Alibaba

[Wildreamz]

China Should Curb Tech Monopolies to Ensure Growth, Says PBOC Advisor
https://www.bloomberg.com/news/articles/...oc-advisor

*Markets create monopolies, need tight regulation: Cai Fang
*Economist says competition positive for long-term growth

..

Beijing should strengthen efforts to control the expansion of technology companies because the development of internet platforms leads to a “winner takes all” dynamic, which increases inequality and slows economic growth, an advisor to China’s central bank said.

“The new technological revolution with more prominent properties of increasing returns will inevitably produce an unprecedented tendency toward monopoly,” Cai Fang, a member of the People’s Bank of China’s monetary policy committee, told the state-run Securities Times in an interview.

..

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I disagree that central planning and the elimination of all monopolies is the answer. I'm leaning towards Peter Thiel's idea, that (IMO, "benevolent") monopoly is probably an ideal outcome in free market economy (for all stakeholders). As profits come-by more easily in natural monopolies (like Google) and pseudo-monopolies (like Apple), companies do not need to push manipulative tactics to their logical extreme, and thus, could be more moral, more innovative, take greater risks, provide more services at an extremely low costs (see what Google provides basically for free; Gmail, Google Drive, YouTube etc.; R&D that are extremely costly in the short-term, with unknown upside in the long-term like Waymo, Google Cloud, DeepMind, Quantum Computing etc.) etc.

But of course, it doesn't matter what I think; in the case of Chinese tech.

[Clement]

China Should Curb Tech Monopolies to Ensure Growth, Says PBOC Advisor
https://www.bloomberg.com/news/articles/...oc-advisor

*Markets create monopolies, need tight regulation: Cai Fang
*Economist says competition positive for long-term growth

..

Beijing should strengthen efforts to control the expansion of technology companies because the development of internet platforms leads to a “winner takes all” dynamic, which increases inequality and slows economic growth, an advisor to China’s central bank said.

“The new technological revolution with more prominent properties of increasing returns will inevitably produce an unprecedented tendency toward monopoly,” Cai Fang, a member of the People’s Bank of China’s monetary policy committee, told the state-run Securities Times in an interview.

..

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I disagree that central planning and the elimination of all monopolies is the answer. I'm leaning towards Peter Thiel's idea, that (IMO, "benevolent") monopoly is probably an ideal outcome in free market economy (for all stakeholders). As profits come-by more easily in natural monopolies (like Google) and pseudo-monopolies (like Apple), companies do not need to push manipulative tactics to their logical extreme, and thus, could be more moral, more innovative, take greater risks, provide more services at an extremely low costs (see what Google provides basically for free; Gmail, Google Drive, YouTube etc.; R&D that are extremely costly in the short-term, with unknown upside in the long-term like Waymo, Google Cloud, DeepMind, Quantum Computing etc.) etc.

But of course, it doesn't matter what I think; in the case of Chinese tech.

I think that the scalability (near zero marginal costs of serving additional customers) of Alibaba and other ecosystem based companies causes them to tend towards natural monopolies. However, I disagree that monopoly is an ideal outcome of a free market and i do not think the current regulatory backlash against Alibaba is unique.

It is not unique to China that regulators are generally against companies using their dominant position in one market to get unfair advantages in adjacent markets. Alibaba, through its ecosystem, has a commanding position as an intermediary of goods and services. The regulators are trying to prevent it from leveraging on this position to gain unfair advantages in other markets, which i think is not that far out of the ordinary. For example, Microsoft faced similar problems when they tried to use their position in operating systems to gain unfair advantages in the browser market.

[Wildreamz]

Hi Clement,

Using Microsoft and the Browser market to demonstrate that natural monopoly is bad is an interesting choice. Because even though Apple controls iOS and MacOS, and Microsoft controls Windows; it still can't stop users from gravitating towards Chrome, who has by far the largest market share of internet browsers globally (about 70%). Hence, showing that free market economy works, even though Microsoft/Apple is supposed to have an unfair, "monopolistic" advantage, the better product almost always win eventually.

If it takes a natural monopoly for YouTube to exist, profitably, in a pro-consumer way, then it would/should. If YouTube (or sites like YouTube) can exist without a natural monopoly, then it would/should.

In a truly functioning free market economy where companies are free to consolidate efficiencies, and users are free to choose the superior product/experience. Everything would eventually works out.

Forcing, by legislation, a perfect competition dynamics in a space that doesn't make sense to have perfect competition (imagine artificially engineering 10 social media sites like Facebook, in the name of anti-trust) will only end in tragedy for all stakeholders.

IMHO. Peace.

[Clement]

Hi Clement,

Using Microsoft and the Browser market to demonstrate that natural monopoly is bad is an interesting choice. Because even though Apple controls iOS and MacOS, and Microsoft controls Windows; it still can't stop users from gravitating towards Chrome, who has by far the largest market share of internet browsers globally (about 70%). Hence, showing that free market economy works, even though Microsoft/Apple is supposed to have an unfair, "monopolistic" advantage, the better product almost always win eventually.

If it takes a natural monopoly for YouTube to exist, profitably, in a pro-consumer way, then it would/should. If YouTube (or sites like YouTube) can exist without a natural monopoly, then it would/should.

In a truly functioning free market economy where companies are free to consolidate efficiencies, and users are free to choose the superior product/experience. Everything would eventually works out.

Forcing, by legislation, a perfect competition dynamics in a space that doesn't make sense to have perfect competition (imagine artificially engineering 10 social media sites like Facebook, in the name of anti-trust) will only end in tragedy for all stake-holders.

IMHO. Peace.

Hi Wildreamz,

I am not using Microsoft as an example that monopolies are bad, merely that the Chinese government is not the only one which does not support such behaviour.

The issue is not whether monopolies are bad per se, but should a company with a commanding position in one market be allowed to use this position to unfairly compete in another market. Such behaviour is anti-competitive and illegal in most countries not just China. 

Google chrome was able to thrive exactly cause antitrust regulations exist. Without it, Microsoft could have made chrome function poorly on its operating systems or even made Google search work poorly on internet explorer. This could have crushed Google in its infancy. In my opinion, google’s success is a testament to the effectiveness of such regulations.

[Wildreamz]

Hi Clement,

Few things here, Microsoft intentionally slowing down their browser/search engine competitions on Windows is anti-consumer (exploitative; provides negative value to consumers), and certainly should be illegal.

Microsoft making their own browser and search engine and making them the default (ie leveraging their dominant position in Operating System to enter adjacent markets with unfair advantages; pro-consumer; provides consumer with additional products for free) should not.

There are predatory (ie exploitative; anti-stakeholders) tactics in competition, and then there are actual free market competition. The former certainly should be regulated. The latter should not, even if it eventually results in natural monopolies; especially (in my words) "benevolent" monopolies who leverages their market position/efficiencies to provide more value to stakeholders than they extract.

Refer to the language used in this article: https://www.bloomberg.com/news/articles/...oc-advisor

Does Cai Fang (PBOC advisor) make nuanced distinction between "predatory" monopolies and "benevolent" monopolies? Will the CCP make that distinction? Is it good for the long-term health of the Chinese economy if any sign of natural "monopoly" is nipped in the bud?

[Wildreamz]

Beijing’s breakup of Alipay was inevitable
https://restofworld.org/2021/alipay-breakup-impact/

Call it what you like — a closed loop, a virtuous flywheel — the formula was benefiting Alibaba at the expense of consumer choice and market competition. This is already hinting toward a conflict-of-interest problem, right?

..

Most importantly, over those years, there was a market need for easily attainable credit. The state was focused on growing consumption; credit card adoption did ramp up, but qualifying for it was out of reach for most Chinese. It meant that people were, on the whole, willing and grateful for Alipay’s credit-giving services.

I disagree that break up was inevitable. What Beijing should have done is conduct a fair, judicial Anti-Trust probe, and argue the merits of Alibaba's business decisions point-by-point, if they are pro or anti consumer. Not jumping directly into breaking up Ant and seizing consumer data by legislation.

What Alibaba did wrong is disallowing WeChat Pay on Alibaba e-commerce platform, in my view. That's anti-consumer. Leveraging data from multiple platforms to offer cheap loans is pro-consumer; one could argue that it simply needs more oversight, and I would agree.

[Wildreamz]

如何避免“一管就死、一放就乱”
http://www.xinhuanet.com/politics/2019-1...385181.htm

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"一管就死、一放就乱" is a (recent?) saying in China; roughly translates into "Places with lots of Chinese people, if left to own accord, chaos ensues; once overregulated, will fall apart."

The recent (in my view), hard-handed regulatory "crackdown" of tech (and many other sectors) reminds me of this 2019 article.

所谓“一管就死”是指一旦对特定领域严格管理，就会极大地削弱相关领域产品和服务的供给数量，严重损害企业活力，导致相关领域呈现供给不足、创新乏力和发展停滞，引起企业和群众要求政府简政放权呼声不断的现象。在实践中，“一管就死”有两个衍生的具体表现：一是“层层加码”，即自上而下不断增加严格管理的“从严”属性，甚至在法律法规之外设定更高标准，超出法律法规允许的范围新设义务、贬损权利。二是“一 刀切”，即不考虑具体情况机械地适用法律和政策标准，导致处置结果不符合常识、常理、常情。

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坚持源头治理。国家治理现代化要求对出现的问题不仅要“治标”，更要“治本”。之所以出现“一管就死、一放就乱”现象，就是因为在“治标”上用力过猛，忽视源头治理，使得一些治理整顿运动，只有短期效果、没有长期效果。

Authoritarian regimes have the tendencies to overregulate. Solving the symptoms of problems quickly and efficiently, without addressing the root cause; problems stemming from the same root cause will just resurface in a different, possibly deadlier, form.

[ongweehiang]

Beijing’s breakup of Alipay was inevitable
https://restofworld.org/2021/alipay-breakup-impact/

Call it what you like — a closed loop, a virtuous flywheel — the formula was benefiting Alibaba at the expense of consumer choice and market competition. This is already hinting toward a conflict-of-interest problem, right?

..

Most importantly, over those years, there was a market need for easily attainable credit. The state was focused on growing consumption; credit card adoption did ramp up, but qualifying for it was out of reach for most Chinese. It meant that people were, on the whole, willing and grateful for Alipay’s credit-giving services.

I disagree that break up was inevitable. What Beijing should have done is conduct a fair, judicial Anti-Trust probe, and argue the merits of Alibaba's business decisions point-by-point, if they are pro or anti consumer. Not jumping directly into breaking up Ant and seizing consumer data by legislation.

What Alibaba did wrong is disallowing WeChat Pay on Alibaba e-commerce platform, in my view. That's anti-consumer. Leveraging data from multiple platforms to offer cheap loans is pro-consumer; one could argue that it simply needs more oversight, and I would agree.

While cheap loans may be pro-consumer, it is on the back of the loans provided by the regional banks. The provision of loans by Ant post a systemic risk to the regional banks and the system and thus have to be curtailed. 

The CCP is usually worried about the systemic/macro risk in their policy decision. 

With most of the data residing in baba, it is logical to break up the parts and provide some check and balance in between. It may not be the most efficient system, but it allows competitors to spring up to serve different segment of the value chain.

My view is that the eco-system would be more robust post Ant when startups, private enterprise or banks come into the lending space since data is no longer the restraining factor.
  
OWH
www.weightedresearch.com

[CY09]

The issue for many tech start ups is how the CCP government can dismantle their data moat so easily to level the playing field. In Singapore's context, it is akin to asking Sea Group and Grab to give up their user payment data to MAS and they are not allowed to access data only to themselves to determine credit worthiness. This would make the efforts Grabpay and shopeepay done to work with businesses redundant; what makes grab and Sea Group valuable is because they have access to data knowing the spending habits of consumers/business popularity accurately through their super app.

Without this data moat, Sea Group and Grab's singapore operations are essentially loss making entities with zero value. Its the data they hold that makes the singapore operations worth millions

[Clement]

The issue for many tech start ups is how the CCP government can dismantle their data moat so easily to level the playing field. In Singapore's context, it is akin to asking Sea Group and Grab to give up their user payment data to MAS and they are not allowed to access data only to themselves to determine credit worthiness. This would make the efforts Grabpay and shopeepay done to work with businesses redundant; what makes grab and Sea Group valuable is because they have access to data knowing the spending habits of consumers accurately through their super app.

Without this data moat, Sea Group and Grab's singapore operations are essentially loss making entities with zero value. Its the data they hold that makes the singapore operations worth millions

Hi CY09,

I think the moat of these online marketplace companies is their ecosystem as a whole, not just the data. The ecosystem creates numerous monetization opportunities for facilitating various transactions done on the platform, the ability to collect and monetize data is just one of them.

A key aspect of their value is their reach, the size of their addressable markets and scalability. As they grow, such business models tend to create a virtuous cycle and grow GMV by attracting more buyers and sellers onto the platform. Payment services, seller services, take rates etc are just various methods that have been used to generate revenue for such intermediation services. 

The regulations will reduce one potential way Alibaba can monetize it's user base, through an offerings expansion into the adjacent businesses of moneylending and potentially sale of data feeds. With that said, there have always been restrictions on what can be done with user data, as opposed to aggregated data, and therefore it is not the easiest thing to monetize.