Alibaba is in the crosshairs as China targets monopolies
Alibaba Group Holding’s U.S.-listed shares took their biggest ever one-day tumble on concern over China’s inquiry into alleged monopolistic practices at the e-commerce company.
Affiliate Ant Group Co., the other pillar of billionaire Jack Ma’s internet empire, was also summoned to a high-level meeting over financial regulations.
The pressure on Ma is central to China’s broader effort to rein in an increasingly influential internet sphere: Draft antimonopoly rules released in November gave the government wide latitude to restrain entrepreneurs who until recently enjoyed unusual freedom to expand their realms.
The Alibaba inquiry is “a warning that winds have shifted,” Bloomberg Intelligence said in a research note. The risk, analyst Vey-Sern Ling wrote, is that business operations “could face long-term headwinds” as a result of such moves.
The stock fell 13% in its biggest one-day drop on record. The decline took Alibaba to its lowest level since July, and the stock is now down 30% from an October peak. Roughly 141 million shares exchanged hands, the most for a single session since its 2014 debut.
Alibaba said it will cooperate with regulators in their investigation and that its operations remain normal.
Once hailed as drivers of economic prosperity and symbols of the country’s technological prowess, Alibaba and rivals such as Tencent Holdings Ltd. face increasing pressure from regulators after amassing hundreds of millions of users and gaining influence over almost every aspect of daily life in China.
“It’s clearly an escalation of coordinated efforts to rein in Jack Ma’s empire, which symbolized China’s new ‘too big to fail’ entities,” said Dong Ximiao, a researcher at Zhongguancun Internet Finance Institute. “Chinese authorities want to see a smaller, less dominant and more compliant firm.”
China’s top antitrust watchdog, the State Administration for Market Regulation, said in a statement that it is investigating Alibaba, but did not provide further details.
Regulators, including the central bank and banking watchdog, will separately bring in affiliate Ant to a meeting intended to drive home increasingly stringent financial regulations, which now pose a threat to the growth of the world’s biggest online financial services firm. Ant said in a statement that it will study and comply with all requirements.
Ma, the flamboyant co-founder of Alibaba and Ant, has all but vanished from public view since Ant’s initial public offering got derailed last month. As of early December, the man most closely identified with the meteoric rise of China Inc. was advised by the government to stay in the country, a person familiar with the matter has said.
Ma is not on the verge of a personal downfall, those familiar with the situation have said. His public rebuke is instead a warning that Beijing has lost patience with the outsize power of its technology moguls, increasingly perceived as a threat to the political and financial stability President Xi Jinping prizes most.
Alibaba shares slid 8% in Hong Kong to a five-month low Thursday. Asia’s largest corporation after Tencent has led losses among China’s internet-sector leaders since Ant’s IPO got yanked, taking the overall toll to roughly $200 billion. Shares of Tencent and internet services giant Meituan finished the day down more than 2.6%, while shares of SoftBank Group Corp., Alibaba’s largest shareholder, sank 1.7% in Tokyo.
While China is preparing to roll out the new antimonopoly regulations, the country’s leaders have said little about how harshly they plan to clamp down or why they decided to act now.
China’s internet ecosystem — long protected against competition from the likes of Google and Facebook — is dominated by two companies, Alibaba and Tencent, through a labyrinthine network of investment that encompasses the vast majority of the country’s startups in arenas such as artificial intelligence and digital finance.
Their patronage has also groomed a new generation of titans, including food and travel giant Meituan and Didi Chuxing — China’s Uber. Those that prosper outside their orbit, the largest being TikTok owner ByteDance Ltd., are rare.
The antimonopoly rules now threaten to upset that status quo with a range of potential outcomes, from a benign scenario of fines to a breakup of industry leaders.
Some analysts predict there’s a crackdown coming, but a targeted one. They point to language in the regulations that suggests a heavy focus on online commerce, including forced exclusive arrangements with merchants known as “Pick One of Two” and algorithm-based prices favoring new users. The regulations specifically warn against selling below cost to weed out rivals.
But Beijing’s agencies appear to be coordinating their efforts — a bad sign for the internet sector.
“There is nothing that Chinese Communist Party doesn’t control, and anything that does appear to be gyrating out of its orbit in any way is going to get pulled back very quickly,” said Alex Capri, a Singapore-based research fellow at the Hinrich Foundation.
The campaign against Alibaba and its peers got into high gear in November after Ma famously accused Chinese regulators in a public address of lagging behind the times. Market overseers subsequently suspended Ant’s IPO — the world’s largest, at $35 billion — and the antimonopoly watchdog threw markets into a tailspin shortly after with its draft legislation.
The People’s Daily, the mouthpiece of the Communist Party, warned Thursday that fighting alleged monopolies was now a top priority. “Antimonopoly has become an urgent issue that concerns all matters,” it said in a commentary coinciding with the announcement of the investigation. “Wild growth” in markets needs to be curbed by law, it added.
The chances that Ant can revive its massive stock listing next year are looking increasingly slim as China overhauls rules governing the fintech industry, which in past years has boomed as an alternative to traditional state-backed lending.
China is said to have separately set up a joint task force to oversee Ant, led by the Financial Stability and Development Committee, a financial system regulator, along with various departments of the central bank and other regulators. The group is in regular contact with Ant to collect data and other materials, studying its restructuring as well as drafting other rules for the fintech industry.
“China has streamlined a lot of the bureaucracy, so it’s easier for the different regulatory bodies to work together now,” said Mark Tanner, managing director of Shanghai-based consultancy China Skinny. “Of all the regulatory hurdles, this is the biggest by a long shot.”
The view from Sacramento
Sign up for the California Politics newsletter to get exclusive analysis from our reporters.
You may occasionally receive promotional content from the Los Angeles Times.