China begins monopoly investigation into Jack Ma’s Alibaba empire

Stringent financial regulations now pose a threat to the growth of one of the world's biggest e-commerce sites

(FILES) This file photo taken on October 2, 2018 shows Alibaba Group co-founder and executive chairman Jack Ma attending the opening debate of the 2018 edition of the WTO public forum on sustainable trade, at the WTO headquarters in Geneva. China has launched an anti-monopoly investigation into Alibaba, regulators said on December 24, 2020, heaping further pressure on the e-commerce giant and sending its share price tumbling. - 
 / AFP / Fabrice COFFRINI

China kicked off an investigation into alleged monopolistic practices at Alibaba and summoned affiliate Ant Group to a high-level meeting over financial regulations, escalating scrutiny over the twin pillars of billionaire Jack Ma’s internet empire.

The State Administration for Market Regulation is investigating Alibaba, the top antitrust watchdog said in a statement. Regulators, including the central bank and banking watchdog, will separately summon affiliate Ant to a meeting intended to drive home increasingly stringent financial regulations, which now pose a threat to the growth of the world’s biggest online financial services firm. Ant said in a statement on its official WeChat account it will study and comply with all requirements.

Once hailed as drivers of economic prosperity and symbols of the country’s technological prowess, Alibaba and rivals like Tencent face increasing pressure from regulators after amassing hundreds of millions of users and gaining influence over almost every aspect of daily life in China.

Alibaba’s Hong Kong stock slid as much as 7.7 per cent to a five-month intraday trough, while Tencent and internet services giant Meituan declined more than 1 per cent. Shares in SoftBank, Alibaba’s largest shareholder, erased gains to trade as much as 2.7 per cent lower in Tokyo.

Investors are divided over the extent to which Beijing will go after Alibaba – Asia’s largest corporation after Tencent – and its compatriots as Xi Jinping’s government prepares to roll out a raft of new anti-monopoly regulations.

The country’s leaders have said little about how harshly they plan to clamp down or why they decided to act now. Draft rules released in November give the government unusually wide latitude to rein in tech entrepreneurs like Mr Ma, who until recently enjoyed an unusual amount of freedom to expand their empires.

“It’s clearly an escalation of coordinated efforts to rein in Jack Ma’s empire, which symbolised China’s new ‘too-big-to-fail’ entities,” said Dong Ximiao, a researcher at Zhongguancun Internet Finance Institute. “Chinese authorities want to see a smaller, less dominant and more compliant firm.”

The flamboyant Alibaba co-founder has all but vanished from public view since Ant’s initial public offering got derailed.

It's clearly an escalation of coordinated efforts to rein in Jack Ma's empire, which symbolised China's new 'too-big-to-fail' entities

The country’s internet ecosystem – long protected from competition by the likes of Google and Facebook – is dominated by two companies, Alibaba and Tencent, through a labyrinthine network of investment that encompasses the vast majority of the country’s start-ups in arenas from AI to digital finance. Their patronage has also groomed a new generation of titans including food and travel giant Meituan and Didi Chuxing – China’s Uber. Those that prosper outside their aura, the largest being TikTok-owner ByteDance, are rare.

The anti-monopoly rules now threaten to upset that status quo with a range of potential outcomes, from a benign scenario of fines to a break-up of industry leaders. Beijing’s diverse agencies now appear to be coordinating their efforts – a bad sign for the internet sector.

The People's Daily newspaper warned on Thursday that fighting alleged monopolies was now a top priority. "Anti-monopoly has become an urgent issue that concerns all matters," it said in a commentary coinciding with the probe's announcement. "Wild growth" in markets needs to be curbed by law, it added.

In November, after Mr Ma famously attacked Chinese regulators in a public address for lagging the times, market overseers subsequently suspended Ant’s IPO – the world’s largest at $35 billion – while the anti-monopoly watchdog threw markets into a tailspin shortly after with its draft legislation.

(FILES) This file photo taken on October 13, 2020 shows the Ant Group headquarters in Hangzhou, in China's eastern Zhejiang province.  China has launched an anti-monopoly investigation into Alibaba, regulators said on December 24, 2020, heaping further pressure on the e-commerce giant and sending its share price tumbling. -  - China OUT
 / AFP / STR

The chances that Ant will be able to revive its massive stock listing next year are looking increasingly slim as China overhauls rules governing the FinTech industry, which in past years has boomed as an alternative to traditional state-backed lending.

China is said to have separately set up a joint task force to oversee Ant, led by the Financial Stability and Development Committee, a financial system regulator, along with various departments of the central bank and other regulators. The group is in regular contact with Ant to collect data and other materials, studying its restructuring as well as drafting other rules for the FinTech industry.

“China has streamlined a lot of the bureaucracy, so it’s easier for the different regulatory bodies to work together now,” said Mark Tanner, managing director of Shanghai-based consultancy China Skinny. “Of all the regulatory hurdles, this is the biggest by a long shot.”