China imposed a record $ 2.8 billion fine on Alibaba Group Holding Ltd. after an anti-monopoly investigation found that the company abused its market dominance.
The 18.2 billion yuan fine is three times the previous record fine imposed on US chipmaker Qualcomm Inc. in 2015 and was based on 4% of Alibaba’s 2019 domestic revenue.
The company will also need to initiate “comprehensive rectifications,” from protecting merchants and customers to tightening internal controls, the agency said in a statement on Saturday.
According to Bloomberg, the fine represents approximately 12% of Alibaba’s net income for fiscal 2020. The Chinese government is looking into other parts of billionaire Jack Ma’s empire, including Ant Group Co.’s consumer lending business and Alibaba’s large holdings in the media.
Alibaba used algorithms and internal rules “to maintain and strengthen its market power and gain an improper competitive advantage,” the state administration for market regulation concluded in its investigation.
The company will likely have to change a number of practices, such as merchant exclusivity, which critics say has helped it become China’s largest e-commerce. The fine sends a strong signal to the technology sector: these types of exclusionary conduct will no longer be tolerated.
The government action sends a clear warning to the tech sector as the government examines the influence companies like Alibaba and social media giant Tencent Holdings Ltd. exert on spheres ranging from consumer data to mergers and acquisitions.
Alibaba said it will hold a conference call on Monday morning in Hong Kong time to address questions regarding the antitrust ruling. The Hangzhou-based company will be required to implement “comprehensive corrections”, including strengthening internal controls, supporting fair competition, and protecting businesses on its platform and consumer rights. The company then will have to submit self-regulation reports to the authority for three consecutive years.