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China Daily Global / 2021-01 / 04 / Page010

Without hindering digital biz, anti-monopoly rules must click

By Cai Yuezhou | China Daily Global | Updated: 2021-01-04 00:00

Whether antitrust sanctions will hinder the development of the digital economy needs to be seen from different perspectives on the development of the digital economy.

If we only understand the development of the digital economy as scale expansion, then antitrust sanctions, including industry regulation and market supervision, will have a certain impact in the short term.

But from another perspective, what is the purpose of the development of the digital economy? For me, the development of the digital economy is to empower small and medium-sized enterprises and benefit more consumers.

Such a goal is in line with the requirements of the supply-side structural reform as enunciated at the 19th National Congress of the Communist Party of China in October 2017. The congress had vowed to work hard for better quality, higher efficiency, and more robust drivers of economic growth through reform, as well as to raise total factor productivity. Also, from the demand side, it is to meet people's ever-growing needs for a better life.

Based on such goals of the development of the digital economy, if we regulate and supervise the monopolistic behavior that abuses market advantage, especially those who leverage data to extract surplus value, it will promote the development of the digital economy and drive the healthy development of the sector.

In fact, we have researched the accelerated industrial internet sector and found that unfair competition also exists in the manufacturing and industrial internet industries.

In the consumer-oriented internet-based industries like e-commerce, online platforms connect merchants and consumers, and occupy an absolute dominant position in the entire consumer service ecosystem. But in the manufacturing sector, a huge industrial ecosystem is often formed around top or leading enterprises.

Usually, leading companies promote the construction of an industrial internet platform, and all upstream and downstream companies in the industrial chain are connected to the platform to form an industrial ecosystem. Occupying a core and dominant position in the industrial ecosystem will directly affect whether other enterprises in the industrial chain can enjoy fair development opportunities.

In reality, leading companies in the ecosystem take advantage of their dominant position to maximize the control of the remaining claim rights, which is obviously not conducive to the healthy development of the entire industrial ecosystem.

For this reason, anti-monopoly rules in the era of digital economy should consider whether the behavior of internet platforms or consumer sector giants will affect the fair competition of similar companies, and whether the behavior of giants will affect the fair development of other companies and entities in the ecosystem.

Future supervision and regulation need cooperation of industry authorities and market supervision departments to follow up, identify and intervene in the digital economy, especially the dominant corporates' behavior in the ecosystem, so as to drive the sector's healthy development.

In addition, security is also an important consideration when we talk about antitrust, especially when China, the United States and Europe are competing fiercely in the digital economy.

The Sino-US trade friction has gradually evolved into a technological war and a zero-sum game between two major powers. I feel that at the core of the competition is the competition for the digital economy market and data resources.

US internet-based companies have a large number of global users because the country has strong scientific and technological strengths and the commercial application of the new generation of information technology started early in the country. The US government is mighty in terms of data protection and cross-border data flow.

Large internet giants did not emerge from the European Union due to market segmentation, which led it to very strict regulations in data protection and cross-border flows. The General Data Protection Regulation is, for instance, a self-protection.

Of course, there is an endogenous problem. It is because of the EU's poor development that a stricter protection such as the GDPR has been imposed. But because of the stricter protection, the development of its digital economy has been restricted.

China has cultivated a slew of world-class internet-based companies such as Alibaba Group, Tencent Holdings, JD, Baidu, NetEase and ByteDance, by relying on the advantages of the super-large-scale market. However, local digital companies have generally not been particularly successful in going abroad.

There are some excellent companies, such as Douyin or ByteDance's TikTok, which have been successful abroad. But after their success, they have been squeezed out by foreign governments. Strong suppression of TikTok by the US government is a case in point.

From the perspective of international competition, how strong the future antitrust laws would be in the digital economy will depend on the dynamic between the two countries.

It was mentioned repeatedly during the Fifth Plenary Session of the 19th Central Committee of the Communist Party of China that safety and development should be coordinated, and safety has been placed in a more important position than ever.

In the future, when antitrust authorities consider regulations on local companies that operate online platforms, including consumer internet platforms and industrial internet companies, they should consider the political and economic dynamics among major powers. They should also consider the national industrial security and data security.

When such authorities consider how to promote industrial development through supervision and regulation, they should also think about whether countries could maintain a comparative advantage in the competition of the international digital economy afterward.

Based on such considerations, when countries implement new supervisions and regulations, they must pay attention to international competition and national security, and consider how to maintain the scale and competitiveness of local internet-based companies and help them to improve. Only through such an approach can any country's data security and industrial security receive more protection.

At the same time, from the perspective of the development of the domestic digital economy, every country's ultimate goal of development is to benefit every participant in the internet ecosystem, including many SMEs and consumers, to help them reap the benefits.

For this reason, in the face of online platforms or leading companies commanding a dominant position in the ecosystem, China's antimonopoly measures are expected to strike a balance between maintaining national security and data security and promoting the growth of online platforms. Any new antitrust laws would also likely seek to promote the healthy growth of the internet ecosystem.

The writer is director of digital economy research at the Institute of Quantitative and Technical Economics, which is part of the Chinese Academy of Social Sciences in Beijing.

The views don't necessarily reflect those of China Daily.

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