Policy lessons from China: A quantitative examination of China's new competition regime for the digital economy

Growing global concern about the problems associated with concentrated market power in the digital economy is leading to a renewed interest in competition policy. Since the late 2010s, China’s government in particular has squarely confronted the problems of its own ‘Big Tech’ with a new competition regime for digital markets. Outcomes represent a unique learning opportunity for Western academics, competition authorities and lawmakers alike, which has so far been underutilized. However, given unreliable official figures, a new methodology is needed to assess the competitive dynamics of China’s digital economy. This article introduces a market capitalization approach that builds on the informativeness of China’s financial markets. We use Bloomberg financial data of 1142 publicly listed firms for the period 2019 to 2022 to identify 16 digital markets. We find that China’s new competition regime has reduced market concentration and aggregate growth in the primary markets of its three most dominant digital platforms – Baidu, Alibaba and Tencent (BATs). Further, our results show a robust correlation between the new regulatory approach and reduced market concentration and market capitalization growth rates across China’s digital markets. Other empirical findings include a negative correlation between market concentration and the openness of digital markets, a non-relationship between market concentration and profits, and the inability of profit and revenue-based metrics to capture market power effectively in China’s digital economy.