Alibaba Group Holding Ltd (NYSE:BABA) shares sank 8.26% on Tuesday following regulatory threats from Chinese authorities seeking to tighten their grip on big internet platforms.
Alibaba faces more regulatory threats
The plunge comes after China’s State Administration for Market Regulation released draft rules which will limit monopolistic trends by internet platforms. The new draft rules will increase scrutiny on e-commerce platforms and payment services owned by the likes of Alibaba. SAMR said that the issuance of the draft rules seeks to prevent dominance of big e-commerce companies in the market and prevent them from adopting methods that could stifle competition.
Also, other dominant Chinese internet companies plunged ion the news. The definition SAMR provided for internet platforms means that the rules apply to e-commerce sites such as Taobao and Tmall marketplaces, Alibaba Group, and payment services such as Tencent Holding’s WeChat Pay, Ant Group’s Alipay. The rules also cover food delivery platforms such as Meittun.
Interestingly the draft rules will also look at how customers are treated by considering whether one is treated differently based on payment ability, big data, usage habits and consumption preference. These rules are the latest regulatory threat Alibaba is facing following the surprising suspension of proposed Ant Group IPO last week. Ant Group is an affiliate of Alibaba in which the e-commerce giant holds around 30% interest.
New rules a win for merchants
For merchants, the new rules are a win considering big platforms have been having restrictive policies like choosing one between two. This restricts brands from offering their products on different platforms. Previously, several merchants and competitors have accused Alibaba of having such practices on its e-commerce platforms. In 2019 SAMR directed over 20 platforms to stop asking merchants to enter exclusive cooperation contracts.
According to former Yahoo China president, Xie Wen, China had in the past avoided a hard line against tech giants in the country as it wanted them to grow and compete with US giants. But the focus now is on building domestic capabilities which is why Beijing is reigning in the companies.