Why China’s central bank leads antitrust drive and how this may affect Alipay, WeChat Pay

Josh Ye
·7-min read

The People’s Bank of China (PBOC), the country’s central bank, has never been a major driver of domestic antitrust measures; its tasks involve carrying out monetary policy and regulating financial institutions. It has had no public record of being involved in any antitrust lawsuit or investigation since the country’s antitrust law came into effect in August 2008.

The PBOC, however, is now flexing its regulatory muscle, putting “nonbank payment institutions” on notice that it could wield antitrust tools to discipline them.

It has drafted new regulation that seeks to determine whether such institutions could qualify as monopolies, which could potentially affect the operations of the country’s top mobile payments providers, Ant Group’s Alipay and Tencent Holdings’ WeChat Pay. Ant Group is an affiliate of Alibaba Group Holding, which is the parent company of the South China Morning Post.

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The draft, which was published on Thursday to solicit public feedback through February 19, uses both “nonbank payment service” and “nationwide electronic payments” to describe the two markets that would fall under the PBOC’s purview. The central bank, according to its draft regulation, would allow it to determine a monopoly in the payments field and recommend suitable rectification, including breaking up these enterprises, to the antitrust authority under the State Council.

“It seems the central bank has found antitrust as a quite usable institutional tool [to regulate financial technology companies], but the tool is not in its own hands,” said antitrust lawyer Annie Xue, a partner at Beijing-based Gen Law. “Now it is telling [mobile payment institutions] ‘if I find you don’t behave well, I will remind antitrust regulators to use the tool to discipline you’.”

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The central bank’s antitrust initiative marks the latest example of how Beijing’s increasing focus on financial security is poised to reshape the world’s second-largest economy and No 2 capital market.

The PBOC is one of the country’s central regulatory agencies – along with the China Securities Regulatory Commission and the China Banking and Insurance Regulatory Commission – under the Financial Stability and Development Commission headed by Vice-Premier Liu He, the top economic adviser to President Xi Jinping.

While the central bank has said its draft regulation was made in consultation with other government agencies and aimed at closing regulatory loopholes in payment services, some analysts and legal scholars see this effort could bring complexity and uncertainty in China’s antitrust regime.

Angela Zhang, director of the Centre for Chinese Law at the University of Hong Kong (HKU), said the PBOC is sending a strong message that the proposed antitrust regulation could be used against big players in China’s payment services market, even though the central bank does not have that authority.

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“The central bank acknowledges in the regulation that it can’t directly launch antitrust probes or impose antitrust punishment, but it’s making clear its willingness to report any monopolies to antitrust regulators,” Zhang said. “For players such as Alipay and WeChat Pay, this could be an additional burden because they have to watch out for antitrust risks.”

The State Administration for Market Regulation (SAMR) serves as China’s antitrust regulator. The agency has an antitrust bureau that serves as the executive office of the State Council Antitrust Committee. SAMR was established two years ago in a broad government reshuffle that combined antitrust functions previously managed by three bodies – anti-monopoly regulation under the National Development and Reform Commission, merger reviews by the Ministry of Commerce, and investigation of price irregularities under the former State Administration of Industry and Commerce.

In December, SAMR launched an antitrust investigation into Alibaba over alleged monopolistic business practices, including a requirement for e-commerce merchants to pick only one platform as their exclusive distribution channel.

A review of more than 100 Chinese antitrust cases in the 12 years since China’s anti-monopoly law came into effect found that these mostly targeted the pharmaceutical industry and municipal water utilities, according to research by the Post.

It was the PBOC which “recommended” that SAMR launch an investigation into Alipay and WeChat Pay in August, according to a Reuters report, which cited unidentified sources.

SAMR did not respond to multiple inquiries on Friday.

The HKU Centre for Chinese Law’s Zhang said the PBOC’s draft regulation remains within China’s existing antitrust legal and regulatory framework, and that there was no cause for the country’s major payments providers to panic.

The public consultation on the PBOC’s draft antitrust regulation represents the last stage before the law comes into effect. Only minor changes, if any, are expected to be made before the final version is completed. The PBOC said in a statement that it has already consulted related authorities, its own branches, payment institutions and banks in drafting the regulation.

Article 55 of the draft stipulates that the PBOC can ask the antitrust authority of China’s State Council to summon and warn potential monopolies in cases when one institution owns more than a third of China’s “nonbank payment service market”, two institutions own over half of the market, or three institutions own more than three-fifths of the market.

Article 56 deals with the “nationwide electronic payments market”. It said that any nonbank service provider controlling half of this market could qualify as a monopoly. This also applies to two entities with two-thirds of the market or three providers with three-quarters of the market.

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The PBOC, according to the draft regulation, can report suspected monopolistic practices to China’s antitrust authority and ask it to decide whether certain entities have built up dominant market positions. The central bank can also ask regulators to take corrective measures, including suspension of service, vetoing merger plans that produce monopolies, or “carving up nonbank payment institutions”.

To be sure, breaking up an enterprise as a form of punishment is deemed controversial. Gen Law’s Xue said China’s current antitrust law – even the amended version that is expected to be ratified soon – does not include “carve up” as a means to rectify a monopoly.

Based on China’s antitrust law, there is no legal ground for a regulator to carve up a company, according to Liu Cheng, a partner at King & Wood Mallesons, who has practised antitrust law for more than a decade.

Other ministries might follow the central bank’s lead and push to widen the application of antitrust regulations, lawyers said. Michael Tan, partner at law firm Taylor Wessing, said the central bank’s draft regulation has set a precedent.

“The determination of what constitutes monopoly and what constitutes a market is, in fact, a very complicated question in the antitrust law itself,” Tan said, “Targeting a specific industry with this level of metrics is new.”

Beijing’s relatively hands-off approach to the country’s internet players in the past decade, as well as the gaps in regulatory coverage, has been seen as helpful in the rapid growth of Big Tech in China. Alibaba, for example, is more than 166 times bigger today in terms of revenue than it was when China’s antitrust law was passed in 2008.

In light of the PBOC’s move, other lawyers indicated that the power to identify and punish any monopoly lies in the court. Matthew Murphy, a lawyer at Beijing-based law firm MMLC Group, said the central banks’ antitrust move could lead to “inter-agency conflict” if regulators come with their own definitions of monopoly.

“We wouldn’t be surprised to see if the Supreme People’s Court issues guidelines regarding the PBOC’s definitions,” Murphy said.

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