Why is the Record Breaking Fine good for Alibaba (BABA)?
The China state regulator, State Administration of Market Regulation (SAMR), just issued a record breaking fine of RMB18bn (US$2.7bn) to Alibaba for breaking the country’s antitrust laws as it urged clients and suppliers not to trade with its rivals.
On the surface, this seems like bad news but in my opinion this is great news to Alibaba (Disclosure, I am not vested at this moment)
It is Fine to be Fined.
Firstly, it is important to understand that it is common for big corporations to be in violation of some regulations. It is not a matter of if, it is just a matter of when.
In fact, if you dig the history of Google, Facebook and Amazon, you will find their past littered with government fines.
Frankly, it is almost like a rite of passage. As corporations become bigger and more dominant in their industry. It quickly becomes a matter of monopoly and touches on anti-trust regulations.
For example, Google was fined almost US$9bn by the EU anti-trust regulators, while Amazon (together with Google) was fined over privacy breaches.
Now, let me be clear that I am NOT condoning any of the monopolistic behaviour or anti-trust actions. I am just stating an observation here.
Why is the Fine Good for Alibaba?
We all know that Alibaba get into the “bad books” of the Chinese government since the Ant Financial IPO and Jack Ma’s debacle for criticising the government openly at a forum.
Since then the SAMR has been hot on Alibaba’ tail, calling senior executives for “meetings” on a regular basis.
In fact, there have been rumours about a fine for Alibaba a month ago, which led to SAMR hitting other companies like Tencent and Baidu with a small fine instead (RMB500,000).
So this fine should not be a surprise. At least I was not.
However, the magnitude is significant because unlike the usual fine of RMB500,000, Alibaba was slapped with a fine of RMB18bn.
But my opinion is that this is good for Alibaba. At least we are seeing some kind of conclusion to the Alibaba vs CCP situation, which Alibaba was almost definitely going to come out short.
This is likely why Alibaba quickly accepted the fine and they will be releasing an announcement tomorrow.
In the words of a friend who is a lawyer, “When there is a fine, it means they have reached a settlement.”
Now, there will not be a David vs Goliath story here. There was no doubt that the might of CCP was going to crush Alibaba if Alibaba refuses to bend the knee.
With this fine, Alibaba can finally move on and get back into the good books of the regulators again.
Perhaps even worse than Alibaba, Facebook was facing calls for anti-trust break up. Zuckerberg was even dragged in front of US Congress to defend the company.
A fine by the CCP seems like a tap on the hand, rather than a noose on the neck of Alibaba.
