Alibaba: a Chinese success story comes under scrutiny

From the United States to the European Union and now China - the big tech is feeling the heat from regulators over allegations such as predatory pricing and driving out competitors from the market using their dominant positions.  

In a rare move, Beijing said on Thursday it was investigating Alibaba, the largest tech firm in China, for its alleged monopolistic activities. 

Among other things such as false advertisement, Alibaba faces accusations of stopping merchants from selling their products on other online platforms. 

What makes this development significant is China's policy of promoting tech firms in light of its trade wars with the US and the increasing hostility shown by the Trump administration toward the Chinese telecom giant, Huawei, which has been shut out of major markets at the behest of Washington. 

As a result, the company is facing troubles in procuring components from Western suppliers. This has led to a realisation that China must invest and encourage homegrown innovation especially in the semiconductor industry. 

“Since 2015, I think this is the biggest wave of antitrust investigation into companies and it’s quite dramatic,” says Angela Zhang, an associate professor of law and director of the Center for Chinese Law at The University of Hong Kong. 

But what’s happening in China, unlike the actions against Amazon and Google, must be seen in the context of recent developments involving Alibaba’s founder, Jack Ma, she tells TRT World. 

In an October speech, Ma criticised Chinese financial regulators for stifling innovation. Just weeks later, a planned IPO of Ant Group, a financial affiliate of Alibaba, was stopped by the regulators. 

Since then the e-commerce firm, which has for years been seen as a Chinese success story and a counter-narrative to the rise of Amazon, had come under the regulatory spotlight.  

“(Ma’s comments) apparently hurt top Chinese regulators and leadership. Alibaba wants to go its own way, but regulators are upset. That explains a sudden shift of attitude.”

Too big to blunder 

Alibaba’s dominant position in the e-commerce landscape came into focus in 2015 when a smaller competitor, JD.com, sued it over unfair competition. 

“These kind of allegations are very common for all major online platforms. Once you possess a significant market position it's natural that customers and competitors will complain about you,” says Zhang. 

“Until we test this case in court you don't really know whether this behaviour constitutes anti-competitive practice or not.” 

Chinese authorities had already given indication that it will be going after tech giants when they unveiled new guidelines to deal with anti-competitive practices. 

Alibaba and other groups such as Tencent have faced nominal fines for breaching regulations such as not getting prior authorisation before making acquisitions or making investments. 

Under the revised anti-monopoly law the penalties could add up to 10 percent of a company’s sales - a rule that can go into effect next year. That could translate into hefty fines. Ali Baba posted more than $70 billion in annual revenue in the year ending March 31. 

China’s effort to curb private monopolies seems strange as the state-owned companies hold sway in industries ranging from finance to petroleum. 

But Zhang says state companies are highly regulated. “Those are natural monopolies authorised by the state. But they are subject to regulations. For instance, the price of oil is set by the Chinese government.” 

Jack Ma, the self-made billionaire, is outspoken and doesn’t hesitate from speaking his mind even if it rubs the state authorities the wrong way. He’s also admired by millions of people who see him as a success story. Maybe that’s changing as his group has turned into a behemoth that extends from ecommerce, cloud computing to finance. 

“...his empire has grown so large that some observers say average Chinese have begun to see him and his enormous wealth as out of their league,” wrote Tetsushi Takahashi, Nikkei Asia’s bureau chief.