Beijing should look within: Jack Ma's Alibaba is China's own creation

Should Chinese regulators determine Jack Ma’s Alibaba Group Holding Ltd. to be a monopoly, they ought to look directly to Beijing for an explanation as to how it happened. 

On Thursday, China announced an investigation into alleged monopolistic practices at the Hangzhou-based e-commerce giant. Ant Group Co. is also in the crosshairs, as the central bank and the banking watchdog will separately summon Ma’s fintech affiliate to a meeting. The swift share price reaction, which saw Alibaba drop as much as 7.9% in Hong Kong trading, indicates investors take these two probes seriously.

And yet, Alibaba’s 20-year rise to supremacy is due in no small part to government policies, which protected and coddled the now-booming internet sector. Under the guise of national security, successive leaders have implement censorship, foreign-ownership restrictions and other limitations that stamped out competition from overseas.

For years, companies like Baidu Inc., Alibaba, and Tencent Holdings Ltd. — collectively known as BAT — were feted as examples of China’s innovation and modernization. Not to take anything away from their respective founders, who built incredible businesses from the ground up, but not having to deal with the likes of Microsoft Corp., Google, Amazon.com Inc., and Facebook Inc. gave them a protective shield. Meanwhile an atmosphere of leniency during their nascent development phases helped incubate these companies into the giants they would later become. Beijing allowed and encouraged this to happen.

But now the Alibaba Empire is too big, and China wants to clip its wings. The move is not unexpected. Ant’s November initial public offering, which would have been the world’s biggest, was pulled at the last minute and weeks after Ma gave a speech in Shanghai criticizing regulators. It’s likely other companies will face similar scrutiny.

Beijing seeks to better regulate and guide development of the platform economy, China’s government mouthpiece, the People’s Daily, wrote soon after the probes were announced, referring to the structure where companies offer multiple services through the same app or website. This move doesn’t reflect any change in attitude toward supporting and encouraging the sector, the paper wrote, but combating monopolies has become an urgent issue as resources flow to the top.

It’s tempting to compare this development to similar moves in the U.S. and Europe, where all the big names are now under the shadow of antitrust probes. The differences are huge. U.S. regulators can only wish they had the power to stymie names like Google, Facebook or Amazon. But the laissez-faire structure there means the best Washington can do is wait for a company to become large enough to be called a monopoly, and then step in to stifle or break it up.

In China, the strong arm of government is everywhere — both explicit and implicit — with executives forced to walk a fine line between being close to officials, and being too close. Mainland companies have become the nation’s greatest cheerleaders and, at times, their worst villains.

Whether or not Alibaba is formally determined to have engaged in monopolistic practices may end up being irrelevant. The mere prospect of being reined in is enough to force executives into action, and contrition. According to the Wall Street Journal, Ma himself had already offered to hand over slices of Ant in what looks like a peace offering to Beijing before the IPO was pulled. Contrast that to Mark Zuckerberg’s calm defiance in the face of congressional questioning.

In the end, a peace offering may not be enough. Beijing helped create China’s internet companies and will decide alone what to do with them.