Alibaba Is Fined; Other Tech Companies Are Put on Notice
In its latest bid to bring China’s tech industry to heel, the Chinese government’s State Administration for Market Regulation (SAMR) has levied a record $2.8 billion fine on Alibaba for antitrust violations. Joe Tsai, Alibaba’s executive vice chairman, told investors that the company would not appeal the fine, which amounts to 4 percent of the company’s 2019 domestic sales.
After months of pressure from the central government, Alibaba announced on April 12 that it will apply to become a financial holding company. The new designation will place Alibaba under the more stringent regulations imposed on China’s traditional banks, including requirements for higher capital holdings and less risky investments. It will also force Alibaba’s hand in data sharing with the government, a point on which the company has dragged its feet.
SAMR, the Chinese government’s antitrust watchdog, recently summoned 34 domestic tech companies, including Tencent, ByteDance, JD.com, Kuaishou and Pinduoduo, to request correction of anticompetitive actions. In a statement, regulators explicitly mentioned Alibaba as a cautionary tale for the other tech companies.
The central government wants to curtail (among other things) exclusive vendor practices, known as “choose one of two” (erxuanyi), and “walled garden” mechanisms that make it difficult to share and access content across platforms. Other points of focus for Chinese regulators have been some firms’ large market share and use of discriminatory pricing algorithms.
Regulators told the tech companies that they would have a month to reflect on and rectify their shortcomings; those that failed to do so would be severely punished. On April 14, SAMR published statements from 12 of the companies of their intent to comply, with more to come.
For the past six months, Chinese regulators have been cracking down on the country’s tech titans. Some commentators have suggested that the new scrutiny is motivated by the government’s fear of tech firms’ influence over public perceptions; others believe it to be a mere reassertion of regulatory power. Still others posit a personal vendetta of Chinese President Xi Jinping against Alibaba co-founder Jack Ma.
These latest developments suggest that the new squeeze on tech is reaching beyond Ma and his companies. A meme is circulating on Chinese social media: A young boy, labeled “Alibaba,” is being stuck with an “antitrust” vaccine, screaming in pain. The kids in line behind him, each representing a different Chinese tech company, look on nervously.
Commerce Blacklists More Chinese Companies; the Director of National Intelligence Calls China Biggest Threat
Recent developments suggest that the Biden administration will continue at least two Trump-era policies toward China: the blacklisting of Chinese tech companies and the explicit identification of China as America’s number-one threat.
On April 9, the Department of Commerce’s Bureau of Industry and Security added seven Chinese companies to its Entity List, thereby cutting off their supplies from U.S. companies. This round of sanctions focuses on Chinese supercomputer manufacturers, which allegedly help the Chinese military test weapons technology. Many such manufacturers rely on U.S.-supplied chips and hardware.
Under the Trump administration, the Commerce Department began including prominent Chinese firms in 2019; by last summer, firms were being added by the dozen. Two of the highest-profile additions have been Huawei in May 2019 and the Semiconductor Manufacturing International Corporation (SMIC) in December 2020. The Chinese government has responded by establishing its own “unreliable entities list” (which remains unused), strengthening export controls and “blocking rules” that punish entities that comply with sanctions to the detriment of Chinese firms.
On April 13, the director of national…