Over the past few years, the Chinese authorities have been increasingly concerned about the enormous economic power and influence of the country’s big tech companies, especially those operating in the e-commerce and financial service sectors. On 10 April 2021, the State Administration for Market Regulation (SAMR), which is the Chinese competition watchdog, imposed a record fine of 18.23 billion yuan ($2.8 billion) on the e-commerce giant Alibaba which had abused its market dominance. Alibaba was said to exploit its leading market position, platform policies and data, and algorithmic methods in order to force merchants to sell exclusively on Alibaba Group’s online shopping platforms including Taobao and Tmall. The closing price of NYSE-listed Alibaba was $223.31 on 9 April 2021, down 13% from $256.18 on 23 December 2020 when the anti-monopoly investigation was formally launched. Although the current Anti-Monopoly Law of the People’s Republic of China (PRC) came into effect in 2008, it had never been used to punish leading tech companies and platform economies in the country prior to the Alibaba’s case. Therefore, the anti-monopoly probe is the first of its kind in China, which echoes the global trend of scrutinising the anti-competition activities of big tech corporations like what has happened in the EU and the US. The Alibaba’s fine is equivalent to 4% of the Group’s annual revenue in 2019. In addition, Alibaba was asked by the SAMR to file self-examination and compliance reports to the regulator for the forthcoming three years.
The SAMR initiated the investigation into Alibaba’s monopolistic commercial practices in December 2020, as the regulator claimed that the company, since 2015, had forced the sellers to choose one of two e-commerce platforms in China (the practice is widely known as ‘choose one from two’). As is well known, China has the world’s largest e-commerce sector, which amounted to 34.81 trillion yuan ($5.32tn) in 2019. The sector has been dominated by three key players: Alibaba, JD.com, and Pinduoduo. Alibaba’s monopolistic policy of ‘choose one from two’ is deemed as the Chinese version of exclusive dealing, which has been a common practice requiring sellers to opt for a particular online platform to sell goods, otherwise sellers would be punished by Alibaba who is able to set restrictions over the customer number and traffic of online shops as penalty for violating such policy. Clearly, ‘choose one from two’ has detrimental impacts on the industry which could lead to a situation where the winner, like Alibaba, takes it all. It has been a powerful weapon for leading shopping portals to maintain their competitive edge, increase the sales revenue, and ultimately, to raise their share price. Previously, if merchants had chosen to sell goods on platforms within Alibaba’s ecosystem, they would not be allowed to access the service of other e-commerce companies like JD.com and Pinduoduo. The SAMR’s statement suggested that Alibaba’s business practice has stifled competition in the e-commerce market and infringed on retailors’ online businesses as well as the legitimate rights and interests of consumers in China and elsewhere. In short, at the expense of the interests of competitors and consumers, Alibaba has been able to cement its leading market position to obtain unfair competitive advantages.
In response to the unprecedented fine, Alibaba Group acted swiftly and made a statement on the same day (10 April 2021) to express its sincere willingness to accept the penalty and that it would fully comply with the SAMR’s administrative decision. Alibaba stated that it had fully cooperated with the SAMR’s anti-monopoly investigation, learned carefully about the state’s latest policies and regulations for platform economies, conducted a self-assessment, and improved its internal systems. Alibaba also committed to working with all merchants and business partners to build an open, fair, and effective platform environment allowing all participants to share the fruits of its business growth.
In fact, the record fine on Alibaba had been expected by market observers and competition lawyers before the recent SAMR announcement. In February 2020, the Anti-Monopoly Committee of State Council, which is China’s central government, issued the ‘Anti-Monopoly Guidance for Platform Economies’ which emphasises the universal application of PRC Anti-Monopoly Law and relevant secondary legislations which shall be abided by any industries in China including the fast-growing platform economies. The Guidance aims to provide a fair and equal treatment for all market participants, to prevent and halt the monopoly in platform economies, and to promote the orderly, healthy, and innovative development of platform economies. The timing of this new Guidance coincided with the ongoing Alibaba’s anti-trust investigation, indicating that the PRC Anti-Monopoly Law was likely to be applied in this case.
|E-Commerce Law of China 2019, Article 35||To impose a fine of more than 50,000 yuan but less than 500,000 yuan; under severe circumstances, the market supervision and administration authorities may impose a fine of more than 500,000 yuan but less than 2,000,000 yuan.|
|Anti-Unfair Competition Law of China 2019, Article 12||To impose a fine of no less than 100,000 yuan and no more than 500,000 yuan; if serious circumstances exist, to give a fine of not less than 500,000 yuan and no more than 3,000,000 yuan.|
|Anti-Monopoly Law of China 2008, Article 17||To stop such violations, confiscate illegal gains, and impose a fine from 1% up to 10% of the total sales volume made in the previous year.|
Under Chinese law, platform economies’ practice of ‘choose one from two’ could potentially fall under the jurisdiction of three different legislations (for a summary, see the table above). The application of PRC Anti-Monopoly Law is certainly not the only viable option to address this anti-competition behaviour. Sometimes the use of Anti-Monopoly Law has not been considered as the optimal solution for competition authorities, because it has remained difficult and costly for law enforcers to define the relevant market, whose decision involves multiple considerations of market, technology, and law in a given country. The main justification for SAMR applying Article 17 of Anti-Monopoly Law might be that it offers the severest financial penalty for rule breakers (up to 10% of annual sales). This could deter e-commerce platforms from adopting ‘choose one from two’ and other anti-competition strategies to raise their sales and maintain the dominant status.
The SAMR’s anti-monopoly probe into Alibaba has become a milestone for enforcing competition law against the platform economy and big tech in China and globally. The record fine heralds a new era for the world’s rapid growing e-commerce industry at a time when governments across the globe aim at fostering a fairer, more equal, and efficient business environment that would benefit billions of consumers and merchants. Other tech giants, especially Chinese big tech like Tencent, Meituan, and ByteDance should learn from this lesson to avoid paying a hefty price for conducting anti-competition practices in the future.
Alice Lingsheng Zhang is a PhD candidate at the School of Law, Shanghai University of Finance and Economics.