🔒 Tencent’s excess profits are coming to an end – With insights from The Wall Street Journal

All 12 statements were strikingly similar in tone, expressing their resolve to not engage anticompetitive behavior and listing the areas in which they would work to build a fair and competitive market. The regulator said it would publish more pledges in the coming days, and invited the public to help scrutinize the companies’ behavior.

The statements came after the antitrust watchdog and two other government agencies, the Cyberspace Administration of China and the State Tax Administration, summoned 34 internet platform companies, including Alibaba Group Holding Ltd. BABA -1.10% , for a Tuesday meeting where it demanded the companies submit self-examinations and steps for rectification within one month.

Since Mr. Ma, the founder of Alibaba and controlling shareholder of financial-technology affiliate Ant Group Co., delivered a speech in October criticizing Chinese officials for stifling technological and financial innovation, antitrust regulators have shed their low profile to launch a wide-ranging crackdown on the country’s internet giants and their business practices.

On Saturday, China’s antitrust regulator imposed a record $2.8 billion fine against Alibaba for abusing its dominant market position to force vendors into exclusive deals with its platform, a practice dubbed “er xuan yi”—literally, “choose one out of two”—that punishes merchants who sell goods on multiple platforms.

And on Monday, Alibaba financial affiliate Ant Group signaled that it would abandon some of its most innovative and profitable businesses and submit itself to oversight by China’s central bank, in line with regulators’ demands. Ant, which owns the dominant mobile payment app Alipay, will also be required to correct unfair competitive practices and improve its corporate governance.

“It is not lost on us that today’s society has new expectations for platform companies, as we must assume more responsibilities as part of the nation’s economic and social development,” Alibaba wrote in a public letter Saturday to customers, merchants and investors following the fine.

For ByteDance, JD.com, Pinduoduo and other Chinese tech giants, the rush to align themselves with Beijing’s new priorities marks an attempt to avoid falling into the regulatory crosshairs, said Angela Zhang, a law professor at the University of Hong Kong.

“The Chinese regulator is simultaneously making both a promise and a threat here,” said Ms. Zhang, author of a book titled Chinese Antitrust Exceptionalism. “If firms cooperate, there won’t be another investigation. If they don’t, they could be subject to severe penalty for past exclusionary practices.”

In its Tuesday statement, China’s state regulator explicitly called on the country’s tech companies to learn from Alibaba’s example and quickly rectify any issues on their platforms.

With the clampdown extending beyond Alibaba and Ant, China’s technology companies are moving to emphasize their commitment to promoting China’s societal values and economic well-being.

In the statements released Wednesday by the market regulator, Chinese tech companies vowed not to abuse their positions of market dominance and instead to protect consumer rights.

Baidu said it would increase oversight of advertising and intellectual property protection, while Sina Weibo, China’s Twitter -like microblogging platform, said it would prevent the spread of illegal or harmful information and create a harmonious public-opinion environment.

Several companies including JD.com, delivery-services giant Meituan, ByteDance and Pinduoduo promised not to engage in “er xuan yi,” which China’s regulator has singled out as a particularly pernicious practice to be eradicated. After the one-month rectification period, any platform still found to be engaging in “er xuan yi” behavior will be severely punished, China’s market regulator said Tuesday.

Spokespeople for JD.com and Baidu said they had nothing to add beyond their statements published by the market regulator. Spokespeople for ByteDance, Pinduoduo, Sina Weibo and Meituan didn’t reply to requests for comment. A spokeswoman for Alibaba, referring to previous statements, said it had no additional comment.

Before the Alibaba investigation, accusations of “er xuan yi” had long dogged China’s internet tech platforms. Merchants claimed that e-commerce companies had pressured them into exclusive arrangements or into raising prices on other platforms, with the threat of throttled traffic and lower sales for any that refused. Those merchant complaints resulted in little regulatory action at the time.

In 2017, e-commerce giant JD.com filed a lawsuit against its larger rival Alibaba over “er xuan yi” practices. Four years later, the case, which Pinduoduo also joined, is still ongoing.

Fierce competition among China’s tech giants also means that one company’s services are frequently restricted on its competitors’ platforms. Links to Alibaba’s e-commerce platform Taobao or ByteDance’s domestic Chinese short-video app Douyin, for instance, can’t easily be shared on WeChat, TCEHY -0.74% Tencent’s dominant mobile messenger app. Bytedance recently sued Tencent, claiming that the practice violates antimonopoly laws.

Tencent-backed Meituan only allows users to pay with WeChat Pay and not Ant Group’s Alipay. Conversely, Alibaba’s platforms, including shopping app Taobao and food-delivery app Ele.me, don’t support WeChat Pay.

With the new regulatory pressure and the companies’ fresh pledges to comply, the walls between the various competitors’ services could start to come down, said James Gong, a Beijing-based lawyer with Herbert Smith Freehills.

“This is sending a message to the market that they will have to change their previous practice,” Mr. Gong said. “They will give the consumers and also the merchants more freedom to choose the one that offers better services.”

Appeared in the April 15, 2021, print edition as ‘China’s Tech Firms Issue Vows To Abide by Regulator’s Rules.’