Shares in Hong Kong for Alibaba Group jumped 8% after company chairman Daniel Zhang promised on a call with investors on Monday an end to its practice of forced exclusivity following a RMB 18.2 billion ($2.8 billion) penalty for antitrust practices.
Why it matters: The penalty imposed onto Alibaba, a bellwether of China’s tech sector, highlights Beijing’s continued efforts to curb anti-competitive practices at major tech firms, which were seen as practically “immune” to such regulations before.
- The RMB 18.2 billion penalty is equivalent to 4% of the group’s 2019 revenue, and is by far China’s largest for antitrust violations, dwarfing recent punishments levied on peers Tencent and Vipshop.
Details: Alibaba Group does not expect a material impact on its business by ending forced exclusivity, Zhang said during a Monday briefing on the company’s response to the penalty. Forced exclusivity is a practice in which e-commerce companies punish merchants who also sell on competitor platforms, and was the primary reason for the penalty, according to the regulator. Zhang also said the e-commerce giant would spend billions to lower merchant costs.
- The company will report to regulators on its progress in eliminating exclusive arrangements and platform improvements. Zhang promised that the company will keep communication with regulators “open and transparent.” Alibaba was required to submit a self-examination report plan within 15 days of the penalty announcement.
- The company will invest more on improvements in areas like merchant training and development of the merchant back end workstation, Zhang said. “We don’t view this as a one-off cost, but as a necessary investment to enable our merchants to have a better operation on capital,” he added.
- Vice Chairman Joe Tsai said he is not aware of any other investigations involving the company relating to the anti-monopoly law, although the regulators continue to conduct a broad review of Chinese tech firms’ investment transactions.
- CFO Maggie Wu said the penalty will be reflected in the group’s net income in the March quarter results.
- Wu added that the company’s merchant support initiatives will be reflected in both top- and bottom-line growth, with reduced fees and charges to merchants and increased investments in business growth measures. The company has reserved billions of RMB for the expense, she said.