Alibaba stock (HKSE: 9988) advanced as much as 9% in early Monday trading in Hong Kong after the State Administration for Market Regulation (SAMR) imposed a RMB 18.2 billion (USD 2.8 billion) fine on Saturday, a new record since China’s anti-monopoly law came into effect in 2008, but a rather small penalty according to analysts and investors.
The authorities, which initiated their investigation into the firm in December 2020, concluded that Alibaba had a dominant role in China’s domestic online retail market and that from 2015, it used its position to ban merchants on its platform from opening stores or participating in promotions on rival marketplaces, in a so-called “select one out of two” mechanism.
Alibaba further leveraged on its market power, its platform’s own rules, and technical means such as algorithms, as well as a wide variety of rewarding or punitive measures, to make sure this mechanism was well in place, said the regulator. The practice was strongly criticized by JD.com, Pinduoduo, and Vipshop, which sued the Hangzhou-based company.
“We accept the penalty with sincerity and will ensure our compliance with determination,” said Alibaba in a letter on Saturday. “We 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. For this, we are full of gratitude and respect.”
“The fine is very light for Alibaba,” said Liu Xu, a researcher with the National Strategy Institute at Tsinghua University. Law enforcement agencies can confiscate illegal income from the violation and can impose a fine, varying between 1% and 10% of annual sales, he said. But they did not confiscate any illegal income, and the fine was only 4% of Alibaba’s domestic annual sales in 2019.
The European Commission has imposed fines of more than USD 9 billion on Google since 2017, for three different cases of anti-competitive behavior, such as placing restrictions on other websites that wanted to offer a search feature and display ads alongside the results.
“Food delivery mergers should be investigated”
Liu said that Chinese regulators did not offer any information on whether they will investigate Alibaba for other malpractices, but its acquisitions of courier STO and Ele.me, which have not been declared to the authorities as required by law, are still subject to further probes.
“Food delivery platforms could be the next target for anti-monopoly law enforcement since the problem of ‘select one out of two’ is also apparent in the sector,” Liu said. Regulators should consider investigating the merger between Meituan and Dianping, as well as Ele.me’s alliances with Baidu Waimai and Koubei, which have been more meaningful, he added.
Only when large internet companies, which have gained market dominance through mergers and acquisitions, are broken up following article 48 will China prove that it really has strengthened its law enforcement. “Only then will Chinese internet companies truly fear the anti-monopoly law,” Liu added.
