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China launches antitrust probe into tech giant Alibaba

Stock MarketsDec 24, 2020 03:30PM ET
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2/2 © Reuters. FILE PHOTO: Signs of Alibaba Group and Ant Group are seen during the World Internet Conference (WIC) in Wuzhen 2/2

By Julie Zhu, Kane Wu and Cheng Leng

HONG KONG/BEIJING (Reuters) -China has launched an antitrust investigation into Alibaba (NYSE:BABA) Group and will summon the tech giant's Ant Group affiliate to meet in coming days, regulators said on Thursday, in the latest blow for Jack Ma's e-commerce and fintech empire.

The probe is part of an accelerating crackdown on anticompetitive behaviour in China's booming internet space, and the latest setback for Ma, the 56-year-old former school teacher who founded Alibaba and became China's most famous entrepreneur.

It follows China's dramatic suspension last month of Ant's planned $37 billion initial public offering, which had been on track to be the world's largest, just two days before its shares were due to begin trading in Shanghai and Hong Kong.

In a strongly worded editorial, the ruling Communist Party's People's Daily said if "monopoly is tolerated, and companies are allowed to expand in a disorderly and barbarian manner, the industry won't develop in a healthy, and sustainable way."

Shares in Alibaba fell nearly 9% in Hong Kong, their lowest since July, while rivals Meituan and JD (NASDAQ:JD).com both fell more than 2%.

Alibaba's U.S. stock tumbled 13% in its largest one-day drop since its debut on the New York Stock Exchange in 2014.

Regulators have warned Alibaba about the so-called "choosing one from two" practice under which merchants are required to sign exclusive cooperation pacts preventing them from offering products on rival platforms.

The State Administration for Market Regulation (SAMR) said on Thursday that it had launched a probe into the practice.

Financial regulators will also meet with Alibaba's Ant Group fintech arm in coming days, according to a separate statement by the People's Bank of China on Thursday, casting another cloud over a potential revival of the share sale.

The meeting would "guide Ant Group to implement financial supervision, fair competition and protect the legitimate rights and interests of consumers," the statement said.

Ant said it had received a notice from regulators and would "comply with all regulatory requirements." Alibaba said it would cooperate with the investigation and that its operations remained normal.

Fred Hu, chairman of Primavera Capital Group in Hong Kong, an Ant investor, said global markets would watch to see whether the moves were "politically motivated" and whether regulators targeted private but not state monopolies.

"It would be a tragedy if the antitrust law should be seen as 'targeting' successful private tech companies only," he said.

ONE FROM TWO

Ma has kept out of the public eye since a late October forum in Shanghai where he blasted China's regulatory system, accusing it of stifling innovation in a speech that stung officials and set off a chain of events that led to the shelving of Ant's IPO.

The practice of requiring a merchant to sell exclusively on one platform, which Alibaba had defended in the past, has long been a source of friction.

In a lawsuit last year, home appliance manufacturer Galanz accused Alibaba of penalising it for refusing to stop selling goods on rival platform Pinduoduo (NASDAQ:PDD). The case was resolved. In an ongoing case, JD.com accused Alibaba's Tmall of restricting vendors from trading with it by signing exclusive deals.

BRACE FOR SCRUTINY

After years of largely hands-off treatment of e-commerce, Beijing has made its antitrust intentions clear.

Last month, it issued draft rules aimed at preventing monopolistic behaviour by internet firms, and the Politburo this month vowed to strengthen anti-monopoly efforts in 2021 and rein in "disorderly capital expansion."

China also warned internet giants this month to brace for increased scrutiny, as it slapped fines and announced probes into mergers involving Alibaba and Tencent Holdings (OTC:TCEHY).

Liu Xu, a researcher at the National Strategy Institute of Tsinghua University and a long-time advocate for antitrust enforcement, said he expected other tech platforms to face scrutiny.

"Chinese internet firms had enjoyed unprecedented growth with light regulation for years," a regulatory source said, declining to be named given the sensitivity of the matter.

"The latest regulatory moves against them have sent out a clear message that the golden time for many of them has ended and there's no company in China that can be too big to fail."

Regulators have also become uncomfortable with parts of Ant's sprawling empire, chiefly its credit business that contributed close to 40% of first-half revenue. Days before Ant's planned listing, regulators told Ma and two top executives that its online lending business would face tighter scrutiny, sources told Reuters.

China launches antitrust probe into tech giant Alibaba
 

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Comments (8)
Flynn Flynn
FlynnFlynn Dec 25, 2020 8:30AM ET
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This is very meaningful in terms of investment policy in China. Not even Chinese companies could avoid it, and so did foreign companies. Even democracies, I have questions for you, do you have the right to choose who to run for president? When elected leaders, will they support those who raise money to run, or support voters? Are they for the sake of the people or for the group? Think for yourself.
York Regent
York Regent Dec 25, 2020 1:24AM ET
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Its insane. Enterprise like Alibaba inspires market economy and encourages foreign investment in China. Why rock the boat just when the likes of Alibaba becomes a catalyst for china’s econimic growth. It makes no sense.
mark johnson
mark johnson Dec 24, 2020 10:53AM ET
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Totalitarian regime worried about monopily. How brazen is that?
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Loan Pham
Loan Pham Dec 24, 2020 10:53AM ET
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limin, are you out of your mind? come to and live in china, you will see the gap between rich and poor. Go to country side and go back big city.
Limin Tandiono
Limin Tandiono Dec 24, 2020 10:53AM ET
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, every countries has that gap, even the developed countries. This year, even australia minister admitted China lifted the poor the most compare to any countries in the world.
Browning Lui
Browning Lui Dec 24, 2020 10:53AM ET
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Well saif
Mick Krever
Mick Krever Dec 24, 2020 10:53AM ET
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Maybe answer how there is a thing "monopoly" in a "totalitarian state" in the first place - I thought everyone is forced to wear the same thing and eat the same stuff, practice "communism" (... and most important of them all - about to collapse economically... )
Limin Tandiono
Limin Tandiono Dec 24, 2020 10:53AM ET
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Mick Krever, i encourage you to pay china a visit. Then you will know china far from what you described. The communism in China today is way much different from 30-40 years ago
ryan hogan
ryan hogan Dec 24, 2020 6:28AM ET
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Thanks for big dip. Look forward to many more opportunities along the way to $300+ in 2022.
John Tan
John Tan Dec 24, 2020 3:49AM ET
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new era of nationalism is soon to come...new norm
Anakin Skwk
Anakin_Skwk Dec 24, 2020 3:49AM ET
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Nationalism?Why?
Gert Poel
Gert Poel Dec 24, 2020 1:42AM ET
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good to buy puts in Alibaba... make some money
Anakin Skwk
Anakin_Skwk Dec 24, 2020 1:42AM ET
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Yes, the investigation won't hurt Alibaba's fundamentals.
ryan hogan
ryan hogan Dec 24, 2020 1:42AM ET
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Better to buy Leap calls. In 2022, Baba is at least 270. The ant ipo will eventually happen. What is down side? 165. What is the upside? 400. -70 vs. +165. Buy the big dips.
Limin Tandiono
Limin Tandiono Dec 24, 2020 12:47AM ET
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While america democracy are operating out of plutocracy, China communism operates out of meritocracy. This is not about democracy vs communism, but the way how they operate. Many americans don't even know about this and deluded by the abuse of democracy practising by their leaders.
Limin Tandiono
Limin Tandiono Dec 24, 2020 12:47AM ET
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one of the examples, do you guys think the fight of dem vs rep over corona aid bill recently is the practice of democracy that is for the benefit of american people? Or for the interest of the parties' elites?
Trader Man
Trader Man Dec 24, 2020 12:47AM ET
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xi jin ping is the modern Einstein. /s
Rk khan
Rk khan Dec 24, 2020 12:47AM ET
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Limin Tandiono   Limin you have answered your own question
Bryan Ojeda
Bryan Ojeda Dec 24, 2020 12:47AM ET
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Seens like you've read Nassim Taleb's Incerto series.
Mart Zee
Mart Zee Dec 23, 2020 10:49PM ET
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A communist country with central planning type economy will be investigating a monopolistic behavior... how ironic.
Anakin Skwk
Anakin_Skwk Dec 23, 2020 10:49PM ET
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China has started to open up and reform 40 years ago, it has transited to market-oriented economy for 4 decades. Are you still live in 40 years ago?
Yelen Shim
Yelen Shim Dec 23, 2020 10:49PM ET
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communist country? This is China not North Korea. helooo
 
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