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China Fines Alibaba $2.8 Billion For Violating Anti-monopoly Law

Heavy is the head who wears the crown. The Chinese tech giant might want to take off the crown because it got fined for 18.23-billion-yuan equivalent to $2.8 billion for violating China’s anti-monopoly law. The 4 % fine is based on Alibaba’s 2019 domestic revenue, and approximately 12% of Alibaba’s fiscal 2020 net income—a staggering sum even for one of the giants of Chinese e-commerce (Wang, 2021). The investigation began last December lasting until this April when China’s State Administration for Market Regulation (SAMR) published their decision of Alibaba violating the anti-monopoly rule, a rule Alibaba has been violating since 2015. In a recent SAMR statement, it stated that Alibaba restrained the competition within the Chinese online market, hindering the free flow of services and goods and limiting consumer choice. It also stifled the innovation of the online platform while harming the other sellers, while damaging the benefits of the consumers (SAMR, 2021).

So how did Alibaba break the anti-monopoly law?  Alibaba’s er xuan yi (“pick one from two”) rule is the issue. The rule allows platforms forcing sellers to have exclusive partnerships or distributions rights with them. According to SAMR, Alibaba had required certain sellers to either verbally agree or sign contracts indicating sellers would only or mostly sell their products on Alibaba’s platforms exclusively. Alibaba required vendors not to participate in its competitors’ major promotional activities or ask them to gain its approval for conducting promotional events on other platforms in order to restrict its rivals. In addition, Alibaba implemented penalties for sellers who failed to follow the “pick one from two” policy. These included, but were not limited to preventing sellers from participating in major promotional events or ranking sellers’ items low in search results or hidden from customers’ searching(Li, 2021).

In Alibaba’s recent statement, Alibaba stated that it “accept[s] the penalty with sincerity and will ensure our compliance with determination (Alibaba Group, 2021)”. This situation makes me think of a Chinese saying: “Killing the chickens to warn the monkeys”, or punishing one person to warn the others, captures the essence of the Alibaba incident.  While China had fined other tech companies both foreign and domestic for violating rules before, such a large fine has never been levied before. I think China is sending a message to other tech companies warning them they have to play by China’s rules. But what do you think? Could this be a more complex message given the uniqueness of the Chinese market, or it simply is a warning?

Resources

Wang, C. (2021, April 10). China slaps Alibaba with $2.8 billion fine in anti-monopoly probe. CNBC. https://www.cnbc.com/2021/04/09/china-fines-alibaba-in-anti-monopoly-probe.html.

Group, A. (2021, April 12). A Letter to Our Customers and to the Community. Alizila. https://www.alizila.com/a-letter-to-our-customers-and-to-the-community/.

市场监管总局依法对阿里巴巴集团控股有限公司在中国境内网络零售平台服务市场实施”二选一”垄断行为作出行政处罚. (n.d.). http://www.samr.gov.cn/xw/zj/202104/t20210410_327702.html.

Li, J. (2021, April 12). “Er xuan yi”: The business tactic that led to Alibaba’s $2.8 billion antitrust fine. Yahoo! Finance. https://finance.yahoo.com/news/er-xuan-yi-business-tactic-112329787.html.

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