In front of the headquarters of Alibaba Group Holdings Ltd. in Hangzhou, China, in early March.
Photographer: Qilai Shen / Bloomberg
Photographer: Qilai Shen / Bloomberg
China imposed on Alibaba Group Holding Ltd. a record $ 2.8 billion fine after an anti-monopoly investigation found it abused its dominance when Beijing pressured its internet giants.
The 18.2 billion yuan fine is three times the previous high of nearly $ 1 billion US chipmaker Qualcomm Inc. paid in 2015, and is based on 4% of that, according to China’s antitrust watchdog Alibaba’s domestic revenue in 2019. The company must also initiate “major 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 net income for fiscal 2020 – is helping to remove uncertainty about China’s second largest company. However, Beijing remains keen to contain its internet and fintech giants and is set 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 an inappropriate competitive advantage,” the state administration for market regulation concluded in its investigation. The company is likely to have to change a number of practices like merchant exclusivity, which critics say has helped it become China’s largest e-commerce company.
“The heavy fine puts the regulator in the 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 degree from the University of Hong Kong. “It’s a stone that kills two birds.”
Alibaba’s practice of imposing a “one-of-two choice” on merchants excludes and limits competition in the domestic online retail market, the statement said.
The government move is a clear warning to the tech sector as the government is squeezing the influence of companies like Alibaba and social media giant Tencent Holdings Ltd. Checks for areas from consumer data to mergers and acquisitions.
Alibaba’s investigation 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 sinking the $ 35 billion Ant Group Co. IPO.
Alibaba said it will hold a conference call in Hong Kong on Monday morning to answer the outstanding questions surrounding the antitrust watchdog’s decree.
“China’s record fine against Alibaba could remove the regulatory overhang that has weighed on the company since the start of an antimonopoly investigation in late December,” said Bloomberg Intelligence analysts Vey-Sern Ling and Tiffany Tam, describing the fine as a small price to pay for it Eliminate uncertainty. “
Further measures
However, it remains unclear whether the watch dog or other authorities could request 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 assets, including the South China Morning Post, Hong Kong’s leading English-language newspaper.
The Hangzhou-based company needs to make “major fixes,” including strengthening internal controls, maintaining fair competition, and protecting businesses on its platform and consumer rights, the regulator said. It must submit reports on self-regulation to the authority for three consecutive years.
“Alibaba sincerely accepts the punishment and will ensure that the resolve is upheld. In order to meet its responsibility to society, Alibaba will act with the greatest care in compliance with the law, further strengthen its compliance systems and build on growth through innovation, “the company said in a statement on Saturday.
Challenges
CEO Daniel Zhang said in a memo to employees on Saturday that Alibaba always reflected and adjusted when faced with challenges. Calling for unity among employees, he said the company should “self-adapt and start over”.
The Communist Party-run People’s Newspaper said in a comment on Saturday that the punishment includes specific antimonopoly measures taken by regulators to “prevent the disorderly expansion of capital.”
“It does not mean denying the important role the platform economy plays in macroeconomic and social development, nor does it mean 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.”
– With the support of Coco Liu, Natalie Lung and Claire Che
((Updates with the company’s comment from paragraph 14)
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