Angela Huyue Zhang is an associate professor at the University of Hong Kong and director of its Center for Chinese Law. She is the author of the upcoming book "Chinese Antitrust Exceptionalism: How the Rise of China Challenges Global Regulation." (Oxford University Press, March 2021)
The Christmas Eve announcement by China's State Administration of Market Regulation that it would investigate Alibaba Group Holding for monopolistic tactics wiped over $100 billion from the company's market value within just a day.
The strong reaction reflected investor concern over Alibaba's future prospects amid continuing fallout from a controversial speech by founder Jack Ma attacking financial regulators as well as a series of recent declarations from the authorities about reining in the country's powerful internet platforms.
But neither the companies nor their investors should be overly gloomy. Some might prefer that Chinese regulators simply stay away from e-commerce, but the way that the SAMR is going about its work on Alibaba gives some cause for comfort and hope.
On Christmas Day itself, the Chinese competition authority released its first annual report. The 240-page publication included detailed statistics and a compilation of enforcement actions taken by both central and local SAMR offices.
Given scant regulatory disclosure since China's anti-monopoly law was enacted 12 years ago, the report shed much-needed light on the authorities' decision-making.
Two days later, the SAMR announced that it had completed gathering evidence at Alibaba's headquarters in the city of Hangzhou, noting that the e-commerce group had been cooperating with its investigation.
The spate of disclosures from the SAMR signals that it is ready to inject more transparency into anti-monopoly enforcement in China.
This marks a critical and desperately needed improvement. Over the past decade, foreign multinationals operating in China have complained to their governments and chambers of commerce about due process violations and a lack of transparency in Chinese antitrust enforcement.
Much of the criticism was directed at the National Development and Reform Commission, one of three agencies that dealt with anti-monopoly matters before the founding of the SAMR in 2018. The commission aggressively pushed investigations into high-profile targets in a large number of sectors including telecommunications, automobiles and semiconductors as well liquor and infant formula companies.
In comparison to the NDRC, the State Administration for Industry and Commerce was a relatively restrained enforcer.
The only large case that the SAIC brought was one against Swiss-Swedish packaging company Tetra Pak and it took almost five years to complete. The end result, a fine for abuse of monopoly power, reflected the agency's in-depth and thorough economic analysis, something quite rare among Chinese competition regulators.
The SAMR's competition bureau was formed by combining the SAIC with the country's other two antitrust offices. Given the leading role of SAIC staff, the new unit was expected to inherit the old agency's bureaucratic culture and a cautious and legalistic approach to enforcement.
Over the past two years, the SAMR has greatly streamlined the merger review process and established a relatively good reputation for professionalism in handling cases.
At the same time, the SAMR has faced significant capacity constraints, a situation that has actually worsened since the consolidation of the three agencies. Many antitrust officials, seeing lower prospects for career advancement, have departed for private practice, often becoming in-house lawyers for Chinese technology companies.
The current regulatory campaign thus represents a golden opportunity for the SAMR to step into the policy limelight to make the case for more resources.
It also gives the agency a chance to address market speculation that its initiative is politically driven. The timely disclosure of progress with the Alibaba investigation and the company's cooperation should help tame some of the market volatility around Chinese tech stocks which has even enveloped Alibaba's rivals.
At the end of the day, Chinese regulators need to strike a delicate balance between economic growth and market regulation, both of which can affect the government's legitimacy.
To be sure, the authorities want to discipline Alibaba and teach it a hard lesson so that Chinese tech giants will learn to obey orders in the future. But it will not be in their interest to mete out overly harsh punishments against major tech companies as that could cause market turmoil leading to other regulatory problems that might threaten economic or financial stability.
As such, the anti-monopoly authority is unlikely to go as far as ordering the breakup of Alibaba. That kind of structural remedy could be difficult and complicated to implement and might cause too much pain to the company.
Most likely, the SAMR will impose a high fine and some behavioral remedies. Chinese competition authorities have tended to levy big fines in part because of the resulting media attention which increases the agencies' profile and visibility within the establishment and beyond.
Under Chinese law, the SAMR can impose a fine of up to 10% of the offender's revenue from the previous year in cases of monopoly abuses or cartel formation. In Alibaba's case, this would dwarf the two 500,000 yuan ($77,000) fines the agency imposed last month on the company and others for failing to seek regulatory approval of previous acquisitions and for misleading retail pricing and promotions.
Chinese antitrust regulators are also acutely aware of possible spillover effects from their moves against Alibaba for the China tech sector. The transparency and professionalism that the SAMR is injecting into the administrative process thus should offer some comfort for major Chinese tech companies like Tencent Holdings and Meituan as well as their anxious investors.