China’s online shopping holiday Singles Day usually represents something of a victory lap for Alibaba, Tencent, and Meituan, three of the biggest e-commerce, payment, and entertainment companies in the country. But this year, the holiday spirit dampened when regulators announced a draft set of antitrust rules aimed specifically at internet platforms: On the back of the announcement, stock prices for Alibaba, Tencent, Meituan, and other companies tanked, wiping out nearly $290 billion in market value in just two days.

For years, China’s tech platforms have experienced relatively unfettered growth. Success has brought the country’s top tech companies a level of influence over people’s everyday lives unrivaled by any industry or institution except the government. But it’s exactly this widespread reach that Beijing can no longer ignore. The draft antitrust rules get specific for the first time about what behaviors regulators consider anti-competitive on the part of internet platforms, while also leaving ambiguity for enforcement at their discretion. From influencing where they choose to list to how they collect user data, the rules could put a check on the astronomical growth of China’s tech giants and chart a new course for the country’s next crop of tech companies.

“Because of its positive effects, China has previously taken a tolerant and prudential attitude towards the digital economy in the area of antitrust,” said Susan Ning, partner at King & Wood Mallesons in Beijing. “China’s introduction of the antitrust guidelines on platforms aims to tackle the entrenched advantages enjoyed by big tech, and these draft guidelines indicate that antitrust authorities will gradually intervene in the digital economy.”

Intervention is already underway. A week after the release of the draft rules, the State Administration for Market Regulation, China’s antitrust authority, was approved to set up a group of ministers to advise on further development of anti-monopoly policy. Regulators also recently scuttled the highly anticipated IPO of Alibaba affiliate Ant Group, igniting a debate over whether fintech platforms should be regulated as financial institutions or tech companies. 

Fierce rivalry between Alibaba and Tencent, both of which fund scores of other platforms, has fueled China’s tech scene. Tencent’s ubiquitous platform WeChat, for instance, is not just a messaging app, but more like an operating system, complete with its own suite of programs, including QR-code based payment system WeChat Pay. (Even local and central government officials relied on the app to share information during the Covid-19 lockdowns.) Alibaba’s e-commerce emporium Taobao, meanwhile, is so popular, the word itself is synonymous with online shopping (like Google for online search). Alibaba raked in more than $75 billion across its e-commerce platforms during this year’s Singles Day. 

But WeChat won’t support the sharing of direct links to Alibaba sites like Taobao, instead forcing users to share a coded message generated by the platform. And Taobao won’t let users pay with WeChat pay, only their own payment platform, Ant’s payment system Alipay, which has more than a billion users. Consumers end up using both: virtually every noodle seller and taxi driver in the country has both companies’ logos displayed in their window.

All this has created a kind of platform lock-in over suppliers and merchants, who are often forced to choose between Alibaba and Tencent in a practice described as erxuanyi, or pick one of two. (The competition even extends to which restaurants list on which food delivery platforms.) The draft guidelines would curb this dynamic, though it is unclear how violators would be punished.

Social e-commerce site Pinduoduo also relies on discounts to attract customers, who are drawn to the site for its steep deals. But the draft guidelines specifically call out the practice of using discounts to get or keep market share as anti-competitive behavior. They also prohibit companies from using the data they collect to give different users different prices for the same item or service. 

The draft guidelines also target corporate-level mergers, like last month’s merger between the Tencent-backed live-game-streaming platforms Douyu and Huya. If the merger goes through, the combined entity would control about 80% of the market. The draft rules also scrutinize companies structured as variable interest entities, a murky categorization that has allowed many of China’s top tech companies to list overseas. Subjecting these entities to closer review could push more companies to list in China.

But at the moment, the draft rules are just that: a draft. The guidelines aren’t yet laws, nor do they lay out specific penalties. Xin Sun, political economist at King’s College London, said the ambiguity is intentional. “For Chinese policymakers, the underlying concern behind moves like this is that some tech firms have become too big and too resourceful and could pose threats to the political and policy objectives of the party, for example in the areas of financial stability, social stability, and information security,” Sun said. 

Antitrust investigations depend on how regulators define a given market and the possibilities for achieving dominance in that market. China’s lawmakers aren’t just moving to curb the reach of tech companies: They’re also recalibrating their approach to antitrust law. The draft specifically lists data and algorithms as key factors in achieving market dominance. China’s top tech platforms draw their power not only from the ability to offer great deals but also the algorithms they use to adjust consumer experience and the data they collect about consumer habits. By using data and algorithms as criteria for defining monopolistic behavior, China’s regulators are updating antitrust law to reflect the reality of tech platforms. 

Antitrust expert at Rutgers Law School Michael Carrier said data has not traditionally been the subject of anti-monopoly scrutiny. But that has recently changed in Europe, thanks to Germany’s investigation of Facebook and the European Union’s case against Amazon. When a platform’s popularity crosses over into monopolistic market share in the eyes of regulators remains an open question.

“China’s anti-monopoly draft regulations contemplate a wider range of market dominance indicators than comparative regulations overseas, giving Chinese regulators a wider toolkit,” said Michael Norris, research and strategy manager at Agency China. But the breadth of regulations at the authorities’ disposal, he said, could leave large firms that have outcompeted their way to the top looking over their shoulder.