The recent boundaries erected by the Chinese government against Internet giants demonstrate Chinese government's willingness to align internet industry with traditionnal activity regulation.

Observers were waiting the Chinese government to react after the carelessness lately granted to Internet giants.  Indeed, Chinese regulations let passed Alibaba’s Yu'e Bao  launch  in June 2013 outside the financial strict regulations ruling China’s financial sector where only Stated Owned Banks can lend and manage deposits. 

So the launch was a shell game, using an Internet money market fund looking pretty much like bank deposits offering higher returns than Chinese banks. As a result, Yu'e Bao already accumulated 500 billion yuan in deposits, had attracted more than 81 million investors, and became the first market fund in China overtaking the China’s A-share market’s 67 million investors. Following Alibaba, Tencent and Baidu had surfed on Yu’e Bao success by launching the same kind of products few month after.

However, when announcing the launch of “virtual debit card” , The straw broke the camel’s back ! So in March, the government asked  the 2 giants to stop processing payment through virtual credit card”, the last online financial service provided by Tencent and Alibaba. The Chinese government claimed it was for security purpose and the level of risk control not ensuring the same security level than the traditionnal Banks.

So it seems the wind had definitely turned. Alike Alibaba, Tencent also suffered from this new contingency when it had to shut  down Chinese activists' WeChat instant messaging accounts as Sina Weibo previously at the end of the year.
And it was just the beggining regarding the latest punishement outlawing the first social miccroblog network with a threat of infringement proceedings for pornography content. Indeed, Sina Weibo was already a target in September 2013 when the Chinese Supreme court thighten the reins saying authorities could jail netizens for irrelevant content. For the first time, Sina followers growth reversed by loosing 30 million users in January 2014. The impact of this alignement with traditionnal industry regulations could be observed in the content changes transforming the micrroblog channel in a billboard for food, stars, and brands boring communication campaigns.
The Latest episod "Sina Weibo vs Chinese regulators" is a bomb in China internet industry history.   April 24th, the government has revocated Sina Weibo two main publication licenses after being targeted in a pornography crackdown.
The malicious gossips would say there is a link with Sina US debut on the Nasdaq. Indeed, Sina filed for a $500 million U.S IPO in march and was launch april 17th . The chinese government censorship was already in the investors mind as the debut reached a lower price than hoped. Chinese regulators impact on the business were not clear enough to reassure the market, and to all appearances investors were inspired not to buy shares.
So how to interpreter the actions taken by the Chinese government in the last 6 months ? 
Chinese government seems to be experiencing difficulty to apply the same level of regulation to Internet Giants that want to develop their supremacies in China and worldwide and the last events can be seen as the beginning of an open battle between them.
By Julie Landau
Chief Operating Officer