Chinese regulators have dealt yet another monumental blow to Alibaba, the largest e-commerce platform in China. This comes in the form of a $2.8 billion fine, after the company was found to have been abusing its dominant market position since 2015. Chinese regulators launched an anti-monopoly probe in December 2020, to try and crackdown on Alibaba’s shadier strategies.
The company is alleged to have tried to force retailers to choose between their platform and other smaller online stores. The fine accounts for 4% of the company’s 2019 revenue, and is triple the previous highest such fine of $1 billion, which was levied against Qualcomm, a major semiconductor producer in 2015.
This is only the latest expression of the tension between Jack Ma, Alibaba’s CEO, and the Chinese Government. While Beijing has made a concerted effort to increase regulation of the FinTech and Software sectors, Alibaba and all of Jack Ma’s other firms have borne the brunt of the pressure, since Ma publicly criticised the Chinese government in October 2020.
The Chinese Banking and Insurance Regulatory Committee (CBIRC) pulled the plug on the IPO (stock launch) of Ma’s Ant Group in December 2020, just two days before it was due to list on the Shanghai Stock Exchange. The company was due to list at a valuation of $34 billion, which would have been the largest IPO in history.
The company seems to be taking this beating lying down, as it has fully complied with the regulators, even going so far as to say, “It is an important action to safeguard fair market competition and quality development of internet platform economies”. Ma has similarly given no objection to the ruling or critiqued the government further since October.
This may well prove to be a prudent decision, given that the 4% fine is relatively light. Regulators are capable of handing out fines up to 10% of annual revenue. In any case, with $48 billion cash on the balance sheet in its last report, it is unlikely that the fine will cause any significant problem to business operations.
The conclusion of this investigation may signal the end of Ma’s troubles, at least for now. Alibaba has pledged to implement stronger market-compliance systems, and continue to cooperate with regulators on fair market-competition practices. Beijing will undoubtedly be scrutinising their every move from here, looking for any excuse to exercise their antitrust legislation, and break up the company.
Alibaba’s stock price was down 8% on Thursday when the fine was announced. The company added that it would hold a shareholder call on Monday, to address concerns about the fine.
Chinese regulators may now seek to extend their reach to other technology companies. Pinduoduo - another online retailer – recently surpassed Alibaba’s annual active users, with a record 788 million customers in 2020. Other firms are beginning to creep up on Ma’s businesses in other finance and technology sectors. This is not going unnoticed by the Chinese government, and if any of them appear to be heading towards monopoly, they may find themselves in the sights of the regulatory committee.