Alibaba Hit By Antitrust Fine

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China’s state-run market watchdog said an investigation of Alibaba found that it had penalized certain traders selling goods on Alibaba’s rival platform by punishing them for a practice known as “one-to-one” or “Xuan-to-one.”

CEO Daniel Zhang said in a conference call that his company has reduced service fees and fees for sellers, invested in improved technology tools for its e-commerce platform and reduced costs for customers.

The initiative will push the company toward profitability, although it said it would use the available liquidity to pay the $2.8 billion penalty announced Saturday. 

The penalty comes less than a month after China‘s top regulator launched an antitrust investigation into Alibaba, focusing on allegations that Alibaba pressured sellers to sell exclusively through its e-commerce platform.

China’s State Administration for Market Regulation said Saturday in Beijing that Alibaba punished certain merchants who sold goods both on Alibaba BABA, +9.27% and on rival platforms, a practice that it dubbed “er Xuan Yi”–literally, “choose one out of two.”

The regulator said Alibaba‘s business practices restrict competition and infringe traders’ rights. As part of the penalty, the regulator will require Alibaba to complete a full restructuring of its business and submit a self-analysis report, Alibaba said. The regulator added that the 18.2 billion yuan fine is the largest ever imposed on a single company in China’s history. Chinese rules impose fines of up to 10% of a company’s annual turnover and a 30-day grace period and a fine of up to 1.5 billion renminbi.

In absolute terms, Alibaba’s antitrust fine far exceeds the penalties imposed by Chinese regulators so far. Qualcomm paid its first fine of 1.5 billion renminbi for alleged violations of China’s anti-money laundering laws. 

The penalty is part of Beijing’s ongoing efforts to limit the market power of the country’s internet giants, said Zhang Zhiyong, a senior analyst at Beijing-based think tank China Labs.

Alibaba shares, which hit a record high in October, have fallen 27% since the company’s November IPO, and the company’s American deposits have fallen 22% over the same period. The IPO is expected to require an initial public offering (IPO) of up to 1.2 billion yuan (160 million dollars), making it the largest of its kind in the world.

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