THE ANTITRUST FINE on Alibaba is hefty — a record in yuan terms –but not as punitive as it could have been.
The 18.2 billion yuan ($2.8 billion) that the e-commerce giant will have to pay for abusing its market dominance tops the $975 million imposed on the US chipmaker Qualcomm in 2015 but is equivalent to only 4% of Alibaba’s revenues. Qualcomm’s was 8%, and the maximum penalty authorities can impose is 10%. Further, the State Administration for Market Regulation (SAMR) took a narrow view of Alibaba’s revenue, counting just those from its e-commerce businesses.
None the less, this amounts to more than just a slap on the wrist. It also reinforces a message that has been repeatedly sent for several months.
Authorities are reining in the power of the tech platform giants, among whom Alibaba and its sprawling empire of associated businesses is the poster child. They thrived in a sector that never had the moderating influence of large state-owned enterprises. Alibaba was disingenuous when it said in its post-fine letter of contrition:
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.
It and its main rival Tencent grew massive because of the absence of state guidance. Party leadership is being plain that the Party calls the shots, no matter how large the tech platforms’ social and economic influence grows. The da y’s of light regulation are over. The tech sector will become subject to the same level of regulatory oversight as any other.
Attacking Alibaba and its main rivals on antitrust grounds – the specific charge against Alibaba is that it restricted competition by forcing vendors on its Tmall and Taobao online shopping platforms to deal exclusively with it — provides consumer-protection gloss to the actions. A dozen companies were fined last month for antitrust violations, including Tencent and Baidu (the other two of the ‘big three’ Chinese internet giants) and the ride-hailing app Didi Chuxing.
Financial regulators are also concerned that the rapid expansion of fintech — services such as AliPay — beyond payments systems is creating new avenues of unregulated shadow banking that will add to the overall leverage within the economy that already greatly concerns authorities. Preventing what is termed ‘disorderly expansion of capital’ is now policy. Regulators forcing Alibaba’s spun-off fintech, Ant Group, to pull its proposed blockbuster $37 billion initial public offering last November was another indication of that.
Jack Ma, Alibaba’s founder and China’s most prominent and outspoken tech billionaire inside and outside the country, has been particularly in authorities’ crosshairs. Last week, his Hupan University, an elite business academy that teaches entrepreneurship, was made to suspend new enrolments. Elite educational establishments outside Party control are viewed with official distrust.
Alibaba has also been pressed into divesting its media assets. It owns video streaming and sharing sites in China and Hong Kong’s leading English-language newspaper, the South China Morning Post.
More worrying is that the crackdown may bring restrictions on its ‘secret sauce’: its ability to combine the many businesses it has diversified into, from physical retail to food delivery and cloud computing, with its core e-commerce and social platforms, thus turbo-charging its ability to cross-sell.
In November, SAMR released draft rules to prevent price-fixing, predatory pricing and unreasonable trading conditions. They also included restrictions on using data and algorithms to manipulate the market, which could curtail the platforms from data cross-subsidisation to target specific customers. That would be a wounding blow to the big platforms’ business models.
It may also bring them closer into line with national economic objectives. By making the platform companies exit non-core operations and forcing more competition in their core business, Beijing may be co-opting them to the cause of global leadership in high-tech industries. Without access to the easy money from monopolistic practices, the tech giants will instead undertake more fundamental R&D and innovation to support national technological self-sufficiency. Or at least, so the theory goes.