When Chinese regulators meted out a record 18.2 billion yuan (US$2.82 billion) fine to Alibaba over the weekend, investors responded on Monday by ramping up the e-commerce giant’s share price by over 8%.
That’s because the fine was less punitive than many investors had feared and at the same time at least partially lifted the regulatory uncertainty that for months had hung over founder Jack Ma’s internet empire.
The penalty was based on just 4% of Alibaba’s 2019 domestic revenue, way less than the maximum 10% allowed for under Chinese law. The fine represents around 12% of the company’s 150 billion yuan profit in 2020.
Alibaba responded to the fine by stating its “full remorse” and vowing “full compliance” with regulations in the future, according to its social media posts.
In an open letter, Alibaba said, “We are full of gratitude and respect” for “sound government regulation and service, and the critical oversight, tolerance and support from all of our constituencies.”
“We’re happy to get the matter behind us,” Joseph Tsai, Alibaba’s co-founder and vice chairman, said on an investor call on Monday according to news reports. “These regulatory actions are undertaken to ensure fair competition.”
Tsai told the same investor call that he was not aware of any other antitrust investigations into the company, apart from a previously discussed probe into Alibaba’s and other tech firms’ acquisitions and investments.
Indeed, there are certain signs of an Alibaba-Beijing rapprochement. State media reports and op-eds have seemingly been coordinated to reaffirm the state’s support for the digital “platform economy” Alibaba has pioneered in China and beyond.
“[Platform economy] fosters efficient distribution of goods and services, links various sectors and contributes to the digitization and adoption of new technologies… Moves to ensure fair play should not be construed as a crackdown on the private sector or platform economy and that Alibaba should reflect and restructure to start anew,” read an editorial by the top party mouthpiece the People’s Daily.
State-run investment bank China International Capital Corp wrote in a report after the fine’s announcement that concerns over Alibaba’s business continuity were overblown and that its market lead would not substantially be shaken.
The report promoted Alibaba’s “longtime investment value” while asserting its share price is substantially undervalued. The report said a fair range for the stock would be around $300-$311 in future US trading, or a 30% jump from its current level.
It’s not immediately clear which, if any, of Alibaba’s local competitors will steal a march. Indeed, many of them may be next to face regulatory fire for non-competitive business practices.
“Alibaba was fined for monopolistic practices like requesting brands and vendors to stay loyal to its Taobao and Tmall platforms and not to sell products or launch promotions in competing online marketplaces,” wrote well-known financial commentator Liu Xiaobo on his widely read blog.
“With the fine, [Alibaba] has to rejig its strategies and policies to comply, but its arch-rivals like JD.com, Pinduoduo, Vipshop, Meituan and others are hardly innocent in this regard and they too can no longer shut out Alibaba’s platforms in their exclusive partnerships with brands,” he wrote.
Still, Ma isn’t out of the regulatory woods yet, analysts and observers say.
Significantly, Alibaba’s fine did not bring closure or clarity to affiliate Ant Group’s initial public offering (IPO), which was postponed by regulators at the eleventh hour last November. The IPO could have raised as much as $34.5 billion in Hong Kong and Shanghai, the biggest listing in the history of global finance.
The fine is also believed to be part of an overall settlement that will covert Ant, an Alibaba afflilate, into a bank.
But reports say regulators are still scrutinizing Ant’s financial records, gearing and business models, in particular its loan and personal credit-issuing business that is deeply involved in mortgage-backed securities.
Some market observers suggest that Beijing will eventually forcibly transform the Ant Group into a financial holding company overseen by China’s state-controlled central bank.
Ma, who has made only one public appearance since Beijing brought Ant’s IPO to a dramatic halt, reputedly proposed to surrender Ant’s lucrative AliPay mobile payment unit to the state during a meeting with regulators last November, but the offer was supposedly declined. Asia Times could not independently confirm the reports.
China’s Vice President Wang Qishan and Vice Premier Liu He, both tasked with financial sector oversight, have openly expressed concern about Ant’s business strategy to expand into banking and other loan-issuing businesses.
Ma’s rebuttal of Wang’s call for more prudence and oversight at the Bund Summit in Shanghai in October, where the tycoon said state regulators needed to shed their “pawn shop” mentality, may or may not have touched off the regulatory storm his business empire now faces. AliPay’s market dominance has also incurred Beijing’s disapproval.
“Beijing has made clear that any ruffling of law and order won’t be tolerated, nor will it take kindly to any democratic challenge to its power to police the market, especially when it comes to finance and banking. By comparison, how Alibaba’s platforms sell goods is a less complicated issue to tackle,” said financial blogger Liu.
He cites regulatory sources in Beijing as saying that all financial businesses must be licensed to operate in the future and that e-commerce platforms will be “discouraged” from reaching into traditional banking functions, including absorbing deposits and making loans.
Financial and consumer data ownership could be Beijing’s next regulatory target. Alibaba’s previous insistence on sole proprietorship of the data it collects from consumer transactions on its e-platforms – a key source of the company’s underlying enterprise value – is anathema to Beijing’s regulators.
Instead, regulators and legislators could aim to categorize such data as a public good to be managed by a non-profit, statutory agency.