China’s internet regulatory regime: competitive and pricing practices, fintech, data and labor security
China's internet regulatory regime covers anti-monopoly practices in the platform economy, competitive and pricing behavior, fintech, data and labor security. Different areas are governed under different regulatory agencies, depending on the regulatory basis and law enforcement progress. China has enforced legal action since 4Q20, when it strengthened the supervision of the internet economy. The intensive scrutiny was seen in the April and July 2021.
China has more or less completed setting up its anti-monopoly regulatory legislative framework and law enforcement system. The focus is cases of abuse of a position of dominance (e.g. Hobson’s choice) and illegal operator concentration. The scrutiny has dealt with many crucial areas. Among them, violations of Hobson’s choice are mainly represented by Alibaba and Meituan (the results have not yet been announced). In terms of illegal operator concentration, 4 sets of 43 administrative penalties were not declared in accordance with the law. In July, the Municipal Supervision Bureau banned the merger of Huya TV and DOYU. And for the first time, in order to prevent over centralization, Tencent was ordered to remove its exclusive copyright of online music and to take necessary measures to restore market competition.
The supervisory basis for unfair competition/price behavior regulations is relatively complete, and the main regulatory areas are low-priced dumping to squeeze out opponents, false propaganda to induce consumption, big data unfair pricing system, and unclear pricing rules. In December 2020, the General Administration of Municipal Supervision held a community group buying administrative guidance meeting and proposed nine prohibitions to standardize competition. Since then, the area of supervision has expanded to e-commerce, travel, and shared consumption. At present, the "Regulations on Administrative Penalties for Pricing Illegal Acts (Revised Draft)" are under review, and law enforcement experience is being transformed into clear rules, to provide greater deterrence in the revised penalties.
In 4Q20, financial supervision was extended to financial technology, and the central meeting in March 2021 stressed that "financial activities should be fully included in financial supervision". Fintech supervision mainly covers the isolation of financial holding applications, payment anti-monopoly, internet loan licensed operations and control leverage, personal credit licensed operations, internet insurance licensed operations, etc. In addition, the recent regular meeting of the State Council will set lower fees for small and micro companies, and the regulatory authorities will provide a higher rate of loan assistance. Currently, fintech regulations are in the process of establishment, so follow-up includes potential law enforcement in financial control applications, anti-monopoly practices in the payments segment, and data supervision of lenders.
With the trend of global data regulation upgrading, China's data regulation regulations are improving. We believe that data regulation mainly includes network security regulation and personal information protection.
- China's network security supervision laws and regulations are relatively perfect, the main direction of supervision for the key information infrastructure supply chain security. DIDI is the first law enforcement case after the publication of the "Network Security Review Measures" in April 2020, marking a new stage of law enforcement. Follow-up supporting rules are being set one after another, focusing on Sino-US "outside the border" regulatory competition and cooperation.
- The legal basis and law enforcement rules for personal information protection supervision in China are undergoing improvement. In 2019, four departments jointly carried out special rectification. Since 2020, special governance efforts have been continuously upgraded, and the scope of governance has been expanded. In July 2021, the Ministry of Industry and Information Technology launched a rectification program for the internet industry. The number of rectification issues and scenarios is high. Follow-up areas: 1) After the implementation of the "Interim Provisions on the Management of Personal Information Protection and Management of Mobile Internet Applications (Draft for Comment)", the implementation of the "informed consent" + "least necessary" principle, and the explicit prohibition of the "price dumping" behavior. 2) After the "Personal Information Protection Law (Draft)" comes into effect, the relevant identification and supporting rules for "entrusted processing" and "automated decision-making".
Labor security: In April, Nanjing first piloted distribution agents and their labor dispatch units to establish labor relations with part-time riders and participate in social security according to law, triggering a heated debate. On 9 July, the executive meeting of the State Council decided on a series of measures to strengthen the protection of the rights and interests of workers on flexible employment schemes, including not formulating assessment indicators that might damage the safety and health of workers, improving system rules and algorithms of order distribution and proportion, and not illegally restricting workers' employment on multiple platforms, in terms of travel, takeout and instant distribution. Pilot projects for occupational injury protection for flexible employees were carried out. Since then, the Ministry of Human Resources and Social Affairs and other departments have issued intensive guidance. Details of the pilot occupational injury insurance, platform enterprise algorithm and assessment adjustment have not yet been disclosed.
Potential impacts of Internet regulation in China – the pace of regulation is different, depending on the direction and the visibility of the potential impact
- On the whole, the impact of anti-monopoly/data supervision covers the whole industry, and price behavior/financial technology/labor security supervision mainly affect the segments. And the visibility of potential impacts varies according to different directions of regulatory policy/enforcement progress. We believe the purpose of internet regulation is to promote the healthy development of the industry, as well as fairness and improve efficiency. Some leading companies' core business is affected to a certain extent, although there are policy uncertainties in the follow-up. In the short term, the probability of a significant impact is small. On the other hand, super platform flows, capital, data and other advantages are evident, on the basis of sustained investment in scientific and technological innovation. In the new normal of Internet regulation, companies that embrace innovation would have better prospects.
- We expect anti-monopoly supervision in the new platform economy will nullify the old practices of "squeezing competitors to seize market share through subsidies in the early stage, integrating industries with capital in the middle stage, and forming monopoly platforms to obtain excess profits in the late stage". Super platforms would re-examine how to intervene in business segments such as B2C internet expansion or efficiency-driven industry integration. The long-term growth potential has shifted to B2B and hard science and technology. The relative advantages of leading suppliers in e-commerce, takeout, OTA and travel industries have weakened, and competition has intensified or led to a slowdown in the trend of monetization rate improvement.
- Price behavior supervision promotes the standardization of competition, community group buying "price wars" are restricted, and the form of subsidies has been adjusted, which will cover more SKUs and migrate to the warehouse distribution segment. Short-term order volume growth would be affected or the industry integration speed would slow down. On the other hand, industry competition has shifted from extensive "subsidy wars" to operational refinement, and it has become more difficult for latecomers to catch up.
- When the rectification of 13 online platform companies in financial technology supervision is in progress, after passing the "extensive" development stage, although the industry threshold has been significantly increased, the growth rate is expected to slow down. Judging from the current policies / cases, the impact on Tencent is limited, but it is difficult to completely eliminate policy uncertainty in financial holding applications and payment fields. In addition, regulatory authorities recently mentioned payment cuts and assistance to reduce fees, and the growth potential in the medium term has been damaged to some extent.
- The impact of data regulation also covers all Internet companies. After Didi's review, supervision in the field of network security has continued to increase, and the implementation of supporting policies is expected to accelerate. In the short term, personal information protection will focus on special rectification by the Ministry of Industry and Information Technology, the Office of the Cyberspace Administration of China and other departments. The consolidation and upgrading of violations is expected to have a relatively limited impact on leading platforms. However, it should be noted that after the implementation of the security law, whether there will be any changes in the rules and regulations on "Personal Information Collection / Use", "Entrusted Management", "Automated Decision-Making", we would not rule this out. If the new regulations are stricter than expected, it would affect the accuracy and conversion ability of online advertising, especially for the M&A market.
- In terms of labor security, the participation of flexible employees in social insurance still needs to be improved at the legal level. In the short term, occupational injury protection pilot projects may be launched in the travel, food delivery, and instant delivery industries. The details of the pilots have not yet been announced, and the Jiangsu Wujiang pilot has limited reference. Judging from current guidance, we expect that in the pilot, occupational injury insurance would increase the labor cost of companies to a limited extent. If the algorithm and evaluation mechanism are adjusted, we would not rule out a certain impact on operating efficiency.
Investment ideas: Due to major adjustments in some industry policies, the gradual implementation of anti-monopoly treatment, the market expects that the regulatory environment will become more stringent in the future, and amid the pessimistic sentiment, prices of internet H-shares and A-shares have adjusted substantially. In the next cycle after policy pressure is relieved, the panic would give way gradually to rationality, and judgment of investment value would gradually favor the fundamentals of the industry and companies. In the future, we need to pay attention to the clearer processing of financial technology and data supervision. In addition, after entering the intensive release period of 2021 Q2 financial results, focusing on the performance of US stock companies that exceeded expectations, and the performance guidance of H-shares in 2H21, as well as some companies' antitrust treatment, business growth momentum has resumed rhythm. For example, H-share internet leaders’ performance expectations for 2H21 and 2022 would gradually return to the growth curve, and revenue and profit would maintain healthy growth. With reduction in policy uncertainty, it could present higher valuation/price ratios.
Risks include: internet regulations becoming more stringent, lengthening the decision-making cycles of companies and increasing compliance costs; with anti-monopoly practices in the platform economy normalizing, competition in e-commerce and other industries would intensify, improving the pace of monetization; new regulations on data regulation; and uncertainties in online advertising; when financial regulatory companies undergo rectification, growth of medium-term payments and internet loan business would be affected to a certain extent; as pilots of occupational injury insurance in the travel, food delivery, and instant delivery industries are promoted, labor costs of platform companies could increase; and pressure to adjust the algorithms and assessments mechanism.
中國的互聯網監管制度：競爭和定價做法、金融科技、數據和勞動保障
中國的互聯網監管制度涵蓋了平臺經濟中的反壟斷行為、競爭和定價行為、金融科技、數據和勞動保障。不同的領域受不同的監管機構管轄，具體取決於監管基礎和執法進度。中國自204Q20加強對互聯網經濟的監管以來，一直在執行法律行動。嚴格的審查出現在2021年4月和7月。
中國已基本完成了反壟斷監管立法框架和執法體系的構建。重點是濫用支配地位(例如霍布森的選擇)和非法經營者集中的案件。審查涉及許多關鍵領域。其中，違反霍布森選擇的行為主要以阿里巴巴和美團為代表(結果尚未公佈)。在非法經營者集中方面，有4套43項行政處罰未依法申報。今年7月，市監察局禁止虎牙電視和鬥魚合併。並且第一次，為了防止過度集中，騰訊控股被責令解除其在線音樂的獨家版權，並採取必要措施恢復市場競爭。
不正當競爭/價格行為規制的監管依據比較完備，主要監管領域是低價傾銷排擠對手、虛假宣傳誘導消費、大數據不公平定價制度、定價規則不明確。2020年12月，市監管總局召開社區團購行政指導會議，提出9條禁止規範競爭的規定。此後，監管領域擴大到電商、出行、共享消費。目前，《價格違法行為行政處罰條例(修訂草案)》正在審議中，執法經驗正在轉化為明確的規則，為修訂後的處罰提供更大的震懾。
2021年4月，金融監管向金融科技延伸，2021年3月中央會議強調，要將金融活動全面納入金融監管。金融科技的監管主要涵蓋金融控股申請隔離、支付反壟斷、網貸持牌經營及控制槓桿、個人信用持牌經營、互聯網保險持牌經營等。此外，近期召開的國務院例會將對小微公司設定較低的收費標準，監管部門將提供較高的貸款援助率。目前，金融科技條例正在制定過程中，因此後續行動包括金控應用程序的潛在執法、支付領域的反壟斷做法以及貸款人的數據監管。
在全球數據監管升級的趨勢下，中國的數據監管監管在不斷完善。我們認為，數據監管主要包括網絡安全監管和個人信息保護。
--中國的網絡安全監管法律法規比較完善，主要監管方向為關鍵信息基礎設施供應鏈安全。滴滴是2020年4月《網絡安全審查辦法》公佈後的首個執法案例，標誌着執法進入新階段。後續配套細則正在陸續制定中，重點圍繞中美兩國“境外”的監管競爭與合作。
--中國個人信息保護監管的法律依據和執法規則正在完善。2019年，四部門聯合開展專項整治。2020年以來，專項治理力度不斷升級，治理範圍不斷擴大。2021年7月，工業和信息化部啟動了互聯網行業整治行動。整改問題和整改場景數量多。後續方面：1)《移動互聯網應用程序個人信息保護管理暫行規定(徵求意見稿)》實施後，落實了《知情同意》+《最少必要》原則，明令禁止了價格傾銷行為。2)《個人信息保護法(徵求意見稿)》施行後，《委託處理》、《自動決策》的相關認定及配套規則。
勞動保障：今年4月，南京率先試點配送代理商及其勞務派遣單位與兼職騎手建立勞動關係，依法參加社保，引發熱議。7月9日，國務院常務會議確定了加強靈活用工計劃勞動者權益保護的一系列措施，包括不制定可能損害勞動者安全健康的考核指標，完善訂單分配和比例的制度規則和算法，在出行、外賣、即時分配等方面，不非法限制多平臺勞動者就業。開展靈活就業人員職業傷害保護試點。此後，人社部等部門密集出臺指導意見。工傷保險試點、平臺企業算法和考核調整等細節尚未披露。
互聯網監管的潛在影響在中國--監管的步伐不同，取決於潛在影響的方向和可見度
--總體來看，反壟斷/數據監管影響覆蓋全行業，價格行為/金融科技/勞動保障監管主要影響細分領域。根據監管政策/執法進展的不同方向，潛在影響的可見性也不同。我們認為，互聯網監管的目的是促進該行業的健康發展，以及公平和提高效率。一些龍頭企業的核心業務受到一定影響，儘管後續存在政策不確定性。短期內，發生重大影響的可能性很小。另一方面，在持續投入科技創新的基礎上，超級平臺流量、資金、數據等優勢明顯。在互聯網監管的新常態下，擁抱創新的公司會有更好的前景。
--我們預計，新平臺經濟中的反壟斷監管，將會使以往的“前期通過補貼擠壓競爭對手搶佔市場份額，中期以資本整合產業，後期形成壟斷平臺獲取超額利潤”的做法化為烏有。超級平臺將重新審視如何幹預B2C互聯網擴張或效率驅動的行業整合等業務領域。長期增長潛力已轉向B2B和硬科技。電商、外賣、OTA、旅遊等行業領先供應商的相對優勢減弱，競爭加劇或導致貨幣化率提升趨勢放緩。
--價格行為監管促進競爭規範，社區團購“價格戰”受到限制，補貼形式有所調整，將覆蓋更多SKU，向倉儲配送細分市場遷移。短期訂單量增長將受到影響，或行業整合速度放緩。另一方面，行業競爭從粗放式的“補貼大戰”轉向操作精細化，後來者追趕難度加大。
--當13家線上平臺公司在金融科技監管方面的整頓正在進行時，在度過“粗放式”發展階段後，雖然行業門檻明顯提高，但增速料將放緩。從目前的政策/案例來看，對騰訊控股的影響有限，但很難完全消除金融控股申請和支付領域的政策不確定性。此外，監管部門近期提到了減費和助力降費，中期增長潛力受到一定損害。
-數據監管的影響也覆蓋了所有互聯網公司。滴滴點評後，網絡安全領域監管力度持續加大，配套政策落實有望提速。短期內，個人信息保護將由工信部、中國網絡空間管理辦公室等部門重點開展專項整治。違規行為的整合和升級，預計對領先平臺的影響相對有限。但需要注意的是，《安全法》實施後，是否會對《個人信息收集/使用》、《委託管理》、《自動決策》等方面的規章制度有變化，我們不排除這一點。如果新規定比預期更嚴格，將影響網絡廣告的準確性和轉化能力，特別是對併購市場。
--在勞動保障方面，靈活就業人員參加社會保險在法律層面仍需完善。短期內，可在旅遊、送餐、即送等行業開展工傷保護試點。試點細節尚未公佈，江蘇吳江試點參考有限。從目前的指導意見來看，我們預計，在試點中，工傷保險將在一定程度上增加企業的勞動力成本。如果算法和評估機制進行調整，不排除會對運營效率產生一定影響。
投資理念：由於部分行業政策有較大調整，反壟斷待遇逐步落實，市場預期未來監管環境將更加嚴格，在悲觀情緒下，互聯網H股和A股價格出現大幅調整。在政策壓力緩解後的下一個週期，恐慌將逐漸讓位於理性，對投資價值的判斷將逐漸有利於行業和公司的基本面。未來，我們需要關注金融科技和數據監管的更清晰的處理。此外，進入2021年Q2財報密集發佈期後，聚焦美股公司業績超預期、H股2H21業績指引，以及部分公司的反壟斷處理，業務增長勢頭恢復節奏。例如，H股互聯網領軍企業對2h21和2022年的業績預期將逐步迴歸增長曲線，收入和利潤將保持健康增長。隨着政策不確定性的降低，它可能會出現更高的估值/價格比。
風險包括：互聯網監管變得更加嚴格，延長了企業的決策週期，增加了合規成本；隨着平臺經濟的反壟斷行為常態化，電子商務等行業的競爭將加劇，貨幣化步伐加快；數據監管的新規定；以及網絡廣告的不確定性；當金融監管公司進行整頓時，中期支付和網貸業務的增長將受到一定影響；隨着旅行、食品外賣和即時遞送行業工傷保險試點的推進，平臺公司的人力成本可能會增加；以及調整算法和評估機制的壓力。
