China sets a record $ 2.75 billion for anti-monopoly violations on Alibaba

SHANGHAI / HONG KONG (Reuters) – China on Saturday imposed a record fine of 18 billion yuan ($ 2.75 billion) on Alibaba Group Holding Ltd.

The fine, about 4% of Alibaba’s domestic revenues in 2019, comes amid a crackdown on technology conglomerates and indicates that China’s antitrust enforcement on internet platforms has entered a new era after years of laissez-faire tackling.

Alibaba’s business empire has been under intense scrutiny in China since billionaire founder Jack Ma publicly criticized the country’s regulatory system in October.

A month later, authorities sank a planned $ 37 billion IPO by Ant Group, Alibaba’s internet financing arm, which would become the largest ever in the world. The state administration for market regulation (SAMR) announced its antitrust investigation into the company in December.

While the fine takes Alibaba a step closer to solving its antitrust woes, Ant still has to agree to a regulatory-driven overhaul that is expected to slash its valuations and curb some of its freewheeling activities.

“This fine will be seen by the market for the time being as a closure of the anti-monopoly case. Indeed, it is the most prominent anti-monopoly case in China, ”said Hong Hao, BOCOM International’s head of research in Hong Kong.

“The market has been expecting some sort of punishment for a while … but people should pay attention to measures that go beyond the anti-monopoly investigation.”

The SAMR said it had found that Alibaba, which is listed in New York and Hong Kong, was abusing “market dominance” since 2015 by preventing its merchants from using other online e-commerce platforms.

The practice, which the SAMR has previously labeled illegal, violates China’s antimonopoly law by impeding the free movement of goods and infringing on the business interests of merchants, the regulator added.

In addition to imposing the fine, which is among the highest anti-trust fines ever worldwide, the regulator ordered Alibaba to make “thorough rectifications” to strengthen internal compliance and protect consumer rights.

Alibaba said in a statement that it accepts the fine and “will ensure it is adhered to with determination.” The company will hold a conference call on Monday to discuss the fine.

“We will openly address it and work on it together,” CEO Daniel Zhang said in a memo to staff seen by Reuters. “Let’s improve ourselves and start over together.”

The fine is more than double the $ 975 million Qualcomm, the world’s largest supplier of mobile phone chips, paid in China in 2015 for anti-competitive practices.

“There is a weakness in China’s major technology stocks and I think this fine will be seen as a measure of any other sanctions that may be imposed on the other companies,” said Louis Tse, general manager of Wealthy Securities in Hong Kong.

‘CLEAR POLICY SIGNAL’

The hefty fine for Alibaba also comes against the backdrop of regulators worldwide, including in the United States and Europe, who are conducting tougher antitrust reviews of technology giants such as Google and Facebook Inc. Alphabet Inc.

With the fine for one of its most successful private companies, Beijing is responding to threats to curb the “platform economy” and rein in the colossi that dominate the country’s consumer sector.

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

“Their growth has been tremendous, and the government has turned a blind eye and allowed them to implement non-competitive practices. They can’t do that anymore. “

China’s major tech companies have stepped up the hiring of legal and compliance experts and set aside money for potential fines amid the antitrust and data privacy crackdown by regulators, Reuters reported in February.

Chinese official media applauded the punishment imposed on Alibaba, saying it would set an example and raise awareness of anti-monopoly practices and the need to adhere to related laws.

The fine has released a “clear policy signal,” Shi Jianzhong, member of the State Council’s anti-trust adviser committee and professor at China’s University of Political Science and Law, wrote in the state-sponsored Economic Times.

Wium Malan, an analyst at Propeful Research in 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 the market was still “waiting to see what the ultimate impact would be of Ant Group’s restructuring, which still leaves a lot of uncertainty”.

($ 1 = 6.5522 yuan)