SHANGHAI, CHINA – MAY 10: A visitor takes photos of the Ehang 216 electrical vertical take-off and landing (VTOL) autonomous aerial vehicle (AAV) during the Exposition on China Brand 2023 at the Shanghai World Expo Exhibition and Convention Center in May 10, 2023 in Shanghai, China. (Photo by Yin Liqin/China News Service/VCG via Getty Images)
Yin Liqin | China News Service | Getty Images
The worst may be over for China’s internet sector – but this does not mean there will be no more regulations from the Chinese authorities, says S&P Global Ratings in a new report.
“If anything, we expect more regulatory actions to be positive in the near future, especially around data security and content moderation. S&P Global Ratings, in a report.
“China’s internet sector is emerging from its regulatory shakeup. Policymakers have signaled support and seem to have committed to major legal changes or sweeping actions,” said the report titled “Internet regulations in China: Few surprises, no surprises.”
“The season of big surprises is probably in the rear-view mirror.
Social media companies may also need to spend more on content moderation to ensure they don’t run into regulatory problems, the credit rating agency said.
China’s crackdown on big tech companies began in 2020, which saw the government impose new tech regulations. Ant Group, the financial arm of Alibabahated a $37 billion IPO at the time, but was forced to suspend the public listing days before launch it.
Some tech giants like Tencent, Meituan, Baidu, JD.com, Not Chuxing not saved either. China launched reviews to improper antitrust, anti-monopoly, and consumer protection procedures and others.
“In our view, companies will adjust their business practices to comply with the stricter enforcement of anti-competitive rules. Many of the regulatory actions are aimed at such behavior,” said the S&P. The report says that Tencent fined and ordered to give up exclusive music licensing rights in July 2021 for its acquisition by China Music Corp. in 2016.
“As a result, large internet companies tend to limit their merger and acquisition activity, particularly to potential competitors and new startups that may one day disrupt their market,” as S&P.
The US credit rating agency said to ensure their operations are not disrupted by stricter enforcement of anti-monopoly laws, Chinese technology companies should “invest in their core businesses and may be chosen by new businesses.”
But the worst is over, many analysts also say.
The division of Alibaba of its business into six separate units, each with the ability to raise external funding and maintain listings, analysts see as a sign that China may be relaxing its scrutiny of its domestic tech companies.
S&P said there could be “additional benefits” in addressing some of the government’s concerns by divesting control of some business units.
“The regulatory headwinds that we’ve had in the last two years … that’s now turned from a headwind into a tailwind,” George Efstathopoulos, portfolio manager at Fidelity International, said on CNBC’s “Street Signs Asia” last week. March 29.
China’s leaders too committed to supporting the “healthy” development of the sector and public listings for tech companies during the Chinese People’s Political Consultative Conference in May last year.
“Few negative regulatory surprises have occurred since,” S&P said.
“We hold our view that the Chinese government is looking to strike a balance between growth, social stability, and security,” the ratings agency said in its report.
China’s gaming regulator has restarted online game approvals, including titles owned by Tencent and NetEase, in April 2022 after a month-long freeze. The regulator suspended licensing of the online game in August 2021, with state media calling it a “spiritual opium” that harms the mental development of minors.