Alibaba Faces $2.8 Billion Fine From Chinese Regulators

By hitting the e-commerce titan Alibaba with a record $2.8 billion antitrust fine on Saturday, Chinese officials sent a message to the country’s high-flying internet industry: We’ve got our eyes on you.

The penalty imposed on Alibaba, one of China’s most valuable private companies and the bedrock of the business empire of Jack Ma, its most famous tycoon, was the biggest move yet in the government’s campaign to tighten its supervision of Big Tech.

China’s market watchdog in December began investigating whether Alibaba had broken the country’s antimonopoly law by preventing merchants from selling their goods on other shopping platforms. On Saturday, the regulator said it had concluded that Alibaba’s exclusionary practices had hindered competition in online retail, affected innovation in the internet economy and harmed consumers’ interests.

The resulting fine far exceeds the $975 million antitrust penalty that China imposed on Qualcomm, the American chip giant, in 2015.

The authorities left little doubt Saturday about their intention to keep reining in China’s internet behemoths. In a commentary that was published online a minute after the fine was announced, People’s Daily, the official Communist Party newspaper, called regulation “a kind of love and care.”

“Monopoly is the great enemy of the market economy,” the commentary read. “There is no contradiction between regulating under the law and supporting development. Rather, they complement each other and are mutually reinforcing.”

The fine is unlikely to make a substantial dent in Alibaba’s fortunes. The State Administration for Market Regulation, the agency that imposed the penalty, said the amount represented 4 percent of Alibaba’s domestic sales in 2019. The company reported profits of more than $12 billion in the last three months of 2020 alone.

Still, the run-in with regulators could have longer-lasting effects on Alibaba’s business, which has sprawled beyond shopping into logistics, grocery, entertainment, social media, travel booking and much else.

Like Facebook, Google and other internet giants, Alibaba has argued that the breadth of its business helps make each of its services more useful. But critics say the company’s size slants the playing field for competitors and restricts consumers’ choices.

Alibaba is now likely to be much more cautious about doing anything that resembles strong-arming users or rivals, said Angela Zhang, an associate professor and director of the Center for Chinese Law at the University of Hong Kong. “Their competitors will be first to run to the regulator to complain if there are problems,” she said.

Even so, Professor Zhang said, the fact that Beijing did not demand major additional concessions from Alibaba makes the antitrust authority’s decision “good news for the firm” over all.

Six years ago, when Qualcomm was fined, it also agreed to offer Chinese customers hefty discounts on patent royalties. On Saturday, the market regulator said only that Alibaba would have to curb its anticompetitive behavior and submit reports on its compliance for three years.

“I would think the market should react positively,” Professor Zhang said, though she cautioned that the government could always pursue investigations into other aspects of Alibaba’s business.

In a statement, Alibaba said it would accept the fine “with sincerity” and would strengthen internal systems “to better serve our responsibility to society.”

“The penalty issued today served to alert and catalyze companies like ours,” Alibaba said. “It reflects the regulators’ thoughtful and normative expectations toward our industry’s development.”

China started ramping up scrutiny of its tech giants last year. The market regulator proposed updating the antimonopoly law with new provisions for large internet platforms like Alibaba’s. In November, officials halted the plans of Alibaba’s sister company, the finance-focused Ant Group, to go public and tightened their oversight of internet finance.

In December, it opened the antimonopoly investigation into Alibaba — a startling turn for Mr. Ma, whom people in China had long held up as an icon of entrepreneurial pluck. In late October, shortly before Ant Group’s shares were expected to begin trading, Mr. Ma had spoken at a conference in Shanghai and accused Chinese financial regulators of stymieing innovation in the name of controlling risk. His remarks were not well received in the state-run news media.

Skepticism about the clout of large internet companies has been on the rise in the United States and Europe, too. Western regulators have repeatedly fined Goliaths like Google for various antitrust violations. But in general, such penalties have not changed the nature of the companies’ businesses enough to mitigate concerns about their power.

China started later than the West on this front. In recent months, apart from the Alibaba investigation, the antitrust authority has also imposed smaller fines on companies for failing to report acquisition deals in advance.

Yet the government’s campaign is already starting to influence the way Chinese internet giants operate, a reflection of the extent to which all private companies in China must stay in Beijing’s good graces to survive.

For many years, Alibaba and its archrival, the gaming and social media giant Tencent, have competed ferociously in a variety of businesses, including by deterring their own users from spending time on the other company’s services. That may be starting to change. In a first for the company, Alibaba recently applied for two of its commerce platforms, Taobao Deals and Xianyu, to have a presence on WeChat, Tencent’s ubiquitous messaging app.

Tencent is an obvious potential target for future antimonopoly action by Beijing. With WeChat, the company has created and nurtured an all-in-one platform for news, entertainment, finance, shopping and more, giving it great leverage over rivals and smaller companies as an essential gatekeeper to Chinese internet users.

“As companies become large, and as internet services become more and more a part of people’s life, then companies need to be much more responsible, both to the users, to the government, to society,” Tencent’s president, Martin Lau, said last month on a conference call with analysts. “Now I think it’s important for us to understand even more about what the government is concerned about, what the society is concerned about, and be even more compliant.”

Chinese officials do not appear to wish to tip the scales too much against the internet companies, which have legions of loyal users and employ many young, highly educated people.

In November, not long after officials put Ant Group’s I.P.O. plans on ice, China’s market regulator published draft guidelines for antitrust enforcement of internet platforms. The final rules, which appeared in February, differed in a few key ways.

One provision in the draft lowered the bar for the authorities to argue, in certain cases, that a company was a monopolist. That provision did not make it into the final rules. Another clause in the draft that later disappeared would have made it easier for regulators to argue that companies that held large amounts of user data were abusing their dominance.

The authorities also do not seem to want to tighten control over internet giants in a way that would undermine China in its strategic rivalry with other global powers — one in particular.

In high-tech industries, “competition between China and the United States is becoming more intense,” a former official with the market regulator, Li Qing, said in a January interview with a Beijing newspaper.

“We must give our nation’s innovative enterprises more space to develop, a better policy environment and more room to correct faults,” Ms. Li said. “We must encourage enterprises to keep innovating and to become big and strong.”