China’s State Administration for Market Regulation (SAMR) made an important decision, as the regulator decided to impose a huge fine on Alibaba. Chinese regulators investigated the tech giant for “exclusive dealing agreements” that prevented merchants from selling products on rival e-commerce platforms.
The tech giant will have to pay 18.2 billion yuan ($2.8 billion). Despite the amount of the fine, Aliba will not appeal the regulator’s decision. The fine is equivalent to 4% of Alibaba’s 2019 sales in China. Nevertheless, it could have been worse and the outcome appeared to provide some relief to the company and its investors.
The $2.8 billion fine is not such a big problem. It accounts for less than 20% of Alibaba’s free cash flow in the past 12 months. Moreover, the fine removes a significant problem for the company’s shares. This decision also removes the possibility of more serious consequences.
Alibaba’s shares jumped more than 6% in Hong Kong on Monday, but the stock is still down more than 20% since November.
Alibaba and fears about the future
The Chinese state media tried to address concerns regarding the future of Alibaba. According to People’s Daily, the fine is a specific move by regulators to strengthen antitrust regulations. Nevertheless, it does not mean that the government changed its supportive attitude toward the platform economy.
The company’s executives also tried to address fears about Alibaba’s future. Joe Tsai, who serves as the executive vice-chairman of Alibaba stated that the authorities support the company’s business model. He also said the regulatory scrutiny represented a healthy process that was ultimately good for the company. The process helped the company to get to know how regulators think about these companies.
Despite Joe Tsai’s position, the company’s case still highlights the challenges facing business in China. Alibaba’s case indicates that China continues to probe the private tech sector. In Alibaba’s case, what matters is not the amount of fine, but the government’s position.
The Chinese Communist Party once more demonstrated that it has the ability to make tough decisions. Alibaba’s case is a warning shot for the entire big tech sector in the country. Authorities would like to exploit the capabilities of tech giants while preventing companies like Alibaba from straying out too far on their own. Regulators are now preparing to increase their battle against China’s powerful companies. The crackdown could encompass more companies and other areas such as data protection.