A monopoly is a puppeteer, the hands pulling the strings which tug on market forces, at the mercy of the consumer. Alibaba, co-founded by Jack Ma, has been accused of abusing its monopoly status, pulling the strings too much in its favor. Chinese e-commerce tech giant, Alibaba, was fined $2.8 billion by Chinese regulation, on the grounds of ‘abusing market position for years. Regulators opened their investigation of Alibaba in December last year, analyzing their monopolistic practices, which forced merchants to choose between platforms, as opposed to working with both. The ‘choose one’ policy enabled Alibaba to embellish their market position, stifle competition, thus gaining unfair advantage, and slipping into a monopolistic force. Furthermore, they were running promotions on rival platforms. China’s State Administration for Market Regulation (SAMR) released in a statement that it “infringes on the businesses of merchants on the platforms and the legitimate rights and interests of consumers”.
Investigation Of The Dominant Position Leads To The Largest Fine In History
The month-long investigation which proved the abuse of its dominant position in the market led to the largest fine in history. The total $2.8 billion was a mere 4% of the company’s 2019 revenue, however it represented a wake up call to rectify behaviour. The fine was accepted by Alibaba and outlined they would “fully comply”, vowing to take measures to change how they conducted business. Subsequent to the fine, the company claimed to promote resources to lower entry barriers for merchants on e-commerce platforms.
The company said that “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”. Co-founder and executive vice chairman of Alibaba, Joe Tsai, said “We’re happy to get the matter behind us, but the tendency is that regulators will be keen to look at some of the areas where you might have unfair competition. With this penalty decision, we’ve received good guidance on some of the specific issues under the anti-monopoly law”.
Narrowing Down On Monopolies And Changing The Chinese Big Tech Environment
The fine is the latest of a series of efforts to try to level the playing field in the Chinese economy, slowly narrowed down on monopolies. 12 companies were fined over deals that violated anti-monopoly rules last month, including Didi Chuxing, Tencent, Baidu, and SoftBank. These fines showed that even the big guns, the well-established firms are not immune to Chinese regulators. The entire tech industry remains in the government crosshairs. Angela Zhang, director of Centre for Chinese Law at the University of Hong Kong, said “The high fine puts the regulator in the media spotlight and sends a strong signal to the tech sector that such types of exclusionary conduct will no longer be tolerated. It’s a stone that kills two birds”.
Was Alibaba Fine Just A Warning?
34 Chinese tech firm bosses had been addressed and warned that the punishment against Alibaba was a warning. The imposed regulation casted a shadow over the sector, providing house-hold named firms to re-address their practices and positions in the economy, and worry about their growing influence. Tencent, a Chinese internet service conglomerate, is highly regarded as the next most vulnerable company to be at the mercy of governmental action. In response, they are working with regulators as a “strategic focus” to steer away from the outcome of Alibaba.
However, some are skeptical regarding the abolishment of monopolies. Brock Silvers, director of Kaiyuan Capital, said “Alibaba’s fine isn’t a financially crushing blow by any means, and it reflects the company’s progress in negotiating a resolution to its regulatory problems. Regulators are now preparing to increase their battle against China’s corporate titans, which should be quite worrisome to global investors who may be increasingly exposed to China risks that have long been unseen and remain unquantifiable”. Hong Hao, head of research at BOCOM International, is also wary, “This penalty will be viewed as a closure to the anti-monopoly case for now by the market. It’s indeed the highest-profile anti-monopoly case in China. The market has been anticipating some sort of penalty for some time… but people need to pay attention to the measures beyond the anti-monopoly investigation”.
The de-monopolizing motions set by regulators are creating a level-out equal playing field, benefitting competitive merchants, and the consumer. The competition drives prices down, and more players in the field create a more vibrant ecosystem of commerce.
If you want to read more on Alibaba, big tech regulations, and governments trying to ramp up the rules to curb the big tech excesses, look at: