By
Temitope Olatunji
March 28th, 2024
As a result of the rules violation and failing to disclose the concentration of business operators, Alibaba and Tencent might face a potential fine of as much as 500,000 yuan ($74,688).
The State Administration for Market Regulation (SAMR), China’s market regulator responsible for comprehensive market supervision and management, has fined Alibaba Group (NYSE: BABA), Tencent Holdings Limited, as well as several other companies, for violation of its anti-monopoly policy. According to SAMR, tech giants have failed to report on their transactions.
Alibaba, Tencent Anti-Monopoly Rules Violation
Since late 2020, China has been very strict on its anti-monopoly regulation, with SAMR targeting mainly tech companies with an internet economy. The rules restrict monopolistic behavior such as manipulating data, and algorithms and imposing differentiated prices and conditions on different customers which restrict competition in the digital market.
Besides, in order to prevent potential market concentration, the guidance covers a notification mechanism where business operators must declare to the SAMR in advance about a concentration that reaches particular thresholds. And seems that Alibaba and Tencent have failed to comply with these rules.
According to SAMR, they have found as many as 28 deals that violated the anti-monopoly rules. Notably, 12 of them involved Tencent, while Alibaba was taking part in 5 transactions of this list. All of the deals have been about mergers and acquisitions.
Justin Tang, head of Asian research at United First Partners, said:
“The latest selloff is triggered by the news of fresh fines on anti-monopolistic practices in the sector. The world is not out of the woods yet and we will continue to see volatile movement in stocks as a general rule of thumb.”
As a result of the rules violation and failing to disclose the concentration of business operators, Alibaba and Tencent might face a potential fine of as much as 500,000 yuan ($74,688).
Neither Alibaba nor Tencent commented on the news.
China’s Crackdown on Monopoly
Since China has been combating monopolistic behavior in recent years, its new Anti-Monopoly Law aims to safeguard the country against the anti-competitive activity. The latest amendment of the law has been passed on June 29 and will come into force starting from august 1. The new law prohibits many practices that have previously been common in China. The key updates included changes to the merger review process, amendments to the rules on anti-competitive agreements, an increase in fines imposed for violating the policy, as well a further focus on the digital economy.
In particular, the new law introduces a ‘stop-the-clock’ mechanism in merger reviews and a new classification system for mergers in certain ‘categories and levels’. This will improve the quality and efficiency of the merger review process. Further, it introduces potential justifications for otherwise illegal resale price maintenance (RPM) practices. Finally, SAMR has the full power to create safe harbors for vertical agreements, but not horizontal ones.
The new regulation is expected to protect China’s economy while creating a sound and vibrant market environment to foster innovation and entrepreneurship.
