China slapped a record $2.8 billion fine on Alibaba after an anti-monopoly probe found it abused its market dominance, as Beijing clamps down on the country's internet giants.
The penalty is triple the previous high of almost $1bn that US chip maker Qualcomm had to pay in 2015, and was based on 4 per cent of Alibaba’s 2019 domestic revenue, according to China’s antitrust watchdog. The company will also have to initiate “comprehensive rectifications”, from protecting merchants and customers to strengthening internal controls, the agency said on Saturday.
The fine – about 12 per cent of Alibaba’s fiscal 2020 net income –helps remove some of the uncertainty that’s hung over China’s second-largest corporation. But Beijing remains intent on reining in its internet and FinTech giants and is said to be scrutinising other parts of billionaire founder Jack Ma’s empire, including Ant Group’s consumer-lending businesses and Alibaba’s extensive media holdings.
Alibaba used its platform rules and technical methods, like data and algorithms, “to maintain and strengthen its own market power and obtain improper competitive advantage”, the State Administration for Market Regulation concluded in its investigation. The company will likely have to change a raft of practices, like merchant exclusivity, which critics say helped it become China’s largest e-commerce operation.
"The high fine puts the regulator in the media spotlight and sends a strong signal to the tech sector that such types of exclusionary conduct will no longer be tolerated," said Angela Zhang, author of Chinese Antitrust Exceptionalism and director of the Centre for Chinese Law at the University of Hong Kong. "It's a stone that kills two birds."
Alibaba’s practice of imposing a “pick one from two” choice on merchants “shuts out and restricts competition" in the domestic online retail market, according to the statement.
The government action sends a clear warning to the tech sector as the government scrutinises the influence that companies like Alibaba and social media giant Tencent wield over spheres from consumer data to mergers and acquisitions.
Alibaba said it will hold a conference call on Monday morning Hong Kong time to address lingering questions around the antitrust watchdog’s decree.
“China’s record fine on Alibaba may lift the regulatory overhang that has weighed on the company since the start of an anti-monopoly probe in late December,” Bloomberg Intelligence analysts Vey-Sern Ling and Tiffany Tam said, describing the fine as a small price to pay to do away with that uncertainty.
Still, it remains unclear whether the watchdog or other agencies might demand further action.
The Hangzhou-based firm will be required to implement “comprehensive rectifications”, including strengthening internal controls, upholding fair competition, and protecting businesses on its platform and consumers’ rights, the regulator said. It will need to submit reports on self-regulation to the authority for three consecutive years.
“Alibaba accepts the penalty with sincerity and will ensure its compliance with determination. To serve its responsibility to society, Alibaba will operate in accordance with the law with utmost diligence, continue to strengthen its compliance systems and build on growth through innovation,” the company said.
Chief executive Daniel Zhang said in a memo to employees on Saturday that Alibaba always reflected and adapted when it faced challenges. He called for unity among staff, saying the company should “make self-adjustments and start over again”.
The People's Daily newspaper said that the punishment involves specific anti-monopoly measures regulatory authorities take to "prevent the disorderly expansion of capital".
“It doesn’t mean denying the significant role of platform economy in overall economic and social development, and doesn’t signal a shift of attitude in terms of the country’s support to the platform economy.
“Regulations are for better development, and ‘reining in’ is also a kind of love,” the newspaper said.
