(Bloomberg) – China imposed a record $ 2.8 billion fine on Alibaba Group Holding Ltd. after an anti-monopoly investigation found it abused its dominance as Beijing cracks down on its internet giants.
The fine of 18.2 billion. The company will also have to initiate “comprehensive corrections”, from protecting dealers and customers to strengthening internal controls, the agency said in a statement on Saturday.
The fine – roughly 12% of Alibaba’s 2020 fiscal year net income – is helping to remove some of the uncertainty hovering over China’s second-largest corporation. However, Beijing remains determined to keep its internet and fintech giants in check and is due to scrutinize other parts of billionaire founder Jack Ma’s empire, including Ant Group Co.’s consumer credit business and Alibaba’s extensive media holdings.
Alibaba used its platform rules and technical methods such as data and algorithms “to maintain and strengthen its own market power and gain inappropriate competitive advantages,” the state market regulator concluded in its investigation. The company is likely to have to change a number of practices, such as merchant exclusivity, which critics say has helped it become China’s largest e-commerce operation.
“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 is a stone that kills two birds.”
Alibaba’s practice of imposing a “one-of-two choice” on merchants “closes and limits competition” in the domestic online retail market, the statement said.
The government’s actions are a clear warning to the tech sector as the government is leveraging companies like Alibaba and social media giant Tencent Holdings Ltd. examined for areas ranging from consumer data to mergers and acquisitions.
The story goes on
The investigation against Alibaba was one of the opening volleys of a campaign apparently aimed at containing the power of Chinese internet leaders and their billionaire founders. The company has come under increasing pressure from the authorities since Ma spoke out against China’s regulatory approach to the financial sector in October. Those comments sparked an unprecedented regulatory offensive, including wiping out Ant Group Co.’s $ 35 billion IPO.
Alibaba said it will hold a conference call in Hong Kong on Monday morning to clarify outstanding issues regarding the antitrust regulator’s enactment.
“China’s record fine against Alibaba could lift the regulatory overhang that has weighed on the company since an anti-monopoly investigation began in late December,” said Bloomberg Intelligence analysts Vey-Sern Ling and Tiffany Tam, calling the fine a low price to pay to eliminate this uncertainty. “
However, it remains unclear whether the watchdog or other authorities could call for further action. Regulators, for example, are said to be concerned about Alibaba’s ability to influence public discourse and want the company to sell some of its media stocks, including the South China Morning Post, Hong Kong’s leading English-language newspaper.
The Hangzhou-based company needs to make “sweeping corrections” including strengthening internal controls, maintaining fair competition and protecting businesses on its platform and consumer rights, the regulator said. It must submit self-regulatory reports to the authority for three consecutive years.
“Alibaba accepts the punishment with sincerity and will ensure that it is followed with determination. In order to meet its responsibility to society, Alibaba will act with the greatest care in accordance with the law, further strengthen its compliance systems and build on growth through innovation, “the company said in a statement on Saturday.
Chief Executive Officer Daniel Zhang said in a memo to employees on Saturday that Alibaba has always reflected and adjusted when faced with challenges. He called for unity among employees and said the company should “adapt itself and start over”.
Communist Party-run People’s Daily said in a comment on Saturday that the punishment includes specific antimonopoly measures that regulators are taking to “prevent the disorderly expansion of capital.”
“This does not mean denying the important role of the platform economy in macroeconomic and social development and does not signal a change in attitudes with regard to the country’s support for the platform economy,” the newspaper said. “Regulations serve for better development, and reining in is also a kind of love.”
(Updates with company comment from paragraph 14)
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