When Chinese officials met e-commerce titan Alibaba on Saturday with a record $ 2.8 billion fine against antitrust law, they sent a message to the soaring internet industry in the country: We have our eyes on you.
The punishment against Alibaba, one of China’s most valuable private companies, and the foundation of the business empire of Jack Ma, its most famous tycoon, was the biggest step so far in the government’s campaign to tighten oversight of big tech.
China’s market watchdog began investigating in December whether Alibaba had violated the country’s antimonopoly law by preventing traders from selling their wares on other shopping platforms. On Saturday, the regulator said it found that Alibaba’s foreclosure practices had hampered online retail competition, hampered innovation in the internet economy and harmed consumer interests.
The resulting fine far exceeds the $ 975 million antitrust fine China imposed on Qualcomm, the American chip giant, in 2015.
The authorities left little doubt on Saturday about their intention to further curb China’s internet giants. In a comment posted online a minute after the fine was announced, People’s Daily, the Communist Party’s official newspaper, described regulation as “a kind of love and care.”
“Monopoly is the great enemy of the market economy,” the comment said. “There is no contradiction between legal regulation and support for development. Rather, they complement and reinforce each other. “
The fine is unlikely to materially affect Alibaba’s assets. The state administration for market regulation, the agency that imposed the penalty, said the amount represented 4 percent of Alibaba’s domestic sales in 2019. The company reported profits of more than $ 12 billion in the last three months of 2020 alone.
Still, the encounter with regulators could have a longer-lasting impact on Alibaba’s business, which extends beyond shopping to logistics, grocery, entertainment, social media, travel booking, and more.
Like Facebook, Google, and other internet giants, Alibaba has argued that the breadth of its business helps make each of its services more useful. However, critics say the size of the company worsens the playing field for competitors and limits consumer choice.
Alibaba is now likely to be much more cautious about doing anything that resembles heavily armed users or rivals, said Angela Zhang, associate professor and director of the Center for Chinese Law at the University of Hong Kong. “Your competitors will run to the regulator first to complain if there are problems,” she said.
Even so, Professor Zhang said, the fact that Beijing did not demand any major additional concessions from Alibaba makes the overall antitrust decision “good news for the company.”
Six years ago, when Qualcomm was fined, it was also agreed to give Chinese customers significant discounts on patent fees. On Saturday, the market regulator said only that Alibaba would have to curb its anti-competitive behavior and submit reports of its compliance for three years.
“I would think the market should respond positively,” said Professor Zhang, although she warned that the government could investigate other aspects of Alibaba’s business at any time.
In a statement, Alibaba said it would “sincerely” accept the fine and strengthen internal systems “to better serve our responsibility to society.”
“The penalty imposed today was to alert and catalyze businesses like ours,” Alibaba said. “It reflects the thoughtful and normative expectations of regulators for the development of our industry.”
China started taking a closer look at its tech giants last year. The market regulator proposed updating the antimonopoly law with new provisions for large internet platforms like Alibaba’s. In November, officials put an end to Alibaba’s sister company, the finance-focused Ant Group, to go public and tightened their oversight of internet finance.
In December, it opened the antimonopoly investigation against Alibaba – an astonishing twist for Mr. Ma, whom the people of China had long held up as an icon of entrepreneurial plucking. In late October, just before Ant Group stocks were expected to start trading, Mr. Ma spoke at a conference in Shanghai and accused Chinese financial regulators of hindering innovation in the name of risk control. His remarks were not well received in the state news media.
In the USA and Europe too, skepticism about the power of large Internet companies has increased. Western regulators have repeatedly fined Goliaths like Google for various antitrust violations. In general, such penalties have not changed the nature of businesses enough to address concerns about their power.
China started later than the West on this front. In recent months, in addition to investigating Alibaba, the antitrust agency has also imposed smaller fines on companies for failing to report acquisition deals in advance.
However, the government’s campaign is already beginning to influence the way Chinese internet giants operate. This reflects the extent to which all private companies in China must remain in Beijing’s favor in order to survive.
For many years, Alibaba and its arch-rival, gaming and social media giant Tencent, have competed fiercely in a variety of companies, including by preventing their own users from spending time on the other company’s services. That could gradually change. In a first for the company, Alibaba recently applied for two of its trading platforms, Taobao Deals and Xianyu, to be present on WeChat, Tencent’s ubiquitous messaging app.
Tencent is an obvious potential target for Beijing’s future antimonopoly actions. With WeChat, the company has created and maintained an all-in-one platform for news, entertainment, finance, shopping, and more, enabling rivals and smaller businesses to act as indispensable gatekeepers for Chinese internet users.
“As businesses grow big and Internet services become more and more a part of people’s lives, businesses need to be far more responsible to both users and government and society,” said Martin Lau, president of Tencent, last month on a conference call with analysts . “Now I think it’s important for us to understand even more about what government is about, what society is about, and to be even more compliant.”
Chinese officials don’t seem too intent on cracking down on Internet companies, which have legions of loyal users and employ a large number of young, well-educated people.
In November, not long after officials put Ant Group’s IPO plans on hold, the Chinese market regulator released draft guidelines for the antitrust enforcement of Internet platforms. The final rules, which were published in February, differed on a few key points.
A provision in the draft lowered the bar for authorities to argue that a company was a monopoly in certain cases. That provision didn’t make it into the final rules. Another clause in the draft, which later disappeared, would have made it easier for regulators to argue that companies that owned large amounts of user data were abusing their dominance.
The authorities also seem unwilling to tighten control over internet giants in ways that would undermine China in its strategic rivalry with other global powers – one in particular.
In the high-tech industry, “competition between China and the United States is intensifying,” said former market regulator Li Qing in an interview with a Beijing newspaper in January.
“We need to give our country’s innovative companies more room to develop, a better political environment and more room to fix,” said Ms. Li. “We need to encourage companies to keep innovating and become big and strong.”