Bloomberg

Record Alibaba Fine Shows China’s Big Tech Can’t Resist

(Bloomberg) – After China took action against Alibaba Group Holding Ltd. After imposing a record fine on antitrust law, the e-commerce giant did something unusual: He thanked regulators: “Alibaba would not have achieved our growth without solid government regulation and service. Critical control, tolerance and support from all of our constituencies were for our development is vital, ”the company said in an open letter. “We are full of gratitude and respect for that.” This is a sign of how strange China’s crackdown on big tech power has been compared to the rest of the world. Mark Zuckerberg and Tim Cook would likely not express that public gratitude if the US government beat Facebook Inc. or Apple Inc. with record fines against antitrust laws. Almost everything about China’s regulatory pressures is unusual. Beijing regulators completed their landmark investigation in just four months, compared to the years such investigations take in the US or Europe. They sent a clear message to the largest companies in the country and their leaders that anti-competitive behavior will have ramifications. For Alibaba, the $ 2.8 billion fine was less severe than feared by many and is helping to lift a cloud of uncertainty across founder Jack Ma’s internet empire. The 18.2 billion yuan penalty was based on just 4% of the internet giant’s 2019 domestic revenue, regulators said. While that’s three times the previous high of nearly $ 1 billion passed by US chipmaker Qualcomm Inc. in 2015, it’s far less than the 10% maximum allowed under Chinese law. Alibaba’s shares rose more than 8% in Hong Kong on Monday. “We are pleased to have this behind us,” said Joseph Tsai, co-founder and vice chairman, on a call to investors on Monday. “These regulatory measures are being put in place to ensure fair competition.” The fine came with a number of “fixes” that Alibaba must make – such as restricting the practice of forcing merchants to choose between Alibaba or a competing platform -. The company had already promised many of them. But Tsai said regulators weren’t going to radically change their e-commerce strategy. Instead, he and other executives pledged to open up Alibaba’s marketplaces more, cut costs for merchants, while also spending “billions of yuan” to help its customers handle e-commerce. Tsai said the company is unaware of any other antitrust investigations against the company other than a previously discussed investigation into acquisitions and investments by Alibaba and other technology giants: “The corrective actions required are likely to limit Alibaba’s revenue growth as it restricts further expansion of market share “said Lina Choi, senior vice president at Moody’s Investors Service, said in a note. “Investing in dealer retention and improving products and services will also reduce profit margins.” Alibaba’s chief executive officer Daniel Zhang said Saturday that his company is now ready to move on from its ordeal, while China’s spokesman for the Communist Party assured the People’s Daily that Beijing is not the Hangzhou-based company forcing itself into possible outcomes like one Dissolution or sale of assets withdrawn. The penalty will not disrupt the business model, either, ”said Jet Deng, an antitrust attorney with the Beijing office of Dentons law firm. Beijing continues to seek containment of its internet and fintech giants, a sweeping campaign that has wiped out more than $ 250 billion from Alibaba’s valuation since October. The e-commerce giant’s quick surrender underscores its vulnerability to further regulatory action – a long way from six years ago, when Alibaba openly denied criticism by an agency of counterfeit goods in Taobao and eventually forced the state’s Industry and Commerce Administration to withdraw As of Monday, shares in Alibaba’s other internet giant, social media titan Tencent Holdings Ltd. to food delivery leaders Meituan and JD.com Inc., fearing they might conduct a similar test. “This is exactly what the market thinks right now: Tencent and Meituan are next if the same standards are to be applied, but even the worst will not be so bad,” said Zhuang Jiapeng, fund manager at Shenzhen JM Capital Examine portions of Ma’s Imperium, including Ant Group Co.’s consumer credit business and Alibaba’s extensive media holdings. And the shock of the move will continue to resonate with colleagues from Tencent and Baidu Inc. to Meituan, forcing them to be far more cautious about business expansions and acquisitions for some time to the regulatory overhang that has weighed on the company since an antimonopoly investigation started in late December Has. The 18.2 billion yuan ($ 2.8 billion) fine to punish anti-competitive practices of dealer exclusivity equates to 4% of Alibaba’s domestic sales in 2019. Still, the company may need to be conservative in its acquisitions and broader business practices. – Vey-Sern Ling and Tiffany Tam, Analysts, Click here for the full investigation. Alibaba’s investigation was one of the opening salvos in a campaign apparently designed to curb the power of Chinese internet leaders, which began after Ma Chinese lenders, no internet regulators and the “old men” of the global banking community had infamously reprimanded the “pawn shop”. Those comments sparked an unprecedented regulatory offensive, including sinking Ant’s $ 35 billion IPO. It remains unclear whether the watch dog or other authorities could request further action. Regulators, for example, are concerned about Alibaba’s ability to influence public discourse and want the company to sell some of its media assets, including the South China Morning Post, Hong Kong’s leading English-language newspaper. Read more: China Presses Alibaba Bloomberg News reported that Tencent is now the next target for heightened oversight to sell media assets, including leading SCMPChina financial regulators. And the central bank is said to have discussions about forming a joint venture with local tech giants to monitor the lucrative data they are collecting from hundreds of millions of consumers. This would be a significant escalation in attempts by regulators to tighten control over the country’s internet sector. “The heavy fine puts the regulator in the media spotlight and sends a strong signal to the technology sector that such exclusionary behavior will no longer be tolerated,” said Angela Zhang, author of Chinese Antitrust Exceptionalism and director of the Center for Chinese Law at the University of Hong Kong. “It’s a stone that kills two birds.” Right now, investors just seem glad it didn’t get any worse. In its statement, the state administration of market regulation concluded that Alibaba had used data and algorithms to “maintain and strengthen its own market power and gain an undue competitive advantage”. The practice of imposing a “one-of-two choice” on retailers “excludes and limits competition in the domestic online retail market,” the statement said. The company needs to make “major corrections” including strengthening internal controls. Maintaining fair competition and protecting companies on their platform and consumer rights, according to the regulator. It must submit reports on self-regulation to the authority for three consecutive years. The company needs to make adjustments, but can now “start over,” Zhang wrote in a memo to Alibaba staff on Saturday. Anti-monopoly investigation against BABA will be addressed by SAMR’s recent ruling and penalties, “the analysts wrote by Jefferies in a research report entitled “A New Starting Point”. Indeed, in its Saturday commentary, the People’s Daily said the punishment was merely intended to “prevent” the disorderly expansion of capital. “This does not mean denying the important role the platform economy plays in macroeconomic and social development, nor does it signal a change in attitudes towards the country’s support for the platform economy,” the newspaper said. “Regulations are for better development, and keeping it clean is also a kind of love.” (Updates with approvals and comments from the fifth paragraph) For more articles like this, please visit us at bloomberg.com. Sign up now to keep track of most trusted business news source. © 2021 Bloomberg LP