Authorities in Beijing, who had on Christmas Eve ordered an investigation into allegations of “monopolistic practices” by Alibaba, have ordered the financial technology arm Ant Group to scale back its operations. Alibaba also stands accused of using the so-called “choosing one from two” practice, which requires merchants to sign exclusive cooperation agreements preventing them from offering products on rival platforms. In a lawsuit last year, home appliance manufacturer Galanz accused Alibaba of penalizing it for refusing to stop selling goods on rival platform Pinduoduo. JD.com has also accused Alibaba’s Tmall of restricting vendors from trading with it by signing exclusive deals. 

Pan Gongsheng, Vice Governor of the People’s Bank of China (PBOC), said Ant’s corporate governance was “not sound” and ordered it to “return to its origins” as a payment services provider. Pan, who had summoned Ant representatives to a meeting with regulators in Beijing, said Ant must “strictly rectify illegal credit, insurance and wealth management financial activities”. Ant divisions offering those services are its fastest-growing and most profitable operations, analysts said. In a statement, Ant Group said it would establish a “rectification working group” and “fully implement requirements” sought by the regulator. Jack Ma was once feted as China’s greatest modern-day entrepreneur, but after he accused China’s financial regulators and state-owned banks of having a “pawnshop” mentality, is now facing scrutiny from the authorities. 

In November, Ant Group was preparing for what would have been the world’s largest initial public offering (IPO) when it was suddenly canceled by Beijing, 48 hours before trading would have begun in Shanghai and Hong Kong. Before the suspension, investors had valued Ant at USD316 billion, more than the valuations of China’s biggest banks and those of the U.S. and the UK. The crackdown on Ma’s business activities has wiped more than USD10 billion from his fortune, and knocked him into second place on the list of China’s richest people with an estimated USD49 billion, according to the Bloomberg billionaires index. The wealthiest person in China is now Pony Ma (no relation), Chairman and CEO of rival tech firm Tencent. 

Zhang Zihua, Chief Investment Officer of asset manager Beijing Yunyi Asset, said investors were concerned that Beijing’s campaign against Ma’s companies could continue even if they implemented all the changes required. “The antitrust investigation into Alibaba has yet to specify the penalties, which is worrying investors a lot,” he said. Beijing-based technology analyst Li Chengdong said the action against Ant was also weighing heavily on other Chinese tech companies. “The new regulations are hurting big internet platforms, so Tencent and other tech companies are also seeing their share prices going down,” Li said in late December. An editorial in the People’s Daily said efforts to prevent monopoly and anti-competitive practices were “requirements for improving the socialist market economy system and promoting high-quality development,” but added that the official policy still is to support the  platform economy. 

For Alibaba, the probe could mean deep reform and a shift in its business operations and could subject it to an antitrust fine of up to tens of billions of yuan, according to legal experts and market observers, the Global Times commented. The recently held Central Economic Work Conference stressed that strengthening anti-monopoly regulation and preventing disorderly expansion of capital will be the top priorities for the coming year. Alibaba might be fined as much as 10% of its sales revenues for the past year. According to Alibaba’s annual fiscal disclosure in May, in the 12 months that ended on March 31, 2020, it earned CNY509.71 billion in revenues, up 35% year-on-year, implying that the fine could reach up to CNY50 billion, in addition to confiscation of illegal gains from monopolistic behavior. 

In related news, the State Administration for Market Regulation (SAMR) fined e-commerce firm JD, Alibaba Group’s business-to-customer platform Tmall, and discount e-retailer Vip.com CNY500,000 each for irregular pricing. The Administration had received complaints that the companies raised the price first and then offered discounts, made false promotions and induced consumers to make purchases during the November 11 Singles Day online shopping event. Meituan, China’s largest on-demand service platform handling online food deliveries and restaurant orders, is facing a lawsuit in the Beijing Intellectual Property Court for alleged abuse of market power. Meituan stand accused of temporarily removing Alipay, the payment platform of Alibaba, as a payment option from its main app, which is considered to be an abuse of its dominant market position.