Chinese regulators have fined ecommerce giant Alibaba a record 18 billion yuan ($2.75 billion) for monopolistic practices, after finding that the site had been “abusing market dominance” for several years by preventing its sellers from using other competitive platforms.
The fine is the highest-ever antitrust penalty imposed by China, according to Seeking Alpha. The penalty amount was determined by applying a 4% rate to Alibaba’s 2019 domestic revenues. The total accounts for less than 20% of Alibaba Group’s free cash flow over the last 12 months, said the company’s Executive Vice Chairman Joe Tsai in a conference call April 12. The penalty could have been as high as 10% of revenue under current regulations, said Tsai.
Shares of Alibaba were up on both the New York and Hong Kong stock exchanges after the announcement. The ruling removed a source of uncertainty for investors, particularly since the fine was “meaningful but affordable,” according to Franklin Chu, president of Sage Capital, in comments to Reuters.
As part of the ruling, China’s State Administration for Market Regulation (SAMR) is requiring that Alibaba make “thorough rectifications” to strengthen compliance with the country’s new slate of anti-monopoly laws, and to protect consumer rights. These include the elimination of its exclusivity arrangements. On the conference call, CEO Daniel Zhang said the company had proactively ended those arrangements when the SAMR investigation began in December 2020. Zhang also said the company had been in “continuous communication” with regulators and had been making ongoing platform improvements throughout the course of the investigation. The company is required to submit a formal improvement plan within 15 days of the decision, which was officially announced on April 10, 2020.
Alibaba executives put a positive spin on the outcome, with Tsai describing the decision as part of ongoing countrywide efforts to ensure fair competition on all platforms.
“Our business model as a platform is fully endorsed and affirmed by the authorities,” said Tsai on the conference call. “This kind of model is good for the growth of the country’s economy and also helps promote innovation, so we feel very comfortable that there’s nothing wrong with the fundamental business model of a platform company. With this penalty decision we’ve received a good guidance on some of the specific issues under the anti-monopoly law. We’re pleased that we’re able to put this matter behind us.”
The ruling against Alibaba comes in the midst of new antitrust regulation and investigations designed to rein in big tech platforms around the world, including: an antitrust suit from the U.S. Department of Justice against Google parent company Alphabet in October 2020; an FTC filing for illegal monopolization against Facebook; and an FTC inquiry into tech companies’ privacy and data practices, both in December 2020.