Alibaba's Stock Rises 8% Despite Record Fine... What's the Reason?

Morgan Stanley "Uncertainty Surrounding Alibaba Resolved"
Chinese IT Companies "Don't Know Who the Next Target Will Be"...Tensions Rise

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Kwon Jae-hee] Despite Alibaba Group receiving the largest-ever fine of around 3 trillion won from Chinese regulatory authorities, its stock price rose instead, drawing attention to the background behind this. Some say that the removal of uncertainties surrounding Alibaba and overcoming the biggest hurdle positively influenced the stock price. However, Alibaba's competing big tech companies remain on edge, fearing they could be the next targets.

According to major foreign media on the 12th (local time), Alibaba's stock price listed on the Hong Kong Stock Exchange rose by 7.8% that day. Considering the record fine imposed on the 10th (local time), this stock price increase is unusual.

China's State Administration for Market Regulation, equivalent to Korea's Fair Trade Commission, imposed an antitrust fine of 18.228 billion yuan (about 3.1 trillion won) on Alibaba on the 10th (local time), accusing it of forcing merchants on its platform not to trade on other platforms if they wanted to sell goods on Alibaba.

This amount corresponds to 4% of Alibaba's 2019 revenue and is three times the previous record fine of 6.088 billion yuan (about 1.04 trillion won) imposed on Qualcomm in 2015 for antitrust violations. It is considered very unusual that China, which has mainly used antitrust laws to sanction foreign companies like Qualcomm, has imposed such a large fine on a domestic company.

Some view this as the removal of uncertainties surrounding Alibaba. Morgan Stanley stated on the 11th, the day after the fine was imposed, that "Alibaba's record fine actually resolves the issues surrounding Alibaba," adding, "It is now time for the market to shift its focus to fundamentals." Major foreign media also evaluated that "this fine brings Alibaba one step closer to resolving antitrust issues."

Alibaba Group Vice Chairman Cai Chongxin said during a conference call with investors that day, "We are very relieved that there are no problems with our business, that is, our fundamental business model as a platform company," and added, "We have received excellent guidance on some special issues under the antitrust law through this fine decision."

He continued, "I want to say that I am glad we can forget about this issue."

Daniel Zhang, Alibaba's CEO, stated, "To address the authorities' concerns, we will lower the barriers for online commerce companies to enter our platform more easily," and added, "We will not appeal the authorities' decision."

CEO Zhang also said, "There will be changes in monopoly policies following the authorities' actions, but we expect no impact on operations."

While the Chinese authorities' crackdown on Alibaba seems to be effectively concluding, Alibaba's competing information technology (IT) companies appear to be growing more tense. Chinese big tech companies believe that the crackdown on Alibaba will not stop there but will spread across the entire internet sector. Previously, regulatory authorities fined 12 Chinese internet companies, including Tencent, Baidu, Didi Chuxing, Pinduoduo, and Meituan, 500,000 yuan (about 87 million won) each for violating antitrust laws during merger and acquisition transactions.

A representative example is Tencent. On the 24th of last month, it was reported that Tencent CEO Ma Huateng met with officials from the State Administration for Market Regulation, leading the industry to view Tencent as a likely next target for antitrust investigations.

Tencent was the IT company with the most investments last year, expanding its reach from gaming to online loans and music licensing in an octopus-like manner. In particular, Tencent Music, a joint venture with Spotify, has been preparing for antitrust investigations related to music license transactions, and it is known that in recent months, to avoid becoming a regulatory target, Tencent has deliberately abandoned some transactions.