China fines Alibaba, Tencent unit under anti-monopoly laws

Alibaba had led a US$2.6 billion buyout of Intime as part of efforts to develop new business models. PHOTO: REUTERS

BEIJING (BLOOMBERG) - China's antitrust watchdog fined Alibaba Group Holding and a Tencent Holdings unit over a pair of years-old acquisitions and said it's reviewing an impending Tencent-led merger, signaling Beijing's intention to tighten oversight of internet sector deals.

The State Administration for Market Regulation said on Monday (Dec 14) it's reviewing the combination of DouYu International Holdings with Huya Inc, which could create a Chinese game streaming leader akin to Amazon's Twitch. It fined Alibaba 500,000 yuan (S$102,000) for failing to seek approval before increasing its stake in department store chain Intime Retail Group to 73.79 per cent in 2017, while China Literature Ltd, the e-books business spun off by Tencent, was also censured over a previous deal, according to a statement.

The penalties come after regulators last month declared their intention to increase scrutiny of China's largest tech corporations with new anti-monopoly rules. Beijing in November unveiled draft regulations that establish a framework for curbing anti-competitive behavior such as colluding on sharing sensitive consumer data, alliances that squeeze out smaller rivals and subsidizing services at below cost to eliminate competitors.

Shares in Alibaba and Tencent extended losses and were down about 3 per cent in the afternoon.

"Investment and takeovers are important means for development and growth of internet companies," the regulator said in the statement. "The above-mentioned companies have a large influence in the industry, carry out many investments and takeovers, have specialized legal teams and should be familiar with the regulations governing M&A. Their failure to actively declare has a relatively severe impact."

Beijing's heightened scrutiny is spurring fears of a broader crackdown on the country's largest firms. On Monday, shares in No. 3 internet company Meituan plunged as much as 7.4 per cent after the People's Daily wrote an editorial slamming the industry's preoccupation with growing traffic and volumes in areas such as grocery delivery, at the expense of real scientific innovation.

Alibaba had led a US$2.6 billion (S$3.5 billion) buyout of Intime as part of efforts to develop new business models that combine e-commerce with brick-and-mortar retailing. China Literature agreed in 2018 to buy New Classics Media for as much as 15.5 billion yuan to expand in filmed content. The companies had failed to seek approval for the deals, which aren't deemed anti-competitive, the antitrust regulator said on Monday. Alibaba and Tencent representatives didn't immediately respond to requests for comment.

Huya in October agreed to buy DouYu in an all-share deal and Tencent, which currently owns stakes in both companies, was expected to hold about 68 per cent of the merged business's voting shares. That would have given the WeChat operator control over the leader in the live-streamed gaming market, estimated to generate 23.6 billion yuan in revenue this year, according to iResearch.

An affiliate of SF Holding was also fined for not declaring a takeover of a competitor, Monday's statement showed.

"Despite its relative modest amount, the penalty announced today has a symbolic importance," said Scott Yu, an antitrust lawyer with Beijing-based Zhong Lun Law Firm. "The announcement, together with the draft antitrust guidance unveiled in November, signals that Beijing will pay close attention to the monopolistic status of Chinese internet companies."

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