These Tech Giants Will Take The Brunt Of China's Antimonopoly Rules, As Per Morgan Stanley

China’s State Administration for Market Regulation (SAMR) has drafted new antimonopoly rules for the internet sector, aiming to protect fair competition and safeguard consumers’ interest. SAMR is seeking public feedback on the draft rules until Nov. 30, CNBC reports.

Morgan Stanley analysts said that the new rules would adversely affect the major internet companies with dominant positions. However, they added that the competition in recent years has already intensified due to lower barriers of entry, and incumbents like Alibaba Group Holding Ltd BABA and Tencent Holdings TCEHY are losing market share to disruptors like TikTok-parent ByteDance and e-commerce giant Pinduoduo Inc PDD.

The new draft rules led to a massive sell-off in major tech shares on Wednesday, with a collective $280 billion decline in market value within days, CNBC reports.

Morgan Stanley said that the new laws would impact five major internet companies.

Alibaba: The internet giant has recently been under the scanner for anti-competitive practices like merchant exclusivity on its T-Mall platform, as per CNBC. E-tailer Amazon.com, Inc AMZN is under probe for similar patterns in the U.S. and Europe.

Morgan Stanley notes that the new laws will not hurt Alibaba as much today as it would have some years ago. “This is because of the already-fierce competitive environment in e-commerce nowadays,” the analysts wrote.

The draft laws limit subsidies and promotional activities, which could hamper Alibaba’s promotional activities to boost growth. The Chinese e-commerce giant hit a new record of $56 billion in its Singles Day event.

China’s regulator also blocked the Alibaba-backed Ant Group initial public offering, touted to be the largest in history, citing protection of consumer’s financial interest. Analysts expect the valuation of the IPO to halve.

Tencent: WeChat parent is a leader in online gaming, social network, music, and video streaming. The company’s focus on online entertainment “can be less relevant to antitrust scrutiny,” MS analysts said. They expect the impact on Tencent to be “relatively manageable” unless it misuses data across platforms or blocks competitors’ access to the WeChat ecosystem.

The new rules could create future hurdles for Tencent when it comes to mergers and acquisitions.

JD.com Inc JD: JD has a strong e-commerce presence in China. The new draft rules could hamper the company’s promotional activities, thereby impacting its bargaining power over suppliers. The impact does not play as much crucial role for JD as it would for Pinduoduo.

Pinduoduo: The fast-growing e-commerce company had launched a $1.5 billion initiative in 2019, giving coupons and subsidies to customers on its platform. “Should the rules eventually limit the use of subsidies provided by platforms, we think that the potential limitation will affect Pinduoduo in particular,” analysts wrote.

Meituan Dianping MPNGY: Meituan is an online services platform offering food delivery, ticketing, and other services. The company gained market share by capturing a higher portion of exclusive restaurants on its platform. “We note the potential implementation of new antitrust regulations could also weigh on Meituan’s take rate charged to merchants,” analysts wrote.