“ACTING ON INFORMATION, China’s State Administration for Market Regulation [SAMR] has started investigation [into] Alibaba Group for alleged monopoly conduct including implementing an ‘exclusive dealing agreement’.” This brief note, posted by Xinhua, the state news agency, on December 24th, was all it took to cut China’s mightiest online titan down to size. Not even the announcement three days later of an additional $6bn in share buy-backs arrested the slide in its share price. By December 28th it had fallen by 13%, wiping $91bn off the firm’s market capitalisation. American regulators, whose detailed charge-sheets against tech giants such as Facebook and Google in recent weeks elicited a yawn from investors, must have looked on with envy.
The Alibaba probe marks the first one of its kind into Chinese e-commerce. Its timing—a month after authorities suddenly halted the $37bn initial public offering (IPO) of Alibaba’s fintech affiliate, Ant Group, and days before another regulator told Ant to curtail its lucrative lending and wealth-management activities—has fuelled speculation that it is Beijing’s way of chastening the two firms’ flamboyant co-founder, Jack Ma.
Mr Ma’s provocations probably played a role; Ant’s IPO was suspended soon after the tycoon likened China’s state banks to pawn shops. Chinese watchdogs often launch lightning regulatory strikes, seeking to make an example of bad behaviour as a deterrent to others, says Angela Zhang, an antitrust expert at the University of Hong Kong. But the investigation also signals growing concerns over the online economy, which is effervescent but also increasingly concentrated. As investors parsed the Xinhua statement, share prices of other internet giants, such as Tencent and Meituan-Dianping, fell nearly as steeply as Alibaba’s.
The complaint against Alibaba seems to centre on the practice of having merchants or brands sign contracts to sell products exclusively on its platform. Those that do not, and stick with other marketplaces, risk having internet traffic diverted from their online shopfronts on Alibaba’s Tmall emporium to other sellers.
Such arrangements are not new. In 2015 JD.com, a smaller e-emporium backed by Tencent, filed a legal claim against Alibaba over a similar issue. Nor are they unique to Mr Ma’s firm, which launched a competing complaint against JD.com the same year. These complaints, and others which various parties have brought regularly since, have been largely ignored by regulators. So why the about-turn?
In the past Chinese trustbusters were hesitant to hobble an industry in which China was seen to be world-beating, and which enjoyed explicit support from the country’s Communist leaders. Now, like their Western counterparts, they are anxious about a handful of giant firms controlling a growing range of increasingly indispensable services—e-commerce, logistics, payments, ride-hailing, food delivery, social media, messaging. Common practices, such as selling products below cost to lure customers, look more troubling in an industry where the top three firms control over 90% of the market than they might have in a less concentrated one. In November SAMR said price discrimination, whereby individual shoppers are offered different prices based on their spending power, divined from user data, may be unlawful.
Another reason for China’s newfound regulatory zeal (Mr Ma’s jibes aside), is greater trustbusting capacity. SAMR was formed only in 2018, by combining the offices of three separate regulators. It still struggles to keep up with the fast-changing online market; most of its staff are busy assessing domestic mergers and acquisitions. But it has more know-how and manpower than it used to—and looks eager to deploy them.