Alibaba and Anti-Competition in China: Was the Record-Breaking Fine Inevitable?

By Emily Bengel

China’s National People’s Congress adopted the Anti-Monopoly Law of the People’s Republic of China (Anti-Monopoly Law) in 2007.[1] The Anti-Monopoly Law is a comprehensive law meant to take the place of the variety of competition laws and regulations that have already been enacted throughout the People’s Republic of China.[2] There are three ways to violate the Anti-Monopoly Law: anti-competitive agreements between undertakings, abuse of dominant position, and mergers that may have the effect of eliminating or restricting competition.[3] I will focus on abuse of dominant position since that is the reason the corporation discussed in this post, Alibaba, was fined.[4]

            Dominant market position is defined in the Anti-Monopoly Law as “the ability of one or several business operators to control the price, or volume or other trading terms in the relevant market or to otherwise affect conditions of a transaction so as to hinder or influence the ability of other business operators to enter into the market.”[5] The enforcement agency uses a number of factors to determine whether a corporation has a dominant market position, including but not limited to ability to control the market and resources of the company.[6] The Anti-Monopoly Law prohibits numerous types of conduct under the abuse of dominant position prong of the Law, such as selling goods at an unfairly high price, refusing for no reason to deal with a certain business, and requiring unreasonable conditions for a transaction.[7] The Anti-Monopoly Enforcement Agency also reserves the right to add to the list of activities prohibited under the Anti-Monopoly Law.[8]

            The Anti-Monopoly Law gives a right of private action as well as giving the government the authority to issue fines.[9] Recently, Alibaba, a China-based tech giant, was fined a record $2.8 billion for monopolistic behavior.[10] The Chinese government leveled the fine for abuse of dominant position to “limit competition by retailers that use its platforms and hindering ‘free circulation’ of goods.”[11] Allegedly, Alibaba restricted merchants with which it works from selling on other e-platforms.[12] The Communist Party remains in power in China and has begun to crack down on large companies in the past few years, specifically those with technological underpinnings who have now begun to quickly work their way into the financial sector.[13] Communist regulation of corporations frequently goes beyond the regulation found in democratic nations and has significantly less limits on it. The freedom of the Anti-Monopoly Enforcement Agency is broad in the general interest of the maintenance of competition and under the direction of the Anti-Monopoly Committee, which is responsible for publishing laws and policy under the Anti-Monopoly Law.[14]

            Alibaba seems to have been on its way to receiving a hefty fine from its beginning. At its unveiling, it was the largest initial public offering in history and its shares increased by thirty-eight percent on its first day on the market.[15] One trader even claimed that the offering of Alibaba’s stock was “the most anticipated event [he had] ever seen in [his] 20-year career on the NYSE floor.”[16] The company boasted eighty percent of Chinese online sales in 2014, likely even more today.[17] Alibaba also holds a place on the list of the top ten most valuable companies in the world, sharing the list with companies like Amazon and Facebook.[18] Alibaba’s quick growth and spread throughout several industries, including the financial seem to have signaled that it was on its way to regulation by the Chinese government for its sheer size. The company’s co-founder, Jack Ma, even admitted to the company registering a trademark not only for its own name but also for a similar name, AliMama.[19] He proclaimed it as being “in case someone wants to marry us,” but the Chinese government could easily have construed that action as an effort to keep competitors from beginning a company in competition with them with a similar name.[20]

            The recent action of the Chinese Communist Party in leveling a fine against Alibaba under the Anti-Monopoly Law should not come as a surprise to Alibaba’s executives or the rest of the world. Alibaba has been anti-competitive, whether intentionally or accidentally, since its founding. It quickly grew into one of the largest e-commerce companies in the world, while expanding into other sectors of the Chinese economy as well. It is no wonder that the Chinese government, especially under the Communist Party wishes to regulate the corporation and its activities. Control over the economy is an important aspect of Communist rule in China.[21] Alibaba’s registration of an extra trademark over a name similar to its own is an example of one affirmative activity in opposition of competition. But its quick rise has found it at a quick virtual monopoly, even if unintentional. The Chinese government has too high of an interest in regulation of its economy to simply let this rise happen. The regulation of Alibaba during its rise and expansion was bound to happen from the beginning with the current regime and the ability of the corporation to expand beyond the outer limits of a competitive e-commerce entity.

[1] David Fleming et al., Antitrust and Competition in China, Global Compliance News (last visited Apr. 10, 2021) https://globalcompliancenews.com/antitrust-and-competition/antitrust-and-competition-in-china/#:~:text=The%20Anti%2DMonopoly%20Law%20aims,competition%20in%20the%20Chinese%20market.

[2] Id.

[3] Id.

[4] Joe MacDonald, Alibaba Fined $2.8 Billion on Competition Charge in China, abc News (Apr. 10, 2021) https://abcnews.go.com/International/wireStory/alibaba-fined-28-billion-monopoly-charge-china-76987637.

[5] Fleming, supra note 1.

[6] Id.

[7] Id.

[8] Id.

[9] Id.

[10] Mark Thompson & Pauline Lockwood, China Hits Alibaba With Record $2.8 Billion Fine for Behaving Like a Monopoly, CNN Business (Apr. 10, 2021) https://www.cnn.com/2021/04/10/tech/alibaba-china-record-fine/index.html.

[11] MacDonald, supra note 4.

[12] Thompson & Lockwood, supra note 10.

[13] Beijing’s Battle to Control its Homegrown Tech Giants, today (Sept. 24, 2017) https://www.todayonline.com/world/beijings-battle-control-its-homegrown-tech-giants [hereinafter Beijing’s Battle].

[14] Fleming, supra note 1.

[15] Liana Baker et al., Alibaba Surges 38 Percent on Massive Demand in Market Debut, Reuters (Sept. 19, 2014) https://www.reuters.com/article/us-alibaba-ipo/alibaba-surges-38-percent-on-massive-demand-in-market-debut-idUSKBN0HD2CO20140919.

[16] Id.

[17] Id.

[18] Beijing’s Battle, supra note 13.

[19] Where Did Alibaba, the Brand Name, Come From?, Wordlab (October 15, 2007) https://www.wordlab.com/blog/2007/10/where-did-alibaba-the-brand-name-come-from/.

[20] Id.

[21] Beijing’s Battle, supra note 13.