China’s antitrust probe is subject to Alibaba pressure demands from sellers

The antitrust inquiry, revealed by the Beijing State Administration on Thursday to regulate the market, adds pressure on China’s largest technology giants, which spent much of last year, moving away from a concerted attempt by the Trump administration to block them. access to US markets and suppliers.

The moment of the Alibaba probe, which was coupled on Thursday with a regulatory call for Ant Group, the financial affiliate of Alibaba, is the latest evidence of a global change in the regulation of technology giants that until recently were celebrated for wealth creation even in as the market rose.

Domestically, China’s twin regulatory actions on Thursday also marked the latest nadir in the rapidly declining political fortunes of Jack Ma, Alibaba and the founder of billionaire Ant. Just a few weeks earlier, Mr Ma, at the height of Ant’s public list of planned blockbusters, used a high-level speech at a regulatory event to excorel senior government officials for what he called their outdated mentality.

Since then, the initial public offering has been canceled and regulators have warned of tighter control of the technology industry.

If the political concerns surrounding Alibaba are new, the complaints that the main market regulator in Beijing raised on Thursday are not. The allegations of practice, called “er xuan yi” – literally, “choose one of two” – have been a mainstay of China’s online retail sector for at least five years as Alibaba, the operator of dominant e-commerce platforms Taobao and Tmall , looked to remove the rise of rival JD.com Inc.

and, more recently, fast-growing Pinduoduo Inc.

According to Alibaba’s competitors and some traders, the company has punished certain brands that sell goods on both Alibaba and its rival platforms. Such moves include preventing them from participating in high-traffic promotions on Alibaba services or moving their lists below in search results, said Ben Cavendar, general manager of China Market Research Group in Shanghai.

Alibaba said on Thursday it would cooperate with regulators, but did not specifically comment on the “er xuan yi” allegations. A former CEO of the company last year described the practice in a personal social media post as an industry standard.

In 2015, JD.com filed a complaint with the market regulator, saying that Alibaba forced sellers to choose between Tmall and other platforms. According to JD.com’s complaint at the time, Alibaba threatened to limit traffic and resources to brands selling on both Alibaba and JD.com platforms during an annual shopping festival.

It is unclear what happened to JD.com’s initial complaint, and none of the companies responded to requests for comment on the complaint on Thursday. But two years later, JD.com sued Alibaba for the alleged practice.

According to a legal document in the case, JD.com said that Tmall from Alibaba sought commitments from traders not to open stores on the JD.com platform. Beijing-based JD.com said at the time that Alibaba had been engaged in similar practices since 2013 and asked the court for $ 1 billion, equivalent to $ 153 million, in compensation.

The case remains pending and none of the companies has responded to requests for comment. JD.com’s chief financial officer, in a 2017 earnings call with analysts, acknowledged the dispute, saying more than 100 brands had withdrawn from the JD.com platform due to “certain competition practices” without elaborating. .

The merchants also complained. In October 2019, Guangdong Galanz Enterprise Co., a major microwave oven maker based in southern China, sued Tmall after Galanz’s online traffic dropped and its page appeared to disappear from Tmall’s search results in following a trip by company officials to rival Alibaba, Pinduoduo, in May 2019, according to Chinese state media reports since then.

In June, Galanz withdrew the lawsuit and, according to state media, signed a cooperation agreement with Alibaba two weeks later.

Alibaba, Pinduoduo and Galanz did not respond to requests for comment.

Founded in 1999 in the eastern Chinese city of Hangzhou, Alibaba – which had annual revenues of $ 71 billion in the year ending March 31 – makes most of its money by selling advertising, charging commissions and providing services to merchants. retailers that sell products on its websites. Like Amazon.com Inc.,

compared to Alibaba, it has expanded into cloud computing, entertainment and logistics services.

In recent years, some of the highest targets of Chinese antitrust cases have been foreign companies, such as US chip maker Qualcomm. Inc.,

who agreed in 2015 to pay a fine of nearly $ 1 billion. The following year, Beijing imposed a fine of nearly $ 100 million on Swiss-Swedish packaging giant Tetra Pak International SA.

Now with home internet players such as Alibaba and Tencent Holdings Ltd.

Among the largest and most influential companies in the country, regulators report that they are increasingly focusing on their business practices.

“The government believes it is time to have better control of competition in the technology market,” said Charlie Chen, an analyst at China Renaissance Securities.

The Chinese market regulator did not respond to a request for comment.

Over the years, China has hosted some of the world’s largest technology companies, which have flourished at home for years with a relatively light touch of regulation, and Western rivals have stayed out of the market.

In China, Alibaba and Tencent have developed online payment services that have become virtually ubiquitous in the country, while Tencent Douyin’s WeChat and Bytedance Ltd. short video app has established dominant positions in the social market.

As these companies grew – and accumulated data on consumer habits – the authorities became increasingly concerned about their influence, which in turn intensified the desire to restrict the sector.

Regulatory counterparts in Europe and the United States have already faced the challenge of overseeing large technology companies. But unlike those jurisdictions, any attempts by Chinese regulators to curb its technology giants are likely to take place without regular public hearings in the West.

“The Chinese system of investigating and forcing abusive, dominant positions is not extremely transparent and is also not clearly subject to judicial review,” said Scott Kennedy of the Center for Strategic and International Studies in Washington, DC. .

—Xiao Xiao contributed to this article.