While the fine Alibaba
The market certainly seemed to agree given the 6.5% rise in shares in Hong Kong and a 6% rise in the U.S., the biggest stock gains Alibaba has seen in four years.
Chinese regulators charged the company a fine of 18.23 billion yuan ($2.8 billion), an amount equal to 4% of Alibaba's 2019 domestic revenue. It's unlikely that such a fine will cause any serious negative impacts, a sentiment repeated by Alibaba CEO Daniel Zhang on a conference call made after the fine was given.
"We don't expect material negative impact," Zhang said on the call.
Still, while the fine itself is unlikely to hurt the company, this move by China signals that they will continue to monitor Alibaba as well as other firms for monopolistic practices. Alibaba's cooperation and compliance with the regulators and their fine is a way for the company to show their investors that they will not be engaging in such practices in the future. The end of this investigation also means that the company won't be facing more serious penalties related to these claims.
"Positively, Alibaba does not expect further investigations on this matter, and we believe the removal of this overhang could be a positive for the shares," analyst Aaron Kessler with Raymond James wrote in a note to clients.
The investigation into Alibaba was primarily related to the company's "exclusive dealing arrangements" that barred merchants from selling their products on any of Alibaba's competitor sites. Moving forward, the company will do away with such arrangements, make it cheaper for merchants to use their site, and expand their services for rural areas and smaller Chinese cities.
In addition to these efforts, Alibaba will also be required to file self-examinations and compliance reports with China's State Administration for Market Regulation (SAMR).
Alibaba is far from the only company facing SAMR penalties. Last month the group announced that they had issued fines to 12 companies related to 10 deals that they found had violated anti-monopoly rules. The companies facing these penalties include some of China's largest tech companies, Tencent
These penalties have caused some concern over the future of "platform" companies like Alibaba and Tencent, but the ruling party was quick to address these fears.
"This penalty is a specific move by regulators to strengthen the antitrust regulations and prevent disorderly expansion of capital," read an editorial published in the People's Daily, the recognized mouthpiece of the ruling Communist Party. "But it doesn't mean [that we are] denying the important role of the platform economy in overall economic and societal development. It doesn't mean the government has changed its supportive attitude of the platform economy."
Alibaba executives, including Alibaba Group's co-founder and executive vice-chairman Joe Tsai, echoed these statements.
"Our business model as a platform is fully endorsed and affirmed by the authorities [that] this kind of model is good for the country's growth of the economy and also helps promote innovation," Tsai told investors on Monday. "We feel very comfortable there is nothing wrong with our business, [or with] the fundamental business model of platform companies."
Indeed, Tsai and others have framed this investigation as a positive thing. They argue this represents an opportunity for the company to make positive changes as a part of this "healthy process."
It's hard to argue that this penalty is in any way a negative thing for the company. While Alibaba has faced this investigation and come out the other side relatively unscathed, it's likely that other companies will now face the same scrutiny, giving Alibaba a leg-up moving forward.
According to Alex Capri, a research fellow at the Hinrich Foundation and a senior fellow at the National University of Singapore, this fine is a "warning shot across the bow for the entire big tech sector in China."
"The Chinese Communist Party will continue to exert its will, not only to diminish systemic risk in the financial sector, but to ensure that Big Tech serves the government as a capacity builder around things like digital currency and data harvesting," Capri added. "The goal is to exploit the strengths of Big Tech while preventing companies like Alibaba from straying out too far on their own."
It's also worth noting that the Alibaba investigation was opened soon after Alibaba founder Jack Ma made statements interpreted as critical of China's financial system and regulators.
"Today's financial system is the legacy of the Industrial Age," Ma said. "We must set up a new one for the next generation and young people. We must reform the current system."
Soon after Ma made these and other critical statements made at the same event, Chinese regulators scrapped what would have been a record-breaking initial public offering of Ma's financial technology company Ant Group.
