China fines Alibaba record $3.69 billion for anti-monopoly violations

The State Administration for Market Regulation has also ordered Alibaba to make "thorough rectifications".
The State Administration for Market Regulation has also ordered Alibaba to make "thorough rectifications".PHOTO: REUTERS

SHANGHAI (REUTERS) - China slapped a record 18 billion yuan (S$3.69 billion) fine on Alibaba Group Holding Ltd on Saturday (April 10), after an anti-monopoly probe found the e-commerce giant had abused its dominant market position for several years.

The penalty, equivalent to around 4 per cent of Alibaba’s revenues in 2019, comes amid an unprecedented regulatory crackdown on the home-grown technology conglomerates in the last few months that have weighed on company shares.  

Alibaba’s billionaire founder Jack Ma’s business empire has been particularly put under intense scrutiny after his stinging criticism of China’s regulatory system in late October.  

In late December, China’s State Administration for Market Regulation (SAMR) announced it launched an antitrust probe into the company.

That came after authorities halted a planned US$37 billion (S$50 billion) IPO from Ant Group, Alibaba’s internet finance arm.  

SAMR said on Saturday (April 10) that after an investigation launched in December, it had determined that Alibaba had been “abusing market dominance” since 2015 by preventing its merchants from using other online e-commerce platforms.  

It said the practice violates China’s anti-monopoly law by hindering the free circulation of goods and infringing on the business interests of merchants.  

The SAMR ordered Alibaba to make “thorough rectifications” to strengthen internal compliance and protect consumer rights.  

The company said in a statement posted on its official Weibo account that it “accepted” the decision and would resolutely implement SAMR’s rulings.

The company will hold a conference call on Monday to discuss the penalty decision.  

“We will tackle it openly and work through it together,” CEO Daniel Zhang said in a memo to staff seen by Reuters. “Let’s improve ourselves and start again together as one.”

The fine imposed on Alibaba is more than double the US$975 million paid in China by Qualcomm, the world’s biggest supplier of mobile phone chips, in 2015 for anticompetitive practices.  

“There has been weakness in China’s big tech stocks and I think this fine will be seen as a benchmark for any other penalties which could be applied to the other companies,” said Louis Tse, managing director at Wealthy Securities in Hong Kong.  

‘Clear policy signal’

With the fine on one of its most successful private enterprises, Beijing is making good on its threats to clamp down on the “platform economy” and rein in the behemoths that play a dominant role in the country’s consumer sector.  

“What comes after Alibaba’s fine is the likelihood that there will be damage to China’s other internet giants,” said Francis Lun, CEO of GEO Securities, Hong Kong.  

“Their growth has been enormous and the government has turned a blind eye and allowed them to carry out uncompetitive practices. They can no longer do that.”

China’s big technology firms have been stepping up hiring of legal and compliance experts and setting aside funds for potential fines, amid the antitrust and data privacy crackdown by regulators, Reuters reported in February.  

Chinese official media hailed the penalty imposed on Alibaba saying it would set an example and bolster awareness about anti-monopolistic practices and the need to adhere to related laws.  

The fine has released a “clear policy signal”, Shi Jianzhong, antitrust consultant committee member of the State Council and professor of China University of Political Science and Law, wrote in the state-backed Economic Times.  

Wium Malan, an analyst at Propitious Research, Cape Town, who publishes on the Smartkarma platform, echoed the sentiment describing the fine as a “clear statement of intent”.  

For Alibaba, Malan said, the fine was “affordable” but that the market was still “waiting to see what the ultimate impact would be from the Ant Group restructuring, which still leaves a lot of uncertainty”.