China launches antitrust investigation into Alibaba

China launches antitrust investigation into Alibaba

China’s market regulator on Thursday announced an antitrust investigation into Alibaba, the country’s biggest tech company, a month after authorities halted sister company Ant’s $37bn initial public offering.

The investigation is one of the first of its kind into a large Chinese tech company and comes as authorities are subjecting Alibaba’s ecommerce and fintech activities to an unprecedented amount of scrutiny.

The market regulator said it was investigating suspected monopolistic practices, including Alibaba’s tactic of forcing merchants to sell exclusively on its platform, a practice known as “pick one of two” in China, among other issues.

The brief statement from China’s State Administration of Market Regulation said that the investigation into Alibaba had been opened recently after complaints.

In a related development, regulators led by China’s central bank said they would “supervise and guide” the group’s financial services arm, Ant Group, on issues related to fair competition and consumer protection.

In a statement, Ant confirmed that it had received a “meeting notice” from regulators and would “seriously study and strictly comply with all regulatory requirements”.

The move to investigate the country’s largest ecommerce company, which has been expanding into bricks-and-mortar retail and cloud computing, among many other new business lines, marks the most aggressive action by regulators yet to tackle the growing heft of China’s tech companies.

“This is China’s first antitrust investigation into a Chinese internet company for abusing its market dominance,” said Scott Yu, an antitrust expert at Zhong Lun law firm. “In a worst-case scenario, Alibaba could be a fined up to 10 per cent of its previous year’s sales.”

After years of allowing companies such as Alibaba and its rival Tencent the freedom to grow with few restrictions, Beijing has in recent months changed tack.

Last month, regulators released the first draft of antitrust guidelines for the internet sector, sending shares in the industry tumbling. Analysts said Alibaba had the most at stake.

The rules came soon after Alibaba and Ant founder Jack Ma made a speech in Shanghai challenging regulators and attacking state-owned banks. The speech set in motion new rules for online lenders. Many believe it also spurred regulators to cancel Ant’s Shanghai and Hong Kong initial public offering, which was set to be the world’s largest.

For years, China’s tech companies have forced merchants who want to sell on their platform to choose which side they are on or face consequences, such as restrictions on the amount of customer traffic directed to their online shopfronts.

Last year, for example, the world’s largest microwave-oven maker, Galanz group, accused Alibaba of directing traffic away from its store on Tmall after it started selling on rival site Pinduoduo. Galanz said its sales dropped calamitously after it failed to show loyalty to Alibaba.

JD and Pinduoduo, both backed by Tencent, have also sued Alibaba for such behaviour, alleging the company abused its dominant position to prevent merchants from selling on their platforms. Alibaba previously declined to comment on the lawsuit.

Alibaba did not immediately respond to a request for comment on Thursday.

In comments last week, Eric Jing, Ant chairman, said the group was “listening carefully” to criticism from regulators and consumers as it sought ways to revive its IPO.

“These are all beneficial to Ant and we have been conducting a comprehensive self-review accordingly,” Mr Jing said.

Additional reporting by Xinning Liu and Sun Yu in Beijing and Qianer Liu in Shenzhen

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