China’s e-commerce and entertainment industry giant Alibaba Group has been hit with a fine of RMB18.23 billion ($2.8 billion) for alleged monopoly activities.
The record punishment was announced Saturday morning local time by China’s State Administration for Market Regulation, which accused Alibaba of abusing its market dominance.
The SAMR opened a formal investigation into the company on Dec. 24, 2020. On Saturday it said that the probe found that Alibaba had hindered competition in online retail in China, dented innovation in the internet economy and harmed consumer interests.
Of particular concern was a practice where Alibaba is alleged to have forced third party merchants to operate exclusively or not at all on Alibaba’s platform. The policy is unofficially known as “choose one of two.”
“Alibaba accepts the penalty with sincerity and will ensure its compliance with determination,” Alibaba said in a statement, in response. “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.”
Authorities in China signaled last year that they were becoming concerned by the scale of the country’s leading tech giants. Their size meant that they could reduce competition, affect prices and use data and information across a huge range of activities that stretch from groceries to video-on-demand and online payments
With their huge social media networks and messaging services the platform companies also have the potential to influence public opinion and shape social affairs, both matters that the Communist Party aims to keep for itself.
The fine represents approximately 4% of Alibaba’s annual revenue in China, according to the regulator. The law offers a ceiling of 10% of revenue. Nevertheless, the Alibaba penalty is more than double the $975 million fine imposed on chip maker Qualcomm in 2015.
Alibaba will be required to carry out a comprehensive revamp of its operations and come up with a “self-examination compliance report” over the next three years. In recent weeks there had been suggestions that Alibaba might have to break up or divest its media and entertainment businesses. No such move was included in Saturday’s announcement.
Chastened by having its spinoff-IPO of financial arm Ant Group blocked at the last minute by regulatory action, and the formal monopoly probe, Alibaba has tried to fall into line.
“We approach this anti-monopoly investigation with a cooperative, receptive and open mindset. As a China retail marketplace connecting hundreds of millions of consumers and millions of merchants in transactions valued in trillions of RMB, we have a deep appreciation for the significant social and public responsibilities of operating our platform. Beyond complying with regulatory requirements, we will continue to do our best to fulfill our responsibilities to society and contribute to causes such as consumer protection, digitalization of retail, and industrial upgrading,” said CEO Daniel Zhang on a conference call with financial analysts in February.
But Zhang was forced to recognize the threat that the regulators pose to the group’s fast-growth land grab model. “The changing regulatory landscape applicable to fintech and internet platform companies presents near-term challenges to Alibaba, we regard them as important opportunities for reassessing and improving our business practices. In this highly competitive market environment, we will further challenge ourselves to constantly deliver and enhance value creation for customers through innovation.”