Frenemy at the gate

China's internet sector runs on harmonious enmity

China's internet sector is fiercely competitive - although not so much for the handful of companies which dominate it. Online retailer Amazon's decision to open a store on rival Alibaba's website might sound like sleeping with the enemy. But it's really a recognition that competition isn't working the way it ought to.

The first problem is that the playing field is unlevel. Alibaba controls more than half of China's business-to-consumer e-commerce market, according to iResearch. Amazon has 1.3 per cent. Moreover, Amazon runs its own delivery and logistics, which erode margins and which its larger peer leaves to others. There aren't many options for smaller online retailers. Some, like Vipshop and Jumei, can grow fast on their own, but only by carving out niches.

Even between the biggest web groups, competition is something of a fiction. Tencent, Baidu and Alibaba may appear rivals, but the overlap is small and they are moving away from head-to-head competition. Alibaba and Tencent's taxi-booking apps said last month that they would merge. The company founded by Jack Ma has quietly sidelined its failed challenge to Tencent's WeChat messaging service, while Tencent sold its e-commerce business to JD.com. Baidu, which owns China's dominant search engine, eschews social networks.

Rivalry in China's internet sector does exist, but it runs on different axes. For Alibaba the main competition is between the 8 million sellers competitively bidding up the price of advertising on its sites. The harder they push for a share of China's retail sales, the more profitable that business becomes. Then there's the jostling for favours from China's authorities, who still have the power to pick winners and losers. Alibaba is one of the former. Seen that way, Amazon's odd move is really just a response to a sector where some players face too little competition, and others too much.