China's market regulator on July 10 announced a block on the Tencent-driven merger of the two streaming sites Huya and Douyu after an anti-monopoly review.

The ban was based on the country's anti-monopoly law after the State Administration for Market Regulation on Jan 4 launched an antitrust review on the merger filed by Tencent Holdings Ltd.

DouYu International said on July 12 it had terminated its $5.3 billion deal with Huya Inc., two days after China's market regulator blocked Tencent's plans to merge Huya and Douyu .

Tencent-driven merger may eliminate market competition

Tencenthas a market share of more than 40 percent in upstream online-game operation services, ranking first in the market. Huya and Douyu have a market share of over 40 percent and 30 percent respectively in downstream live games, ranking first and second, and their total market share is over 70 percent, the review showed.

Tencent first announced the merger plan in October, 2020. The deal fell under investigation at the beginning of this year.The two firms are worth a combined market value of $5.3 billion.

Huya and Douyu announced they were to merge last October. According to the deal, Douyu would become a unit of Guangzhou-based Huya and would delist from the Nasdaq. The new entity would hold around 80 percent of China’s e-sports market and Tencent, which solely owns Huya and is joint controller of Wuhan-based Douyu, would have 68 percent voting rights.

Tencent already has sole control of Huya and joint control of Douyu. If the merger went ahead, Tencent would have sole control of the new unit, further strengthening Tencent's dominance in the live-game market, the regulator said.

Tencent might have the ability and motivation to implement a blockade in the upstream and downstream markets, which may have the effect of excluding and restricting competition, hurting fair competition in the market, the regulator said.

Also, the additional commitments proposed by Tencent cannot effectively resolve the fair competition concerns, the regulator said.

The blocking of the merger between Huya and Douyu is the first instance of its kind in China’s internet platform economy and demonstrates regulators’ determination to rein in monopolistic behaviors, according to a government advisor.

It is a clear signal that the Chinese government is stepping up anti-trust regulation and preventing disorderly expansion in the field of the platform economy, Zhang Chenyin, a member of the State Council’s Anti-Trust Committee advisory team, wrote in the Economic Daily on July 10.

The case will encourage internet-based companies to increase their market share through fair means, such as technological innovation and improving consumer welfare. It will also spur such firms to re-evaluate their business practices, she added.

To the announcement, Tencent said in a statement it will abide by the decision and comply with regulatory requirements. It will operate per applicable laws and regulations and fulfill its social responsibilities, said Tencent.

Tencent's Sogou acquisition given approval

The State Administration for Market Regulation has unconditionally approved Chinese internet giant Tencent's acquisition of the country's second-largest search engine Sogou Inc, according to an announcement from the administration on July 13.Tencent shares were up more than 4 percent as of 10:29 am.

The approval comes days after watchdogs nixed its plan to merge Huya and Douyu, two live-streaming platforms under Tencent.

Tencent, Sogou’s largest shareholder, made a buyout bid for the US-listed firm a year ago. Tencent owned about 45 percent of Beijing-based Sogou.

The Tencent-Sogou deal was among 20 given “unconditional approval,” according to a document added to the State Administration for Market Regulation’s website.It did not disclose specific information about the mergers and acquisitions.

The SAMR previously penalized Tencent for buying 36.5 percent of Sogou in 2013. The regulator fined it$77,300because the merger was not reported to the relevant State Council department as required and violated the anti-trust law, according to a statement released by the SAMR on July 6.

The document also noted that the SAMR had evaluated the impact of the acquisition and concluded that it would not exclude or restrict competition.

Sogou, a subsidiary of portal Sohu founded in 2004, is China’s largest search engine and Chinese input method service provider after Baidu, according to public information.

Nation strengthening antitrust enforcement

China has never made and will never make antitrust enforcement a tool for geopolitics, and the nation always treats all entities, whether State-owned, foreign or private enterprises, equally and fairly, said a senior official from the country's top market regulator.

The comments came as China joins other nations in stepping up regulation of big tech companies and strengthening antitrust enforcement to ensure the healthy development of internet economies.

Wu Zhenguo, director of the anti-monopoly bureau of the State Administration for Market Regulation, said anti-monopoly law is fundamental to international trade and economy, and geopolitical climate never affects China's anti-monopoly law enforcement.

Wu made the comments in a written interview with Antitrust Source, an online periodical edited and published by the American Bar Association.

According to Wu, strengthening communication and cooperation between China and the United States in the anti-monopoly field is in the common interests of the enterprises and people of both countries.

"We hope to work with our counterparts in the US to accelerate the negotiation and signing of a new Sino-US memorandum of understanding on antitrust cooperation," Wu said.

He said Chinese companies' overseas business operations should be treated fairly and not subject to unprovoked investigations, accusations or blockades that harm not only Chinese companies, but also US companies.

"In the future, we will strengthen Chinese companies' overseas antimonopoly compliance and provide them with necessary guidance and assistance," Wu added.

Given that the thriving digital economy brings about competition issues while promoting economic development, the senior official said beefing up anti-monopoly law enforcement in key sectors, including platform enterprises, is a top priority for the regulator this year.

On July 8, the administration imposed 22 fines of 500,000 yuan ($77,000) each on tech giants including Alibaba Group Holding, Tencent Holdings and Didi Global for a series of violations of the anti-monopoly law related to merger deals over the past years.

All the cases were found to have caused an unlawful concentration of business operations, although they were not considered to have limited or restricted competition.

Wu said that for digital platforms, the "winner takes all" effect is prominent, and strong players normally grow even stronger. This is an area prone to a situation in which one or several players dominate.

Sun Nanxiang, a researcher at the Chinese Academy of Social Sciences' Institute of International Law, said the ultimate purpose of antitrust measures is to leverage legal tools to restore fair and effective competition to the market.

US tech giants like Google, Apple and Amazon have faced continuous scrutiny and fines from government authorities worldwide for monopolistic behavior in recent years. European Union regulators hit Google with a 4.34 billion euro ($5.14 billion) antitrust fine in 2018 for using its Android mobile operating system to squeeze out rivals.

On July 8, the top Chinese antitrust regulator and four other government departments jointly issued a detailed regulation on a fair competition reviewing system.

The top regulator said it will further break barriers in regional markets to safeguard fair competition and market orders. The new rules have highlighted the wider implementation of the review system by emphasizing the role of the joint review mechanism among governments from ministerial to county level.

China issued antitrust guidelines on the country's platform economy in February, signaling stricter antitrust enforcement against monopolistic behaviors in the country's internet platform sector.