Why Alibaba Just Got Hit With A Record $2.87 Billion Fine In China

The regulatory troubles that have beset Jack Ma since November may be nearing their end, culminating in a hefty fine slapped on the Chinese tech entrepreneur's biggest brand.

What Happened: China fined Ma's Alibaba Group Holding Ltd BABA a record $2.8 billion after a monopoly probe found that the company had abused its dominant market position, Reuters reported. 

The regulator also ordered Alibaba to make "thorough rectifications" to strengthen internal compliance and protect consumer rights.

The Chinese government said that Alibaba had used anti-competitive practices in its online retail market.

According to state-run Xinhua news agency, the penalty came from the State Administration for Market Regulation, which had been investigating it since December. The size of the penalty was determined after regulators decided to fine Alibaba 4% of its 2019 sales of 455.7 billion yuan. 

The fine is more than double the $975 million fine that China issued to QUALCOMM, Inc. QCOM in 2015 for anticompetitive practices. 

In a press statement, Alibaba said, "Alibaba accepts the penalty with sincerity and will ensure its compliance with determination." 

"To serve its responsibility to society, Alibaba will operate in accordance with the law with utmost diligence, continue to strengthen its compliance systems and build on growth through innovation," the company added. 

Alibaba will hold a conference call on Monday to discuss the penalty.

Why It Matters: The outspoken Ma has long been the most visible figure of China's economic rise and stands out in a culture where getting attention at high levels is perilous. Alibaba, in particular, has been under scrutiny since last October when Ma criticized China's banking sector as operating with a “pawnshop mentality." The government scuttled the planned blockbuster Ant Group IPO shortly after Ma made the comments.

Chinese regulators are increasing their pressure on Ma and his powerhouse companies, Ant Group Co., Alibaba Group Holding Ltd. and Alibaba's media holdings.

Last year, the People's Bank of China, the country's central bank, instructed Ant Group to "rectify" how it does business.

Ma's Alibaba Group and other leading tech companies in China have been scrutinized by regulators over their growing influence in the country.

Technology firms in China have been hiring legal experts and setting aside funds for potential fines amid the antitrust and data privacy crackdown by regulators. 

Photo courtesy: World Economic Forum via Wikimedia