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China tech

Alibaba antitrust fine shows Beijing views tech giant as threat

Xi seeks to strengthen his grip ahead of 2022 Communist Party congress

Chinese authorities are clamping down on the Alibaba empire led by Jack Ma.   © Reuters

SHANGHAI/BEIJING -- The $2.8 billion fine imposed on Alibaba for violating antitrust laws underscores Chinese President Xi Jinping's intention to tighten control of rapidly growing internet businesses and solidify his standing ahead of an important Communist Party congress next year.

Chinese regulators on Saturday imposed a fine of 18.2 billion yuan ($2.77 billion) against Alibaba Group, a record amount equivalent to about 12% of the e-commerce titan's net profit for the year ended March 2020.

Other major tech companies have been fined in recent months, including Tencent and Baidu, for antitrust and other violations, but the amounts were no more than several hundred thousand dollars. The much larger fine for Alibaba shows how much of a threat the company poses to the Chinese leadership.

The clampdown on Alibaba began with financial unit Ant Financial, which operates the Alipay smartphone payment service. The unit looked set for a record-breaking initial public offering, but regulators abruptly changed their stance in November, forcing the unit to postpone plans to list in Shanghai and Hong Kong.

The latest punishment on Saturday is over Alibaba's alleged abuse of a dominant position in its main online shopping business. Merchants were pressured by the company, including with penalties, if they did not sell exclusively on Alibaba's platform, authorities said.

Alibaba, which led the development of China's internet sector from the early years, has received extensive government support. For example, regulators shut out services offered by Facebook and Google from the domestic market in 2009 and 2010. Eventually, however, the growth of these companies started to go against the interests of the state.

Through Ant, Alibaba encroached on the financial sector controlled by state-owned banks. The lucrative loan broker business, in which Alipay refers users to banks and Ant receives a commission from the banks in return, was innovative, but it weakened the competitiveness of existing financial institutions, including state-owned banks.

The Chinese government seeks to maintain an economic order led by state-owned enterprises, in which a financial sector controlled by the government is at the core while certain market mechanisms are adopted. So it could no longer allow Alibaba to grow unchecked.

The clampdown on Alibaba also appears to be the result of a struggle for power in the political world. The Chinese Communist Party is set to make a major personnel reshuffle at its twice-a-decade congress in autumn 2022. Alibaba's growth is said to have been backed by relatives and others connected to the so-called Shanghai clique led by former President Jiang Zemin. There have been reports that a grandson of Jiang indirectly owns Ant shares.

Those close to Xi became very angry when they saw a secret list of those with interests in Ant's initial public offering, according to sources. The list reportedly included many relatives and others connected to retired leaders.

Back in 2018, Xi amended the constitution to remove a term limit for the president, a move seen as his resolve to serve a third term beyond the 2022 congress. There is growing speculation that Xi, in hoping to stay in power over the long term, is penalizing Alibaba to weaken powerful figures with links to the company.

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