Guideline made it clear that the VIE structure widely adopted in the concentration of undertakings shall be within the scope of anti-monopoly review. In the practice of anti-monopoly review of the concentration of undertakings in China, due to the fact that the VIE structure is a grey area set forth by law, SAMR has been relatively hesitant in dealing with the large number of cases in the concentration of undertakings in this regard. However, in this Guideline, it is crystal clear for the first time that the concentration of undertakings involving the VIE structure falls under the scope of the anti-monopoly review of the concentration of undertakings. If the concentration of undertakings meets the filing standards provided by the State Council, the filing party shall file with SAMR for approval before the entire project or deal is completed, which means that the concentration shall not be implemented if it fails to file. It was essential that SAMR reached a consensus that the concentration of understandings involved in the VIE structure would be included in the review in the future so as to resolve the long-pending loopholes on the regulatory front.

Second, the monopolistic act can be directly identified without defining the relevant market. The definition of “relevant market” has been one of the top issues of controversy in relation to the identification of monopolistic acts of operators in the platform economy such as internet giants. The method of traditional analysis focusing on terms such as “relevant market” are not easily applicable to many difficulties faced by emerging Internet platform enterprises. This Guideline exempts the requirements of relevant market analysis under certain conditions, which is of breakthrough significance as compared to the traditional approach. For example, in monopoly agreements, the Guideline suggests that for horizontal monopoly agreements such as fixed price and market segmentation reached by operators in the platform economy, as well as vertical monopoly agreements such as fixed resale price and minimum resale price, SAMR need not clearly define the relevant market when assessing illegality; when assessing concentration of undertakings, if evidence indicates that operators' dependence on dominant position has obviously produced long-term damaging effects, but the relevant market conditions are insufficient or difficult to assess, SAMR may proceed without defining the relevant market and directly identify the monopolistic act of operators in the platform economy. In addition, for the specific analytical framework of relevant market identification, the Guideline points out that in the platform economy, competition among operators usually revolves around the core business in order to obtain broad and consistent attention from users. Therefore, when defining relevant markets in products, it is not possible to simply define relevant markets according to the basic services of the platform. In such cases it is also necessary to consider the possible cross-platform network effect and to define the platform as an independent market, or separately define multiple associated markets.

Third, the new concept in the platform economy such as “algorithm controversy” and the third category “Hub-spoke Agreement”, as opposed to horizontal and vertical monopoly agreements, have been placed within the scope of the regulatory regime. It has always been a focus of global antitrust theory and practice that operators reach monopoly agreements through technical means using data and algorithms, namely algorithm controversy, which can cause data utilization and algorithm realization relating to coordinated conduct, or the price to make use of data and algorithm directly or indirectly, and the use of technical means, platform rules, data and algorithm limit other trading terms, eliminating or restricting competition in the market and other factors in the horizontal and vertical monopoly agreements. In this regard, the Guideline makes it clear that when direct evidence is difficult to obtain, operators’ awareness towards the relevant information can be determined based on logically consistent circumstantial evidence so as to determine whether there is coordinated conduct between the operators. In addition, the Guideline introduces the concept of a Hub and Spoke Conspiracy, which first appeared in the US, indicating mixed behaviour characteristics from horizontal and vertical monopoly agreements but was ultimately deemed as a horizontal monopoly. In this Guideline, Hub-spoke Agreements were introduced for the first time, and put in the scope of regulatory regime under the Anti-monopoly Law.

Fourth, “choose one from two and bias by big data” are clearly listed as conducts abusing market dominance, also called “restricting conduct”. The Guideline states that requiring distributors to “choose one from two” among competing platforms, where the platform includes a condition that the seller does not advertise their goods on a competing platform, or other conducts with the same effect shall be deemed as abusing a dominant market position. The Guideline specifies that such restrictions may manifest themselves in a number of ways with the core being: (1) when the platform operator imposes restrictions through punitive measures and thus causes damage directly, it may be generally recognized as a restricting transaction; (2) when the platform operator implements restrictions through incentives, even where such restrictions may have certain positive effects, if those incentives have the obvious effects of excluding or limiting competition, such conduct will also be considered as restricting trading conduct.

Another widely spread concept “bias by big data” has attracted more attention from the news media and consumers. The Guideline proposes that platform economic operators may, based on big data and algorithms, implement differential transaction prices or other transaction conditions according to the payment capacity, preference and usage habits of the distributors, or, based on big data and algorithms, implement differentiated trading prices or other trading conditions for new and existing distributors. Such discriminatory treatment is also a major consideration for SAMR to identify the abuse of dominant market positions.

Even though the rules in the Guideline are merely a draft for comments and suggestion for the public, they have caused market fluctuations especially in the stock market. According to the HK Stock market on November 11 and November 12 , 2020, the shares of major platforms such as Alibaba, JD and Tencent slumped by double digit percentages. From this we can see the impact on the platform economy is significant. We believe the Guideline is forthcoming and all the operators in this industry shall be ready for the new rules and will adapt to the new regulatory supervision.