Alibaba optimistic about outlook despite record fine

SHANGHAI • China's Alibaba does not expect any material impact from changes to its exclusivity arrangements with merchants, chief executive Daniel Zhang said yesterday, after regulators fined the e-commerce giant a record US$2.75 billion (S$3.7 billion) for abusing its market dominance.

Shares in Alibaba Group Holding rose as much as 9 per cent in Hong Kong trade as a key source of uncertainty for the firm was removed, and on relief that the fine and steps ordered were not more onerous.

Alibaba has come under scrutiny since its billionaire founder Jack Ma publicly criticised China's regulatory system in October.

The company will introduce measures to lower entry barriers and business costs faced by merchants on its platforms, Mr Zhang told an online conference for the media and analysts.

Alibaba executives said that despite last Saturday's record fine and measures ordered by the Chinese regulators, they remain confident in the government's overall support of the company.

"They are affirming our business model," said executive vice-chairman Joe Tsai. "We feel comfortable that there's nothing wrong with our fundamental business model as a platform company."

Markets reacted positively yesterday, with shares jumping by the most since July last year.

"Now that the penalty is determined, the market's uncertainty about Alibaba will be reduced," Everbright Sun Hung Kai analyst Kenny Ng said. "Alibaba's stock price has lagged behind the overall emerging economy stocks for some time in the past. The implementation of this penalty is expected to allow Alibaba's stock price to regain market attention."

Aside from imposing the fine, among the highest ever globally in antitrust penalties, the State Administration for Market Regulation (SAMR) also ordered Alibaba to make "thorough rectifications" to strengthen internal compliance and protect consumer rights.

"The required corrective measures will likely limit Alibaba's revenue growth as a further expansion in market share will be constrained," said Ms Lina Choi, senior vice-president at Moody's Investors Service. "Investments to retain merchants and upgrade products and services will also reduce its profit margins."

SAMR said its investigation had determined that Alibaba, which is also listed in New York, had prevented its merchants from using other online e-commerce platforms since 2015.

The practice, which the SAMR has previously spelt out as illegal, violates China's anti-monopoly law by hindering the free circulation of goods and infringing on the business interests of merchants, the regulator said.

The probe comes as China bolsters SAMR with extra staff and a wider jurisdiction amid a crackdown on technology conglomerates, signalling a new era after years of laissez-faire approach.

The agency has taken aim recently at China's large tech giants in particular, mirroring increased scrutiny of the sector in the United States and Europe.

Alibaba said it accepted the penalty and "will ensure its compliance with determination".

Speaking with analysts yesterday, Mr Tsai said the company "doesn't rely on exclusivity" to retain its merchants, adding that such exclusivity arrangements in the past only covered a small number of Tmall flagship stores.

Alibaba and its e-commerce peers remain under review for mergers and acquisitions from the market regulator, Mr Tsai told the briefing, adding that he was not aware of any other anti-monopoly-related investigations.

REUTERS