China tightens screws on tech companies, fines Alibaba $2.8bn

April 11, 2021
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Beijing has been tightening the screws on China’s national tech champions in recent months, part of a regulatory crackdown that President Xi Jinping has described as one of the country’s top priorities for 2021.

Last month, Xi urged officials to step up their efforts to regulate online companies to maintain social stability.

The latest in this crackdown is China’s online shopping giant, Alibaba that was fined N$2.8bn after antitrust regulators concluded that the online shopping giant had been behaving like a monopoly.

Chinese state media reported Saturday that the State Administration for Market Regulation had imposed the penalty following an antitrust investigation into Alibaba’s (BABA) “exclusive dealing agreements” that prevented merchants from selling products on rival e-commerce platforms — a practice known as “choosing one from two.”

The fine is equivalent to 4% of Alibaba’s sales in China in 2019, state news agency Xinhua reported, and dwarfs the previous record penalty of $975 million handed out to American chipmaker Qualcomm (QCOM) in 2015.

Co-founded by legendary entrepreneur Jack Ma, Alibaba is one of China’s most prominent and successful private businesses. By making such a high-profile example, Chinese regulators are sending a clear message about their intent to rein in the country’s most powerful companies.

In an open letter published on Saturday, Alibaba said the company had cooperated with the investigation and accepted the penalty “with sincerity and will ensure our compliance with determination.”

“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. For this, we are full of gratitude and respect,” it added. “It is not lost on us that today’s society has new expectations for platform companies, as we must assume more responsibilities as part of the nation’s economic and social development.”

Beijing has long been concerned that the influence tech firms have over the financial sector makes that industry vulnerable — Ant, for example, now commands more than half of the mobile payments market in China — and officials have been looking for ways to rein them in.

Regulators have questioned executives at Tencent (TCEHY) and Pinduoduo (PDD), punished TikTok-owner Bytedance and Baidu (BIDU) with fines for alleged monopolistic behaviors in corporate acquisitions, and floated new rules that could govern the operations at many tech firms.

Tencent is reportedly facing scrutiny for alleged monopolistic practices at its social networking app WeChat. The company, which dominates online payments in China via WeChat Pay and owns hugely popular mobile games, said in a statement last month that a recent meeting with regulators was “voluntary.”

“Tencent has had meetings with regulators on a regular basis, and this was a regular meeting,” it said. “We discussed a broad range of topics, mainly focused on fostering innovation and creating a healthy environment for industry evolution.

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