The 18.2 billion yuan penalty imposed by the Communist Party’s top regulator on Chinese high-tech company Alibaba is the harshest punishment yet, but it also removes some uncertainty about the company’s future.
The next step may focus on whether Beijing forces Alibaba to divest its media assets, including the South China Morning Post.
The penalties against Alibaba were handed down after the highest levels of the Communist Party of China gave the go-ahead. Less than four months after launching an anti-monopoly investigation into Alibaba, the Communist Party’s State Administration of Market Supervision announced on Saturday (April 10) that it had imposed a penalty of 18.228 billion yuan ($2.8 billion) for Alibaba’s “two-for-one” monopoly in the market for online retail platform services in China.
U.S. media outlet The Wall Street Journal reported back in March that Communist Party regulators were considering fining Alibaba more than they did U.S. high-tech company Qualcomm for the online retailer’s anti-competitive behavior.
The report also said that Communist Party officials said the government was reluctant to go too hard on Alibaba, a pillar of China’s tech industry that is very popular among consumers, but wanted it to disassociate itself from its founder Jack Ma.
While Alibaba’s Ant Financial Services is seen by Beijing authorities as a disruptor that could threaten the Communist Party’s financial system, Alibaba, on the other hand, is a source of pride for China and the best example of technological innovation that is vital to the country’s economy.
This penalty against Alibaba amounts to about 4% of its full-year revenue within China in 2019. Paying the penalty is tantamount to solving the problem with money, after which Alibaba can move on.
Watch for a follow-up to force Alibaba to follow Beijing
Hong Hao, head of Hong Kong-based technology investment firm Bocom Holding, said the penalty on Alibaba is now boots on the ground, but the market will still be watching for measures beyond the antitrust investigation.
“The penalty will be seen by the market as a temporary end to the anti-monopoly case. This is indeed the highest profile anti-monopoly case in China.” Hong Hao said, “The market has been expecting some kind of punishment for some time …… but people need to focus on measures outside the antitrust investigation, such as divesting media assets.”
The e-commerce giant built by Alibaba founder Jack Ma, with a footprint spanning e-tailing, entertainment, media and the cloud, has been under the care of Communist Party regulators, local officials and even the second generation of Reds over the years. But after Ma criticized the Communist Party’s financial regulatory system last October, Alibaba came under a series of crackdowns, and the Ant Group’s plans to go public were even called off.
The China Daily reports that Alibaba now faces two major challenges, needing to follow the political agenda of Beijing authorities while correcting what the authorities claim are anti-monopoly practices.
Whether Ali sells media assets such as the South China Morning Post
Bloomberg reported Saturday that it is concerned about whether the Chinese Communist Party authorities will ask Alibaba to sell its media assets next. Chinese Communist Party regulators are said to be concerned about Alibaba’s ability to sway public discourse and want the company to sell some of its media assets, including the South China Morning Post, Hong Kong’s leading English-language newspaper.
Such claims are not empty. As recently as mid-March, China Daily cited sources familiar with the matter as saying that Beijing authorities wanted Alibaba to sell its media assets, including the South China Morning Post.
The report said Beijing authorities expressed concerns about Alibaba’s media business during several meetings last year, particularly its influence on Chinese social media and its role in online scandals.
Alibaba and Jack Ma personally now control media assets including online forums, news media, production companies, social media and advertising assets. Ali holds a majority stake in Weibo, as well as the South China Morning Post, Alibaba Pictures and online video platform Youku.
After reviewing Alibaba’s media assets, Beijing was alarmed by their sheer size and decided to ask Ali to scale them back, the report said.
Beijing authorities began discussing asking Ali to sell the South China Morning Post last year, and although no buyer has been confirmed, it is expected to be bought by a Chinese company, people familiar with the matter said.
Bloomberg also reported back in February that Beijing has become increasingly wary of Alibaba’s media business since the scandal involving Ali Group’s Taobao partner Jiang Fan, when a number of scandalous articles disappeared one after another on online platforms such as Weibo, drawing the attention of officials.
Beijing fears that Ali is using its media assets to control public opinion, creating a vicious cycle that could, for example, influence public perceptions of emerging financial technology, the sources said.
Some Ali executives were relieved after Beijing offered a hefty penalty against Alibaba, in turn. They argued that the fines would instead give the company a temporary respite amid regulatory uncertainty and low employee morale.
A Review of Alibaba’s Anti-Monopoly Investigation by the Chinese Communist Party
On October 24 last year, Alibaba founder Jack Ma attended a financial forum and said that China does not have systemic financial risks because there is basically no system in Chinese finance, and that he believes that the “pawnshop mentality” of finance must be changed. The good innovation is not afraid of regulation, but afraid of yesterday’s way to regulate.
In December of last year, Alibaba was investigated for anti-monopoly practices. Although the group was in trouble, Ma was absent from public events at the time, which raised public concern.
Four days later, the financial regulator publicly warned that the Internet platform deposit model was an illegal financial activity “driving without a license”.
In February, the General Administration of Market Supervision of the Communist Party of China (GAMC) issued the “Anti-monopoly Guidelines of the Anti-monopoly Committee of the State Council on the Platform Economy”, sending a signal to strengthen the regulation of Internet platforms.
The first to be affected by the regulation was Ant Group, a fintech giant in which Alibaba holds a one-third stake. Ant Group was scheduled to go public on the mainland and in Hong Kong last November in what was billed as the largest IPO in history, but on the eve of the listing, it was called off by the Chinese Communist Party authorities and there was a global outcry.
In March, Hu resigned as chief executive officer of Ant Group, citing “personal reasons.
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