An anti-monopoly probe by Chinese regulators has resulted in Alibaba (NYSE:BABA) being hit with a record US$2.7 billion fine.
The fine was announced this weekend by Chinese regulators who claim the internet giant had been “abusing its dominant position” to limit competition from retailers using its platforms and obstructing the “free circulation” of goods.
The fine equates to only around 4% of Alibaba’s Chinese domestic revenue in 2019 and independent analyst, Mitchell Kim told Reuters he believes the announcement will come as a relief for investors.
“I think it’s actually positive in that the share overhang will finally be lifted. Known downside is better than an unknown risk. The fine is record-setting but it is still less than 1% of Baba’s market cap,” said Kim.
But the crack down is expected to continue
China’s crackdown on the country’s tech giants has sent jitters through the market in recent months and some experts are tipping there will be more to come.
“Government’s antitrust fines against major monopoly platforms will definitely not end here – rather it is a starting point. There will be more fines coming. It will be a trend in the near future.” said Wu Ge, Director at the Beijing Zhongwen Law Firm.
GEO Securities CEO, Francis Lun, said there’s a high probability of “damage” to other Chinese internet giants.
“Their growth has been enormous and the government has turned a blind eye and allowed them to carry out uncompetitive practices. They can no longer do that, they will be able to have big market shares but they won’t be as dominant as they are right now,” said Lin.
He takes a more bearish view on Alibaba and the wider Chinese tech sector as a result of the fine.
“We could see a correction in Alibaba’s share price as a result of this fine, they will lose their monopoly and they will have to compete on a level playing field. The other tech stocks like Meituan will also suffer the same fate as well and we will see weakness across the tech sector.”