China’s antitrust probe comes back to claims from Alibaba pressure suppliers

The anti-monopoly investigation, unveiled on Thursday by the Beijing State Administration for Market Regulation, puts pressure on China’s biggest tech giants, who have been agitating for much of the past year from a concerted effort by the Trump administration to give them access to U.S. markets. and block suppliers.

The timing of the Alibaba probe, which was linked Thursday with a regulatory subpoena for Ant Group, Alibaba’s giant financial subsidiary, is the latest evidence of a global shift in the regulation of technology giants that until recently celebrated for creating wealth. even when turned upside down. the marketplace.

Domestically, China’s double regulatory action on Thursday also marked the latest low in the rapidly deteriorating political fortunes of Jack Ma, founder of Alibaba and Ant’s billionaire. Several weeks earlier, high on the eve of a planned blockbuster hit on Ant’s public list, Mr. Ma used a high-profile speech at a regulatory event to excuse senior government officials for what he called their outdated mindset.

Since then, the IPO has been dropped and regulators have warned against tighter scrutiny of the tech industry.

If the political concerns surrounding Alibaba are new, the complaints filed by Beijing’s main market regulator on Thursday are not. Allegations about the practice, dubbed ‘er xuan yi’ – literally ‘pick one of the two’ – have been a mainstay of Chinese online retail for at least five years as Alibaba, the operator of the dominant e-commerce platforms Taobao and Tmall, wanted prevent the rise of rival JD.com Inc.

and, more recently, the fast-growing Pinduoduo Inc.

According to Alibaba’s competitors and some traders, the company has punished certain brands that sell goods on both Alibaba and its rival platforms. Such actions include preventing them from participating in high-traffic promotions on Alibaba services or placing their listings lower in search results, said Ben Cavendar, general manager of China Market Research Group in Shanghai.

Alibaba said Thursday it would cooperate with regulators, but did not specifically comment on the allegations of “er xuan yi”. A former senior executive of the company described the practice as an industry standard in a personal post on social media last year.

In 2015, JD.com filed a complaint with the market regulator, saying that Alibaba had forced sellers to choose between Tmall and other platforms. According to JD.com’s then-complaint, Alibaba threatened to limit traffic and resources to brands selling on both Alibaba and JD.com’s platforms at an annual shopping festival.

It’s unclear what happened to JD.com’s initial complaint, and neither company responded Thursday to requests for comment on the complaint. But two years later, JD.com sued Alibaba over the alleged practice.

According to a legal document from the case, JD.com said that Alibaba’s Tmall had made commitments from merchants not to open stores on JD.com’s platform. Beijing-based JD.com said at the time that Alibaba had been involved in similar practices since 2013, asking the court for 1 billion yuan, equivalent to $ 153 million, as compensation.

The case is still ongoing, and neither company responded to requests for comment. JD.com’s chief financial officer acknowledged the dispute during an earnings call with analysts in 2017, saying that more than 100 brands had withdrawn from JD.com’s platform due to “certain competitive practices,” without elaborating.

Merchants have also complained. In October 2019, Guangdong Galanz Enterprise Co., a major microwave oven manufacturer in southern China, sued Tmall after Galanz’s online traffic had declined and the page appeared to disappear from Tmall’s search results following a trip by company officials to Alibaba. rival Pinduoduo in May. 2019, according to the then Chinese state media.

In June, Galanz withdrew the lawsuit and signed a partnership agreement with Alibaba two weeks later, according to state media.

Alibaba, Pinduoduo and Galanz did not respond to requests for comment.

Founded in 1999 in the east China city of Hangzhou, Alibaba generated $ 71 billion in annual revenue in the year ended March 31, earning most of its money by selling advertising, charging commissions and providing services to retailers selling products on its sites. Such as Amazon.com Inc.,

with which it has been compared, Alibaba has also expanded into cloud computing services, entertainment and logistics.

In recent years, some of the most prominent targets of Chinese antitrust cases have been foreign companies such as the American chipmaker Qualcomm Inc.,

who agreed in 2015 to pay a fine of nearly $ 1 billion. The following year, Beijing fined Swiss-Swedish packaging giant Tetra Pak International SA nearly $ 100 million.

Now, with homegrown internet players such as Alibaba and Tencent Holdings Ltd.

Among the largest and most influential companies in the country, regulators say they are increasingly turning their sights to their business practices.

“The government believes it is time to better manage competition in the marketplace” in the technology sector, said Charlie Chen, an analyst with China Renaissance Securities research firm.

The Chinese market regulator did not respond to a request for comment.

Over the years, China has been home to some of the world’s largest technology companies, thriving at home for years with relatively light regulation, keeping Western rivals out of the market.

In China, Alibaba and Tencent developed online payment services that are virtually ubiquitous in the country, while Tencent’s WeChat and Bytedance Ltd.’s short video app Douyin gained dominant market positions in social media.

As these companies grew – and gathered masses of data on consumer habits – authorities became increasingly uncomfortable about their influence, which in turn has strengthened the drive to rein in the industry.

Regulatory counterparts in Europe and the US are already grappling with the challenge of overseeing large tech companies. But unlike those jurisdictions, any attempts by Chinese regulators to rein in their technology giants are likely to occur without the public hearings common in the West.

“The Chinese system of investigating and enforcing cases of abuse of dominance is not very transparent, nor is it clearly subject to judicial review,” said Scott Kennedy of the Washington, DC-based Center for Strategic and Development. International Studies.

—Xiao Xiao contributed to this article.