FINANCE: Beijing Gets Tough With WeChat Over New Fees

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Bottom line: Tencent would be wise to roll back a newly announced money-transferring fee on WeChat following state-media criticism, which could indicate a tougher stance by Beijing due to the platform’s increasingly dominant position.  

Xinhua calls WeChat a catfish

It’s been quite a while since the last tussle between China’s influential central media and its vibrant private sector, so I was amused to read of a new flare-up in that regard after Tencent (HKEx: 700) said it would start charging fees for a money-transferring service on its popular WeChat platform. This looming flare-up has seen the state-run Xinhua news agency, often considered the voice of Beijing, criticize WeChat’s move as “excessive goose plucking”, which is quite a vivid description and certainly not too complimentary.

This particular assault is somewhat noteworthy, as it hearkens back to another similarly high-profile spat involving Tencent and WeChat 3 years ago. That tussle came as WeChat was beginning its meteoric rise, and saw leading telco China Mobile (HKEx: 941; NYSE: CHL) accuse the service of stealing its traditional SMS text messaging service. Tencent insisted at that time that WeChat would always remain free, defying China Mobile pressure to charge for the service and then divide the fees between the 2 sides. (previous post)

So it’s somewhat ironic that WeChat is now getting blasted from Xinhua for charging fees. Of course, it’s important to point out that the WeChat of today looks nothing like the service at the center of the spat from 3 years ago. That service was mostly an instant messaging platform that also included Facebook-style features that allowed friends to share photos, articles and other thoughts with each other.

The WeChat of today has become a far more complex creature, including a fast-growing financial element that allows users to buy things and make payments over the platform. WeChat made headlines earlier this week when it said it would start charging fees for people who wanted to transfer cash from their online accounts to their bank accounts, explaining the move was designed to offset fees that banks charge for such transactions. (previous post)

The action looked relatively benign to me, since the fees were quite small, amounting to 0.1 percent of the amount of each transaction. But Chinese consumers weren’t quite as sanguine, and some observers pointed out the move was probably designed to discourage people from moving their funds out of the WeChat ecosystem.

Abusing Its Position

Now Xinhua is adding its voice to that sudden chorus of discord, in an editorial-style article that basically accuses WeChat of abusing its dominant position to defy industry trends that are seeing Internet companies charge less rather than more fees. (Chinese article) The editorial also accuses WeChat of obstructing Beijing’s policy to develop a web-based economy by rolling out this kind of fee.

It calls WeChat a “catfish”, implying it’s a lowly bottom feeder trying to earn money with this kind of a fee from its hundreds of millions of helpless subscribers. That certainly isn’t a very attractive metaphor, and even hints that Beijing may feel Tencent is engaging in the kind of predatory practices that led to a series of anti-competitive probes against mostly foreign companies 2 years ago.

Those probes were the last time we really saw state media mount an aggressive campaign against private companies. Industry watchers will recall that those probes ended in a series of major fines against the big foreign companies, who quietly took the criticism even as they complained to their home governments of anti-foreign discrimination.

If the past is any indicator, this initial volley by Xinhua could mark the start of yet another assault, this time squarely focused at the growing market dominance of WeChat. If Tencent is smart, it might quickly show some contrition and publicly announce it has decided to cancel the fee. But even if it does that, this attack by Xinhua could still be problematic, as it shows that central government officials are starting to worry about WeChat’s growing dominance and might try to take remedial action.

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