Chinese internet powerhouses Alibaba Group Holding and Tencent Holdings are creating extreme market concentration in new e-commerce businesses by buying out promising startups and showering them with money, enabling them to overwhelm rivals.
Take bike-sharing services, for instance. The market was booming, with 50 businesses crowding into the game in just a year. Then online mall operator Alibaba and Tencent, which runs the hugely popular messaging app WeChat, entered the fray a few months ago, and suddenly the market dwindled to essentially two.
Alibaba and Tencent, each capitalized at over $400 billion, poured hundreds of millions of dollars into Ofo and Mobike, respectively. Those two seized 90% of the market and ran the competition figuratively and literally off the road. Other operators’ bikes are vanishing from the streets, and financial trouble has left some of the companies unable to pay back customers’ deposits.
A similar story unfolded in food delivery services, in which customers browse menus and order from eateries via smartphone and a startup makes the delivery. China’s market blossomed last year and has soared to roughly $20 billion. But at the end of August, one venture backed heavily by Alibaba bought out a rival, effectively shrinking the market to a duopoly with a Tencent affiliate.
The problem runs even deeper with car dispatching services, a poster child for the sharing economy. In 2015, two ride-hailing companies backed by the web titans merged and gave birth to the giant Didi Chuxing in a move whose passage seems to call into question the significance of China’s antitrust laws.
Moreover, Didi maneuvered last summer to try to block U.S. ride-hailing service Uber Technologies from succeeding in the market. Chinese authorities then let Didi buy Uber’s local operations, creating a monopoly for the Alibaba- and Tencent-backed company. Fares quickly jumped by as much as 30%, incurring customer backlash.
With the duo lurking behind the country’s powerful new businesses, an increasingly prevalent outlook in China argues that one or both of the pair inevitably will buy out any promising ventures, quickly stifling competition. Services like those Tencent and Alibaba offer are supposed to bring consumers convenience, and those consumers by and large do not want such services subsumed into a two-way investment race.