Beijing is launching an antitrust investigation against Alibaba

China’s market regulator on Thursday announced an antitrust investigation by Alibaba, the country’s largest technology company, a month after authorities halted an initial public offering of its sister company Ant in the amount of 37 billion dollars.

The investigation is one of the first of its kind against a large Chinese technology company, and comes when authorities subject Alibaba’s e-commerce and fintech activities to an unprecedented amount of surveillance.

The market regulator said it was investigating suspicious monopolistic practices, including Alibaba’s tactics of forcing traders to sell exclusively on its platform, which in China is known, among other things, as “choose one of two.”

A brief statement from China’s State Administration of Market Regulation said the investigation into Alibaba was recently opened following complaints. Shares of Alibaba, which are listed in Hong Kong, fell more than 8 percent in early trading.

Alibaba said that he would “actively cooperate with the regulators in the investigation” and that his business remained normal.

In connection with this development, regulators led by China’s central bank said they would “supervise and lead” the Ant Group’s financial services division on issues related to fair competition and consumer protection.

In his statement, Ant confirmed that he had received a “meeting notice” from the regulator and that he would “seriously study and strictly adhere to all regulatory requirements.”

The move to investigate the country’s largest e-commerce company, which, among many other new business lines, is expanding to retail and cloud computing, is the most aggressive action by regulators that has yet to face the increasing speed of Chinese technology companies.

“This is the first Chinese antitrust investigation against a Chinese internet company for abuse of market dominance,” said Scott Yu, an antitrust expert at law firm Zhong Lun. “In the worst case, Alibaba could be fined up to 10 percent of sales from the previous year.”

Lawyers said launching a formal investigation meant the government already had some evidence to support his case.

Regulators “definitely have the evidence, but it’s hard to say whether they will ultimately decide that this constitutes monopolistic behavior and its punishment,” said Yu Jianhua of Shanghai-based law firm DeBund.

After allowing companies like Alibaba and its rival Tencent the freedom to grow with few restrictions over the years, Beijing has changed its approach in recent months.

“The antitrust has become an urgent issue [China’s] the overall situation, “a Communist Party spokesman told the People’s Daily in an editorial on Thursday. He called the investigation “an important measure for our country to strengthen antitrust surveillance of the Internet sector.”

Last month, regulators released the first draft of antitrust guidelines for the Internet sector, sending stakes in the industry. Analysts say Alibaba played the most role.

The rules followed shortly after Alibaba and Ant founder Jack Ma gave a speech in Shanghai challenging regulators and attacking state-owned banks. The speech triggered new rules for online lenders. Many believe this prompted regulators to cancel Ant’s initial public offering in Shanghai and Hong Kong, which was supposed to be the largest in the world.

Chinese technology companies have for years forced retailers who want to sell on their platforms to choose whose side they are on or face consequences, such as limiting the amount of user traffic directed to their online stores.

For example, the world’s largest microwave oven maker, the Galanz group, last year accused Alibaba of directing traffic from its store on Tmall after it started selling on rival site Pinduoduo. Galanz said his sales fell tremendously after he did not show loyalty to Alibaba.

JD and Pinduoduo, backed by Tencent, also sued Alibaba for such behavior, alleging the company abused its dominant position to prevent traders from selling on its platforms. Alibaba previously refused to comment on the lawsuit.

Since “Singles Day” last month, China’s largest annual online shopping event, Alibaba has still tried to restrict retailers from working with other e-commerce platforms, said a lawyer representing the main e-commerce platform in an antitrust lawsuit against Alibaba. Although there was no explicit ban on it, retailers could see their site rank on Taobau or Tmall after they started selling on competing platforms, the lawyer said.

In last week’s comments, Eric Jing, president of Ants, said the group “listened carefully” to criticism from regulators and consumers as it sought ways to revive its IPO.

“All of these are beneficial for Anta and we have conducted a comprehensive self-check accordingly,” Mr Jing said.

Additional reports Xinning Liu, Sun Yu and Nian Liu from Beijing and Qianer Liu from Shenzhen

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