FinTech: China Mounts Anti-Trust Probe Into Alibaba In Regulatory Crackdown
Large internet companies and fintechs are in the path of China’s regulatory juggernaut.
China’s State Administration for Market Regulation (SAMR) announced Thursday an investigation into Alibaba’s (NYSE: BABA) allegedly monopolistic practice of barring its merchants from selling on competing e-commerce platforms. Merchants must agree to sell their products only on the behemoth’s online shopping platform. (CNN Business)
The SAMR published draft Anti-Monopoly Guidelines on November 10, shortly after regulators forced the Jack Ma-controlled Ant Group to abandon its massive $ 35 billion IPO.
According to media speculation, regulators cracked down on Chinese Internet giants and fintechs following critical remarks by Ma at a forum in Shanghai.
Key features of the anti-monopoly guidelines
The draft regulations aim to tighten regulatory norms for Internet/platform economy businesses in China.
- Tighten regulation of anti-competitive behavior in the Internet/platform sector by amending key definitions/concepts
- Enhance the power of SAMR to investigate, among other things, the use of algorithms and most-favoured-nation clauses
- Bringing VIE (Variable Interest Entity – a structure in which an investor has a controlling interest despite not having a majority of voting rights) structures within the ambit of SAMR’s merger control review
Internet giants called to a meeting
On Wednesday, the SAMR convened a meeting with the six Chinese Internet giants, namely, Alibaba, Tencent, JD.com, Meituan, Pinduoduo, and Didi Chuxing.
At the meeting, the regulator informed them that it was further tightening regulation of a business practice that allows people in the same community to form groups and buy bulk goods at very low prices. These groups include apartment compounds.
Typically the goods sold to communities are groceries, fresh food, including fruits and vegetables, as well as alcohol and beverages.
The community model buying is a win-win for both the buyers as well as the platforms, proving cheaper for both. Instead of hundreds of individual deliveries, the platform has to send only a daily bulk delivery to that community.
However, the SAMR’s concerns of this model are that platforms use low cost “dumping” strategically to stamp out competition. This could harm employment in other parts of the economy.
At the meeting, it also warned of monopolistic practices such as price-fixing and predatory pricing, according to AP.
Alibaba confirms investigation
Alibaba confirmed on Thursday that it was notified of an “anti-monopoly” investigation. It said it will offer full cooperation to the regulators in the course of the investigation.
Meanwhile, bears took full advantage of the news to hammer the company’s stock in premarket trading in the US on Thursday. The stock was down 7.2% and would be considered to be in bear market territory if it closes at or below $ 253.71 on Thursday.
That price represents a slide of 20% from the high of $317.14 the stock touched just before the stillborn IPO of the Ant Group.
Related Story: Large Chinese Fintechs Stop Taking Online Deposits For Banks
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