China Clampdown on Big Tech Puts More Billionaires on Notice

Xi Jinping’s Communist Party stepped up efforts to rein in some of China’s most powerful companies, jolting investors and dealing a blow to the country’s richest entrepreneurs.

Beijing on Tuesday unveiled regulations to root out monopolistic practices in the internet industry, seeking to curtail the growing influence of corporations like Alibaba Group Holding Ltd. and Tencent Holdings Ltd. The rules, which sent both stocks tumbling over two frenetic days and sparked a wider selloff in Chinese equities, landed about a week after new restrictions on the finance sector triggered the shock suspension of Ant Group Co.’s $35 billion initial public offering.

While Xi’s government has been steadily tightening its grip on the world’s second-largest economy, it has until recently taken a relatively hands off approach toward businesses that dominate China’s burgeoning internet, e-commerce and digital finance industries. Authorities are concerned the companies have become too powerful, according to Ma Chen, a Beijing-based partner at Han Kun Law Offices.

“This is a watershed moment,” said Ma, who specializes in antitrust.

Alibaba, Ant and Tencent alone commanded a combined market capitalization of nearly $2 trillion before last week, easily surpassing state-owned behemoths like Bank of China Ltd. as the country’s most valuable companies. Wednesday’s selloff sent Alibaba shares down another 7% to its lowest since August in Hong Kong, while analysts have estimated that Ant’s $280 billion valuation could be cut in half due to stricter regulations. That’s after Alibaba’s 5% decline Tuesday. Both companies were co-founded by billionaire Jack Ma, China’s most celebrated businessman.

Tencent, the gaming to payments giant whose rise turned co-founder Pony Ma into China’s richest man, fell as much as 6% Wednesday in Hong Kong after sinking 4.4% the previous day. Meituan, the food-delivery startup that has since expanded into hotel bookings and movie tickets, dived a further 6% before paring losses. It had tumbled 10.5% Tuesday. The company declined to comment while representatives from Alibaba and Tencent didn’t immediately respond to queries.

China’s antitrust watchdog is seeking feedback on a raft of regulations that establish a framework for curbing anti-competitive behavior such as colluding on sharing sensitive consumer data, alliances that squeeze out smaller rivals and subsidizing services at below cost to eliminate competitors. They may also require companies that operate a so-called Variable Interest Entity -- a vehicle through which virtually every major Chinese internet company attracts foreign investment and lists overseas -- to apply for specific operating approval.

The latest proposal follows heightened scrutiny of technology companies worldwide, as regulators investigate the extent to which internet giants from Facebook Inc. to Alphabet Inc.’s Google can leverage their dominance. Consumers in China -- home to some of the world’s largest corporations from e-commerce giant Alibaba to WeChat-operator Tencent -- have in recent years protested against the gradual erosion of their privacy via technology from facial recognition to big data analysis.

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