By David Stanway and Scott Murdoch
SHANGHAI / HONG KONG (Reuters) – China on Saturday fined Alibaba Group Holding Ltd a record 18 billion yuan ($ 2.75 billion) after an antimonopoly investigation found the e-commerce giant to be in a dominant position had abused for several years.
The fine, roughly 4% of Alibaba’s domestic sales in 2019, is due to crackdown on technology conglomerates and indicates that China’s antitrust enforcement on internet platforms has entered a new era after years of laissez-faire approach.
Alibaba’s business empire has come under intense scrutiny in China since billionaire founder Jack Ma criticized public criticism of the country’s regulatory system in October.
A month later, authorities sank a planned $ 37 billion initial public offering by Ant Group, Alibaba’s internet finance division, which would be the world’s largest ever. The State Administration for Market Regulation (SAMR) announced its antitrust investigation into the company in December.
While the fine brings Alibaba one step closer to resolving its antitrust issues, Ant has yet to agree to a regulatory overhaul that is expected to slash ratings and curtail some of its free-wheeling operations.
“This penalty is initially seen by the market as the completion of the antimonopoly litigation. It is, in fact, the most well-known antimonopoly litigation in China,” said Hong Hao, director of research at BOCOM International in Hong Kong.
“The market has been expecting some kind of penalty for some time … but people need to watch out for measures beyond the antimonopoly investigation.”
The SAMR said it found that Alibaba, listed in New York and Hong Kong, has “abused its dominance” since 2015 by preventing its merchants from using other online e-commerce platforms.
The practice, which the SAMR previously labeled illegal, violates China’s antimonopoly law by hindering the free movement of goods and harming the business interests of traders, the regulator added.
The story goes on
In addition to imposing the fine, one of the highest antitrust penalties in the world, the regulator called on Alibaba to make “thorough corrections” to strengthen internal compliance and protect consumer rights.
Alibaba said in a statement that it will accept the punishment and “ensure compliance with the resolve”. The company will hold a conference call on Monday to discuss the penalty.
“We will approach it openly and work through it together,” said CEO Daniel Zhang in a memo to Reuters staff. “Let’s improve and start together again.”
The fine is more than double the $ 975 million that Qualcomm, the world’s largest cell phone chip supplier, paid in China in 2015 for anti-competitive practices.
“China’s big technology stocks have been weak, and I think this fine is being used as a yardstick for any other penalties that might be imposed on the other companies,” said Louis Tse, executive director of Wealthy Securities in Hong Kong.
‘CLEAR POLICY SIGNAL’
The hefty fine for Alibaba is also being imposed against the backdrop of regulators around the world, including the U.S. and Europe, who are conducting tougher antitrust reviews of technology giants like Google and Facebook Inc. from Alphabet Inc.
By fining one of its most successful private companies, Beijing is fighting threats to contain the “platform economy” and contain the giants that dominate the country’s consumer sector.
“What comes after Alibaba’s fine is the likelihood that China will harm other Internet giants,” said Francis Lun, CEO of GEO Securities, Hong Kong.
“Their growth has been tremendous and the government has turned a blind eye and allowed them to practice uncompetitive practices. They can no longer do that.”
China’s big tech companies have stepped up hiring of legal and compliance professionals and allocated funds for potential fines as regulators put in place antitrust and privacy measures, Reuters reported in February.
Chinese official media welcomed the sentence imposed on Alibaba, saying it would set an example and raise awareness of anti-monopoly practices and the need to comply with related laws.
The fine sent a “clear political signal,” wrote Shi Jianzhong, a member of the State Council’s antitrust adviser and professor at the Chinese University of Political Science and Law, in the state-sponsored Economic Times.
Wium Malan, an analyst at Propitious Research in Cape Town, who publishes on the Smartkarma platform, reiterated the assessment and described the fine as a “clear letter of intent”.
For Alibaba, Malan said the fine is “affordable” but the market is still waiting to see the final impact of the Ant Group’s restructuring, which still leaves a lot of uncertainty.
($ 1 = 6.5522 yuan)
(Reporting by Cheng Leng, Scott Murdoch, Yilei Sun, Josh Horwitz, Zoey Zhang, Yingzhi Yang, Kane Wu and David Stanway; writing by Sumeet Chatterjee; editing by Himani Sarkar and William Mallard)