Alibaba Fined $2.78 Billion for Monopolistic Behaviors in China

SHANGHAI–Alibaba, China’s biggest e-commerce operator was fined 18.23 billion renminbi, or $2.78 billion, by China’s State Administration for Market Regulation for monopolistic behaviors, China’s state media said Saturday morning, and has been ordered to “stop its illegal conduct.”

The penalty was calculated by deducting 4 percent of the group’s 2019 revenues, which totaled 455.712 billion renminbi. It is one of the largest penalties Chinese regulators have ever issued, exceeding the $975 million antitrust penalty that the Chinese government imposed on American chipmaker Qualcomm in 2015.

China’s State Administration for Market Regulation found that since 2015, Alibaba Group has abused its dominant position by imposing “pick one over two” requirements on merchants on its platforms, which includes Tmall. According to its investigation, Alibaba prohibits merchants from opening stores or participating in promotional activities on other competing platforms, and adopting incentives, penalties and using technological means such as big data and algorithms to ensure its leading position in the market.

The report stated that Alibaba “excluded and restricted competition in the market of online retail platform services in China, hindered the free flow of goods and services and resource elements, affected the innovative development of the platform economy, infringed on the legitimate rights and interests of merchants in the platform, and harmed the interests of consumers.”

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In years past, JD.com, a rival to Alibaba complained of anti-competitive behavior and said brands had been pressured off their platform by the larger firm.

Authorities have demanded Alibaba to rectify the company’s practices and to submit a self-examination compliance report to the State Administration for Market Regulation for three consecutive years.

In a letter posted to its website, Alibaba responded, “We accept the penalty with sincerity and will ensure our compliance with determination. To serve our responsibility to society, we will operate in accordance with the law with utmost diligence, continue to strengthen our compliance systems and build on growth through innovation.”

The firm also addressed the larger and growing trend of scrutiny around China’s tech companies.

“Today, Internet platform economies have entered an entirely new phase. They are an integral part of people’s everyday life and affect all dimensions of the broader economy,” Alibaba said. “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. At the same time, we are cognizant that the value of platforms comes from helping participants to succeed through integrating and sharing resources, as well as continuously creating value for society.

The company added it will hold a conference call on Monday at 8 a.m. Hong Kong time to discuss the fine. Revenue for the group’s fiscal year 2020 was up 35 percent to 509.71 billion renminbi, or $71.97 billion.

Alibaba has been in the government’s crosshairs ever since company founder Jack Ma criticized China’s financial regulatory system in front of a room full of high-ranking officials during the Bund Summit in Shanghai last December. Market regulators shortly after halted Ant’s initial public offering, which would have been the biggest IPO in history.

Since the incident, both Alibaba and Ant have been working on corporate restructuring and regulatory compliance, while Ma went off the radar for three months until early January. He made a surprise public appearance at a virtual ceremony awarding 100 rural teachers, quashing rumors that he had been detained by the Chinese authorities.

In December, the Chinese government fined both Alibaba and JD.com — along with a third firm, VipShop Holdings — 500,000 renminbi, or a little more than $76,000 on charges of misreporting prices and offering false promotions, among other things, after receiving consumer complaints.

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