Beijing’s market watchdog is belatedly scrutinizing mergers and acquisitions struck years ago by Alibaba and similar big companies, signaling a tougher regulatory clampdown in the weeks ahead.
On Monday, China’s State Administration for Market Regulation meted out fines to Alibaba, Tencent and SF Express, the latter a courier with close business ties to tech giants, for “unreported and unapproved” takeovers up to six years ago.
The watchdog said the penalties were in accordance with powers vested by the updated anti-trust law and after looking into the deals’ impact on different corporate playing fields.
Alibaba, already in a tight spot after its spin-off Ant Financial’s scheduled initial public offering was snuffed out by Beijing’s 11th-hour intervention in November, was fined 500,000 yuan (US$76,300) for acquiring controlling stakes in the Yintai Group, also known as Intime, between 2014 and 2017.
The latter is China’s leading commercial property developer and mall operator, which was founded in Alibaba’s home province of Zhejiang. Then, regulators did not move to block Alibaba’s bid for an omnichannel presence.
Tencent, owner of China’s ubiquitous social networking and payment app WeChat, also received a notice to pay the same amount due to its “failure” to notify the authorities in 2018 before its subsidiary China Literature bought New Classic Media, a Beijing-based producer of popular soap dramas. SF Express’s Hive Box was also fined 500,000 yuan for taking over a delivery company of China Post in the first half of this year.
The watchdog’s high-profile penalties, while nominal in sum, came hot on the heels of a Communist Party meeting convened by President Xi Jinping on December 11.
The discussion inside the Communist Party base in Zhongnanhai was attended by all 25 members of the powerful Politburo. Its aim was to draw up policy broad strokes for the economy in 2021, with a focus on a renewed anti-trust drive and regulating and penalizing the “orderless, monopolistic expansion” by dominant companies and capital groups.
As the State Market Administration reviews and retrospectively penalizes the business operations and deals of some of China’s biggest and most prominent companies, many wonder which might be singled out next.
“Watchdogs must rush to do something as a gesture since the top leadership has reiterated anti-monopoly work,” said Shenzhen-based commentator Liu Xiaobo, a former business reporter with Xinhua.
“Alibaba and Tencent are convenient targets to be singled out now that Beijing has opened the first salvo and shot down Ant’s landmark IPO last month.”
Liu said punishing Tencent and Alibaba for deals made two to six years ago might raise questions about whether regulators had been remiss in the first place. However, the move still signified a more proactive regulatory approach to tech leviathans in the future.
Earlier this year, the Chinese parliament passed amendments to the anti-trust law to make it apply to internet-based businesses and services. In November, amid the shock of Ant’s IPO suspension, the market regulation administration promulgated a draft proposal on internet platform anti-monopoly guidelines.
Some of Alibaba’s business models, like differentiating pricing and requesting vendors and brands to stay loyal only to its Taobao and Tmall platforms and not to cooperate with Alibaba’s competitors, will be punishable under the new regulation.
Pei Sai-fan, a professor of finance and public administration with the National University of Singapore, told the Lianhe Zaobao newspaper that regulators are now mindful that the growing heft of Alibaba and others must be kept in check considering their tendency and ability to not only penetrate and dominate new sectors but also wield financial and even political influence.
“Beijing has ditched its hands-off approach and the freewheeling internet economy can only expect more top-down scrutiny against their ‘orderless, monopolistic expansion,’” said Pei.
He said regulators learned a lesson from the last-minute scuppering of Ant’s share sale that in future they should better assess potential impacts and risks from potential deals and forestall them well in advance.
“Beijing needs to renovate its image of ‘arbitrary, blunt intervention’ even if the decision to step in is in the public interest,” said the academic.
Over the past weekend, Chinese newspapers ran an op-ed by the top party mouthpiece People’s Daily which railed against Alibaba and JD.com‘s latest foray into grocery delivery services that aim at households that seldom order cooked food online.
“Big firms with big data and algorithms should double down on innovation and other bigger goals and pursuits, not just on delivering cabbages or fruits to poach business from or even turf out wet market operators and food vendors,” read the article. “This is a sector that matters a great deal to people’s livelihood.”
The tacit no-go was issued amid certain concerns that Alibaba and the like may wage price wars to undercut brick-and-mortar wet markets and greengrocers in Chinese cities and towns to wrest control over a sector that provides tens of millions of jobs nati0nwide.
The People’s Daily implied that, after luring customers to turn to their platforms to buy food and groceries, big tech might eventually want to dictate prices and supplies with their new market hold. Households and the country might have to pay dearly, it said.
On Monday, Alibaba, Tencent, JD.com and other big players all rushed to say they will pull out of the grocery business and redirect resources to innovation in frontier technologies to better align themselves with the national strategy.