Trouble galore for Ma’s Alibaba: A behemoth antitrust probe

In the wake of major antitrust probes into some of the world’s largest corporations including the likes of Google, Amazon, Facebook; Alibaba too has fallen prey to a serious antitrust investigation by the Chinese authorities amidst controversy surrounding Jack Ma and their failed $34 billion IPO offering by Ant Group, formerly known as Ant Financial and Alipay, an affiliate company of the Chinese Alibaba Group. China has not shied away from its socialist notions to curb monopolies and push the state first, a notion that has come into the limelight lately as China actively seeks to bolster its antitrust regime by releasing its watchdogs on the conglomerate Alibaba.

The probe is part of an accelerating crackdown on monopolistic behavior in China’s booming internet space.

“The Chinese government is putting more pressure or wants to have more control on the tech firms,” quoted Jackson Wong, asset management director at Amber Hill Capital Ltd.

“Firms like Alibaba, Tencent or Meituan have been growing at a pace deemed by Beijing as too fast and have scales that are too big.”

This is a clear indicator of China’s, and importantly the Communist Party’s, commitment to put the state first, even at the expense of its own citizens and their enterprises.

What lays further is definitely worrisome for Alibaba, as China’s antitrust law which has undergone various revisions to include the internet industry for the first time, can now fine violators up to 10% of a company’s revenue should a case by the antitrust regulators against such companies prove successful.

In Alibaba’s case, this would mean a penalty running up to billions of dollars.

“In Chinese culture, if you are a rich guy and you have very strong economic power and social influence, then you are politically dangerous and you need to keep a very low profile to be safe,” said Gary Liu, an independent economist in Shanghai.

This very aptly summarizes China’s stance against industry and market leaders such as Jack Ma who has been vocal about China using its financial regulatory bodies as pawnshops, a statement for which currently he is under much fire.

The ruling Communist Party’s mouthpiece, People’s Daily said recently that if “monopoly is tolerated, and companies are allowed to expand in a disorderly and barbarian manner, the industry won’t develop in a healthy, and sustainable way”.

This signals a warning sign for not just Alibaba but all such delinquent corporations in China who dare expand the business. However, what’s concerning is that Xi Jinping seems to have involved himself personally in this imbroglio, as multiple reports are doing the rounds around Jack Ma being missing for months, raising concern over Alibaba’s future itself.

Halting Alibaba’s growth does not bode well for its economy and its thousands of employees. It is noteworthy that more than 750 million people a number equivalent to half of China’s population shopped on its platforms in the 12 months that ended in September.

Alibaba is a valuable e-commerce giant that has amassed huge business and many customers who rely on it for almost all their personal needs. Similar to Amazon, Alibaba controls the e-commerce space in China and is quickly becoming the largest corporation in the world.

State firms “form the economic and political foundation of China’s socialist system and are a key pillar of party rule,” Xi stated in an internal speech in April.

“They must be built stronger, bigger, and better.”

Xi clearly deems Alibaba’s expansion a threat to the smaller businesses in China, not realizing that Alibaba has bolstered these small businesses by acting as an aggregator or a middleman between the merchants and the consumers, providing valuable service to both the parties.

Monopolistic concerns may be valid, but nipping Ant Group’s IPO in the bud points towards a larger agenda against Alibaba by the Chinese authorities.