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Home Business With Alibaba Investigation, China Gets Tougher on Tech

With Alibaba Investigation, China Gets Tougher on Tech

Jack Ma and other entrepreneurs prospered under Beijing’s laissez-faire attitude toward the business side of the internet. The dynamic is shifting as the companies have grown in power.

China’s internet giants came to dominate segments of the world’s No. 2 economy because Beijing’s authoritarian government largely looked the other way while they grew and grew.

Now the companies have the regulators’ full attention.

The country’s market watchdog said on Thursday that it had opened an investigation into whether the e-commerce group Alibaba had engaged in monopolistic practices, such as restricting vendors from selling merchandise on other platforms. Separately on Thursday, four Chinese financial regulatory agencies, including the central bank, said they would meet soon with Ant Group, Alibaba’s finance-focused sister company, to discuss new supervision.

The stepped-up scrutiny of Alibaba and Ant — the pillars of the business empire of Jack Ma, China’s most famous tycoon — coincides with efforts by the United States and European Union to curb the power of Western internet powerhouses such as Google and Facebook. Frustration has been building for years in Washington and Brussels over the outsize influence that a few tech companies wield over commerce, speech and advertising across a vast swath of the globe.

China has produced its own crop of powerful internet titans, and they have been celebrated as icons of the nation’s technological advancement. The government kept a tight grip on what people read and said on these platforms. But the authorities were less responsive to concerns about the companies’ size and clout, even as the businesses reached deeper into the lives of ordinary people in China than the American internet giants have elsewhere.

Apart from Alibaba and Ant, China’s leading internet groups include JD.com and Pinduoduo in digital commerce; Tencent in gaming, social media and mobile payments; ByteDance in short-form entertainment; Didi Chuxing in ride hailing; and Meituan in food delivery. Some of them, like Alibaba, have shares that trade in New York or Hong Kong. Global venture capitalists and investors have made fortunes off their success.

On Thursday, People’s Daily, the main newspaper of the Chinese Communist Party, swiftly endorsed the inquiry into Alibaba in an article that appeared to be a sign of broader backing and coordination behind the move.

“This is an important step in strengthening antimonopoly oversight in the internet sphere,” the article said. “This will be beneficial to regulating an orderly sector and promoting the long-term healthy development of platforms.” ‘Gorilla’ Google hit with third lawsuit as US states sue over search dominance

Alibaba’s New York-listed shares fell more than 13 percent on Thursday.

Alibaba said that it would cooperate with regulators and that its businesses were operating normally in the meantime. Ant said it would “seriously study and strictly comply with all regulatory requirements and commit full efforts to fulfill all related work.”

Frank Fine, the head of international antitrust and data privacy at DeHeng Law Offices, said acting against big internet platforms in the United States, China and Europe would come with significant challenges.

“There’s going to be a certain reluctance to harm these very successful companies, which have huge ecosystems that are responsible for thousands of employees,” he said. “There’s going to be a lot of pulling hair, pulling teeth, trying to figure out, ‘OK, we have to do something. What’s it going to be?’”

Beijing’s pushback against Big Tech erupted out into the open last month, when officials halted Ant’s long-awaited initial public offering just days before its shares had been expected to begin trading. Earlier, Mr. Ma, by some counts China’s richest man, had publicly accused Chinese regulators of being too obsessed with containing financial risk.

Ant’s Alipay app has become an indispensable payment tool for hundreds of millions of people in China, but regulators have been wary of the company’s growing influence in small loans and credit products. The group’s I.P.O. had been on course to be the largest in history.

The week after the listing was delayed, China’s market regulator released proposed rules aimed at combating anticompetitive behavior by internet companies. The regulations covered practices including using a platform’s power to collect unnecessary data on users and locking users into specific platforms by making it hard for them to switch to others.

Alibaba is a Goliath by any measure in China. More than 750 million people — equivalent to over half of the country’s population — shopped on its platforms in the 12 months that ended in September. The group’s main marketplaces are Taobao, where merchants set up electronic stands to sell to customers, and Tmall, which caters to larger Chinese and global brands.

Unlike the United States, where antitrust laws are over a century old, China has had an antimonopoly law only since 2008. Before now, the most prominent antimonopoly cases in China had been brought against foreign companies such as the American chip maker Qualcomm, which paid a $975 million fine in 2015.

China’s market regulator said this month that Alibaba and two other companies had violated the law by failing to report some recent acquisitions. The penalty was modest: a fine of around $75,000 for each company.

The new investigation could be a much bigger deal. China’s antimonopoly law allows for a maximum fine of 10 percent of a company’s sales from the previous year, which in Alibaba’s case would be billions of dollars.

In its brief statement announcing the inquiry on Thursday, the State Administration for Market Regulation named only one specific form of anticompetitive conduct by Alibaba that it would look into: exclusivity agreements, which in Chinese are described using a phrase that translates as “choose one of two.”

Large e-commerce sites in China have for years been accused of blocking merchants who sell on their platform from selling on others, particularly during big sales events such as the annual Singles’ Day. One of Alibaba’s main rivals, JD.com, has fought the company in court over the practice.

Galanz, a Chinese appliance maker, made headlines last year when it accused Tmall of suppressing its products in the platform’s search results after the brand teamed up with a rival e-commerce company, Pinduoduo. Tmall denied the accusations, according to news reports at the time.

Cutthroat practices of this sort have long been common on the Chinese internet. Tencent, for instance, will block people using its popular WeChat messaging service from directly opening links to Alibaba’s Taobao site — the equivalent of Facebook blocking links to Amazon within its Messenger app.

“On a very, very macro level, maybe it’s just because these companies are not competing globally,” said Rui Ma, an investor and China tech analyst. Because the Chinese internet giants are jostling for advantages mostly within a single market, “it seems like more of a zero-sum game,” she said.

Political insiders and investors in China have speculated for years that the nation’s leader, Xi Jinping, might be tempted to move against Mr. Ma, worried that his influence was a growing affront to the Communist Party.

Two recent party leadership meetings hinted that Mr. Xi was considering action.

The Politburo, a council of the party’s top 25 officials that meets every month or so, called for stronger antimonopoly efforts when it met this month, though the official statement from the meeting did not specify any companies or sectors. That call was followed a few days later by an even clearer demand from the party leadership’s annual meeting on economic policy, which hinted that internet platform companies would face greater scrutiny.

Mr. Ma’s remarks railing against financial regulation, delivered at a conference in October in Shanghai, appear to have helped galvanize officials into putting Ant and Alibaba in their place.

“In Chinese culture, if you are a rich guy and you have very strong economic power and social influence, then you are politically dangerous and you need to keep a very low profile to be safe,” said Gary Liu, an independent economist in Shanghai.

People in China see Ant as a major beneficiary of the authorities’ cautious approach toward regulating internet finance. “But still, he was complaining,” Mr. Liu said of Mr. Ma. “In Chinese culture, that kind of person is not respected.”

Sunil Kumarhttps://us.informalnewz.com/
Sunil is a graduate and working with informalnewz since 2020. He likes to write finance, sports and entertainment news. Any concern regarding content, Please write @ sunil.izone@gmail.com.


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