China Hands Down New Rules, Mulls Big Fine To Reel In Alibaba

Chinese regulators are mulling a record antitrust fine against Alibaba that would surpass the $975 million levied against Qualcomm in 2015, The Wall Street Journal reported on Thursday (March 11), citing sources.

Alibaba, considered the Amazon of China, is popular with international investors and Chinese households. Half of the country’s population — roughly 780 million people — shopped on one of the company’s platforms in 2020. 

Alibaba, which was co-founded by Jack Ma more than two decades ago, is also a point of pride and an economic engine for the country, the sources told the Journal. Alibaba employs 110,000 people and is a leading provider of cloud storage. The company also has an artificial intelligence (AI) unit that is quickly growing.

While regulators want to support Alibaba, officials also want the company to distance itself from Ma, who stepped down as chairman in 2019. Chinese officials also want Alibaba to step up its alignment with the Communist Party, sources familiar with Beijing’s thinking told the news outlet.

Alibaba will also have to address allegations that it punishes merchants that aren’t exclusive to its platform. How the situation will be handled by regulators is not yet known, the sources said. Regulators are further considering if Alibaba will have to spin off assets that aren’t complementary to its eCommerce business. The company has several businesses, including eCommerce, entertainment, media and cloud computing. 

The company posted net income close to $20 billion in its most recent fiscal year. Some Alibaba executives said paying a fine would be the easiest way to move forward amid regulatory uncertainty.  

Chinese President Xi Jinping personally halted what was to be a record-breaking initial public offering (IPO) by Ant Group, the financial affiliate of Alibaba, the Journal previously reported. Xi was reportedly livid when Ma gave a speech that questioned the president’s tactics to reduce financial risk. Xi was also unhappy about the number of influential investors who would get a windfall from the listing.

Following the crackdown on Ma and the cancellation of Ant’s IPO, Alibaba’s shares on the New York and Hong Kong exchanges plummeted in excess of $200 billion, or about 25 percent of their market value. 

The Alibaba probe has caused tech investors to dial down funding. Alibaba, Tencent, Meituan and JD.com lost close to $200 billion in Hong Kong after the antitrust investigation was announced. 

New guidelines about China’s monopoly regulations were published last month by China’s State Administration for Market Regulation (SAMR). The guidelines are intended to prevent price-fixing, market manipulation, and technology restrictions.