China imposes $2.8 bn penalty on Jack Ma's Alibaba Group in monopoly probe

The penalty is equivalent to 4% of Alibaba's domestic sales in 2019, China's State Administration for Market Regulation said in a statement on Saturday

China imposed a record fine of 18.2 billion yuan ($2.8 billion) on Alibaba Group Holding Ltd. after an anti-monopoly probe found that it had abused its dominant market position.

The penalty is triple the previous high of almost $1 billion that Qualcomm Inc. had to pay in 2015. The fine is equivalent to 4% of Alibaba’s domestic sales in 2019, China’s State Administration for Market Regulation said in a statement on Saturday.

Alibaba will likely have to change some of its practices, like merchant exclusivity, that critics say helped it become China’s largest e-commerce operation. The company founded by billionaire Jack Ma used its platform rules and technical methods like data and algorithms “to maintain and strengthen its own market power and obtain improper competitive advantage,” the investigation concluded.

Alibaba’s practice of imposing a “pick one from two” choice on merchants “shuts out and restricts competition“ in the domestic online retail market, according to the statement.

The Hangzhou-based company will be required to implement “comprehensive rectifications,” including strengthening internal controls, upholding fair competition, and protecting businesses on its platform and consumers’ rights, the regulator said. It will be required to submit reports on self-regulation to the authority for three consecutive years.

“China’s record fine on Alibaba may lift the regulatory overhang that has weighed on the company since the start of an anti-monopoly probe in late December,” Bloomberg Intelligence analysts Vey-Sern Ling and Tiffany Tam said, describing the fine as a small price to pay to do away with that uncertainty.

The company said it will host a conference call to discuss the penalty on Monday morning in Hong Kong.

“Alibaba accepts the penalty with sincerity and will ensure its compliance with determination. To serve its responsibility to society, Alibaba will operate in accordance with the law with utmost diligence, continue to strengthen its compliance systems and build on growth through innovation,” the company said in a statement on Saturday.

Alibaba has been under mounting pressure from Chinese authorities since Ma spoke out against China’s regulatory approach to the finance sector in October. Those comments set in motion an unprecedented regulatory offensive, including scuttling plans for Ma’s Ant Group Co.’s $35 billion initial public offering.