How to interpret Alibaba’s record US$2.8bn fine?

Date : 14 April 2021

Jiong-Jiong Yu

Senior Retail Analyst

China has imposed a record fine of CNY18.2 bn (US$2.8 bn) on Alibaba, one of the country’s largest online retailers, after an investigation found the ecommerce giant violated China’s anti-monopoly law.

A slap on the wrist: painful but bearable

On Monday 12 April, Alibaba accepted a CNY18.2 bn (US$2.8 bn) fine from China’s competition watchdog, the State Administration for Market Regulation (SAMR), after it determined the company had abused its market position.

The penalty is three times higher than the US$1 bn fine China imposed on US chip company Qualcomm back in 2015. It represents 4% of Alibaba’s 2019 revenue, which is considerably less than the maximum of 10% set by regulations for such violations in China.

The hefty fine is not likely to hurt Alibaba’s bottom line too severely. In February, the company reported a third quarter profit of US$12 bn.

SAMR said Alibaba policy had a negative effect on online retail competition and innovation

The main issue for regulators was that Alibaba restricted merchants from doing business or running promotions on rival platforms.

Since 2015, Alibaba Group has abused its dominant position in the market and has imposed ‘choose one out of two’ requirements on merchants on the platform,” said SAMR.

SAMR also claimed Alibaba used market forces, platform rules, data, algorithms, and a variety of rewards and punishment measures to gain an unfair advantage. It found that Alibaba’s practices:

  • Stifle competition in China’s online retail market
  • Infringe on the businesses of merchants on the platforms
  • Infringe on the legitimate rights and interests of consumers

Alibaba accepts the fine and vows to change

Alibaba does not intend to appeal the decision. In an open letter, Alibaba said, "Alibaba accepts the penalty with sincerity and will ensure its compliance with determination."

"To serve its responsibility to society, Alibaba will operate in accordance with the law with utmost diligence, continue to strengthen its compliance systems and build on growth through innovation," the company added.

The Hangzhou-based company will be required to implement “comprehensive rectifications,” including strengthening internal controls, upholding fair competition, and protecting businesses on its platform and consumers’ rights. It will be required to submit reports on self-regulation to the authority for three consecutive years. The company also said it would introduce measures to lower entry barriers and business costs faced by merchants on ecommerce platforms.

Alibaba’s shares rose by 7.8% after its announcement that it has accepted the fine. “We are pleased we can put this matter behind us,” said Joe Tsai, the executive vice-chair of Alibaba Group.

Other Chinese tech conglomerates are also under scrutiny

The message from Alibaba’s investor call on Monday was that: Alibaba may be the biggest and the first Chinese tech firm to attract regulators' attention – but it is by no means the last.

The ecommerce giant indicated that while for now Alibaba is in the clear in terms of future investigations, the same could not be said for other firms in this sector.

The Chinese government has issued new anti-monopoly guidelines in February 2021 as part of a wider effort to curb the power of tech giants in the country.

In March, SAMR has fined 12 companies, including Tencent, Baidu, ByteDance and Didi Chuxing, over 10 deals that violated anti-monopoly rules.

Our view: the online anti-monopoly law enforcement has entered a new era

Alibaba’s US$2.8 bn fine is a high profile anti-monopoly case in China. Many Chinese consumers feel that the government’s action has a sound legal basis and should be applied.

It sets a clear example that the government promotes the development of online economy but discourages companies from abusing their advantages in data, technology, and capital to damage competition, innovation, and consumer interests.

China shares some of the same concerns as the West over increasing power of the tech sector. The success of tech companies (e.g. Facebook, Google, Alibaba, JD.com …) does not just rely on innovative technologies but also on vast consumer data. This case is the beginning of China’s process of setting clear policies and regulating the use of big data.

It is a big step towards the right direction, just as Alibaba said in the statement:

Today is an important day in Alibaba’s journey of growth. It is a new starting point for us, one where we tackle problems head on and commit to innovate. 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.”