INTERNET: Beijing Pressure Continues On Video, E-Commerce
Bottom line: New moves against e-commerce and online video firms are extensions of a broader crackdown on rogue Internet practices, which will slow short-term growth at some companies but ultimately create a healthier business environment.
E-Commerce in China
It seems like I write about the latest Internet crackdown far too often these days, as Beijing focuses on a wide range of industries where it wants to clean up what it sees as unhealthy business practices. Another 2 such crackdowns are in the headlines as we head into spring, one in the scandal-wracked e-commerce space and the other in online video. Both crackdowns actually began earlier, and these latest moves just show the regulators don’t feel that their job is finished yet.
Of course it’s a slight oversimplification to say this broader series of crackdowns is coming from a single source, since the commerce regulator has been the main driver behind the e-commerce crackdown and the broadcasting and publishing regulator is behind the video clean-up. But those 2 concurrent campaigns, along with other similar ones, probably underscore a recent resolve by central leaders in Beijing to clean up a Chinese business landscape that’s often riddled with corrupt and illegal practices.
This kind of clean-up happens periodically in China in many different sectors, and is one of the major risks of doing business in the market. A similar clean-up nearly a decade ago in the then-vibrant business of services tied to mobile texting created a crisis for Internet pioneers Sina (Nasdaq: SINA), Sohu (Nasdaq: SOHU) and NetEase (Nasdaq: NTES), and ultimately forced them to radically change their business models.
Youku Toudu
The latest crackdown in online video may not have as catastrophic an effect on names like Youku Tudou (NYSE: YOKU) and Baidu’s (Nasdaq: BIDU) iQiyi, but it will certainly create some short-term disturbances in their business. New reports say the regulator has fined Youku, iQiyi and Tencent (HKEx: 700), among others, for hosting content on their video sites that contains pornography and violent content that can be harmful to young people. (English article)
In this case the offensive material appears to be mostly Japanese cartoons, and the reports say the Chinese sites will be subject to stricter rules relating to foreign content on their sites starting this week. The regulator has actually been taking steps to limit foreign content on the video sites for about a year now, and perhaps these new rules will finally add some clarity to the market. Ultimately the policy will almost certainly reduce the amount of foreign programs on video sites, but at least some clear new guidelines will help the companies to better forecast and regulate their own business.
Next there’s the e-commerce crackdown
Next there’s the e-commerce crackdown, which has also been happening for a while as the regulator tries to clean up a landscape filled with aggressive and misleading sales practices and fake goods. The campaign kicked into high gear earlier this year when the State Administration for Industry and Commerce (SAIC) got into a high-profile spat with sector leader Alibaba (NYSE: BABA) over the large number of fake goods being traded over its popular Taobao C2C site.
Now the latest reports are saying the Ministry of Commerce, which is separate from the SAIC, has just announced it is embarking on a campaign to end practices that allow online sellers to exaggerate things like their customer ratings and sales volumes. (English article) It appears to be formalizing the move with the creation of a draft law that could be similar to the consumer protection law rolled out last year, also aimed at protecting online shoppers.
Like the video clean-up, this latest move certainly won’t be good for the short-term business of e-commerce firms, especially ones like Alibaba that rely heavily on third-party sellers that are often the source of exaggerated claims and fake products. I suspect this new move marks the start of what will become a long-term clean-up of the e-commerce space, which could dampen growth for Alibaba and other major players but will ultimately benefit everyone by creating a healthier business climate.
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