China Fines Alibaba $2.8 Billion for Anti-competition Practices

Chinese authorities have hit e-commerce giant Alibaba with a 18.23 billion yuan ($2.8 billion) fine for abusing its market dominance.

Alibaba has been under the radar of Chinese regulators since last year. In December, the State Administration for Market Regulation (SAMR), launched an investigation into the practices of China tech giants. The e-commerce platform was found guilty of forcing merchants to choose one of two platforms rather than being able to work with both.

SAMR said on Saturday it had determined that Alibaba had been “abusing market dominance” since 2015 by forcing its Chinese merchants to sell exclusively on one e-commerce platform instead of letting them choose freely among different services. Vendors are often pressured to side with Alibaba to take advantage of its enormous user base.

Late last year, the Chinese authorities launched a regulatory clampdown on China’s online industry, in a first shakeup that had Ant’s $34 billion proposed IPO suspended.

“Today, we received the Administrative Penalty Decision issued by the State Administration for Market Regulation of the People’s Republic of China,” Alibaba said in a statement. “We accept the penalty with sincerity and will ensure our compliance with determination. To serve our responsibility to society, we will operate in accordance with the law with utmost diligence, continue to strengthen our compliance systems and build on growth through innovation.”

Jack Ma, Alibaba became a person of interest in China’s regulatory clampdown for being critical of the authorities.

Ma accused the institutions last year of having a “pawnship” mentality of using collateral instead of advanced credit ratings and watchdogs of not knowing the difference between regulation and supervision.

His outburst attracted further attention from the authorities who wanted to make a lesson statement to the online industry and individuals heading them. Ma went into hiding for weeks.

A barrage of regulations rolled out by SAMR in the following months means that things will never go back to the old ways, when there was a lax oversight function, in the tech industry.

SAMR said Alibaba’s actions stifles competition in China’s online retail market and “infringes on the businesses of merchants on the platforms and the legitimate rights and interests of consumers.”

The fine amounts to about 4% of the company’s 2019 revenue. Experts say it will spur a positive change in China’s tech industry.

“There has been weakness in China’s big tech stocks and I think this fine will be seen as a benchmark for any other penalties which could be applied to the other companies,” said Louis Tse, managing director at Wealthy Securities in Hong Kong.

It is believed that Alibaba’s fine is a kickoff of a ton of sledge hammers that the government has in store for big players in the tech industry caught in monopolistic and anticompetitive practices.

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

“Their growth has been enormous and the government has turned a blind eye and allowed them to carry out uncompetitive practices. They can no longer do that.”

Reuters reported in February that China’s big technology firms have been stepping up hiring of legal and compliance experts and setting aside funds for potential fines, amid the antitrust and data privacy crackdown by regulators.

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

Alibaba, which has been forced to learn obedience, said it fully cooperated with the investigation, conducted a self-assessment and already implemented improvements to its internal systems.

“Alibaba would not have achieved our growth without sound government regulation and service, and the critical oversight, tolerance and support from all of our constituencies have been crucial to our development,” the company said.

Meanwhile, in Nigeria, Dangote Group and Flour Mills have filed a petition to have a competitor, the BUA Group, shut down its sugar refinery, as its function will mean disrupting their monopoly in the sugar industry.

It’s a tale of contrasting government approach to economic growth. While China harps on fiscal policies that allow competition, Nigeria fosters monopolistic practices by giving selected companies a preferential treatment. Experts said it is sad that while other countries are building economies where prices are determined by market forces, the largest economy in Africa does not even have anti monopoly watchdog.