Chinese regulators fine Alibaba record $2.8bn

Chinese regulators have fined Alibaba a record Rmb18.2bn ($2.8bn) after finding that the ecommerce group had abused its market dominance.

The penalty, which was set at 4 per cent of Alibaba’s 2019 revenues, concludes an antitrust investigation into the company founded by Jack Ma. It comes as Chinese authorities have stepped up scrutiny on dealmaking and anti-competitive practices in its once lightly regulated technology sector.

The market regulator said that since 2015 Alibaba had forced merchants to sell exclusively on its Tmall and Taobao online shopping platforms.

Alibaba used its “market position, platform rules and data, and algorithmic methods” to put in place rewards and punishments for its “choose one of two” policy, the regulator said on Saturday.

In November, Chinese authorities suspended the $37bn initial public offering of Ma’s Ant Group, Alibaba’s payments and lending sister company, at the last minute.

Previously, the country’s competition regulators had mostly focused on traditional industries at home and on foreign companies. It imposed a then-record fine of $975m in 2015 on US chip-design group Qualcomm

But last November, regulators started drawing up the first antitrust measures to cover the online platforms that have become China’s most valuable companies.

The State Administration of Market Regulation ordered Alibaba to “carry out a comprehensive rectification” drive on its platform, to strengthen its legal controls and compliance. It gave Alibaba 15 days to submit a report detailing changes to its “illegal behaviour”.

Alibaba said it “sincerely accepted” the penalty.

“It is an important action to safeguard fair market competition and quality development of internet platform economies,” the company said. “It reflects the regulators’ thoughtful and normative expectations.”

Alibaba added that it would strengthen compliance, improve its systems and ensure an open and equitable operating environment for its merchants.

The Communist party’s People’s Daily newspaper said the punishment reflected a “normative correction for the company’s development, a clean-up and purification of the industry environment, and a strong defence of fair competition”.

A Chinese antitrust lawyer, who asked to remain anonymous, said the fine “was meant to teach Alibaba ‘don’t think you can do whatever you want’, but [would] not materially harm the business”.

He noted the penalty was not as large as it could have been and limited to Alibaba’s ecommerce operations, rather than its other industry-spanning operations.

Alibaba has in recent years bought up everything from supermarket chains to home furnishing retailers, giving it a share of about one-fifth of China’s total retail sales. 

The fine alone will not significantly affect Alibaba’s operations. It had $48bn of cash on its balance sheet at the end pf 2020 and earned $24bn in net profit last year.

Its bigger challenge comes from fast growing rivals. Upstart Pinduoduo overtook its annual shopper count for the first time last year, with 788m people buying on its platform ahead of Alibaba’s 779m. 

Food delivery group Meituan has taken market share from Alibaba’s Ele.me and is pushing into ferrying all types of goods from shops to consumers — another challenge to Alibaba’s ecommerce dominance.

While the penalty marks the end of the government’s antitrust scrutiny of Alibaba, Ma’s other interests remain under pressure. Authorities have yet to announce formally a deal for Ant’s restructuring and have suspended new enrolment at Ma’s elite business school.

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