Alibaba Makes Changes Following Record Fine

Chinese tech giant Alibaba said on Monday it is working to support merchants in compliance with regulators’ demands, two days after regulators hit the firm with a record $2.8 billion (£2bn) fine.

The company’s shares rose as much as 9 percent in trading on Hong Kong on Monday, before closing up about 6 percent, while on the Nasdaq its shares closed about 9 percent higher as investors welcomed the clarity brought by the regulatory action.

Alibaba’s shares had lost about a quarter of their value since November.

While the fine is a record in absolute terms, it is a drop in the ocean for Alibaba, which has huge reserves. The company said it would use existing liquidity to pay the charges.

Market power

The fine amounts to about 4 percent of Alibaba’s domestic revenue for 2019.

China’s anti-monopoly regulator said it found Alibaba had abused its dominant market position for years.

In response the company said it has reduced service fees and charges for vendors on its e-commerce platform and improved technology and tools for sellers.

Notably the regulator found the platform had penalised vendors for selling on competing platforms, and this practice is to end, raising questions about how Alibaba will retain sellers.

The company faces intense competition from the likes of JD.com, Pinduoduo and Douyin.

“We will incur additional cost, but we don’t view this as a one-off cost,” said chief executive Daniel Zhang during a conference call for investors, speaking about the revamped fees and technology.

“We view this as a necessary investment to enable our merchants to have a better operation on our platform.”

Executive vice chairman Joe Tsai said the company was “happy to get the matter behind us”.

Ongoing scrutiny

Alibaba said it was not aware of any further antitrust investigations by Chinese regulators, but said it and competitors remain under review in China over mergers and acquisitions.

The group said it does not expect any material impact on business from the loss of exclusivity arrangements.

Executives emphasised that regulators were not focusing solely on Alibaba and that other Chinese tech giants could face similar scrutiny.

However, Alibaba has in particular been surrounded by uncertainty since last October, when co-founder Jack Ma publicly criticised regulators, saying they were stifling innovation.

In November regulators forced Ma’s payments business Ant Group to cancel a planned $37bn initial public offering at the last minute, and the following month launched an antitrust probe into Alibaba.

Last week the Financial Times reported that Ma’s elite business academy, Hupan University, had been forced to suspend new admissions in the latest fallout of the regulatory crackdown.

Jack Ma has largely kept a low profile since the probe began.

But while Alibaba faces continued scrutiny, it has not been forced into a major restructuring of its business model, a sign that regulators were reluctant to come down too hard on the company, which is highly popular with consumers.