Chinese Regulator to Investigate Alibaba for ‘Monopolistic Conduct’

In a one-sentence statement issued Thursday morning, China’s main business regulator announced that it has commenced investigations into Alibaba Group Holding Ltd. (NYSE: BABA) “for suspected monopolistic conduct such as ‘choosing one over the other’.” In early November, Chinese authorities first delayed, then halted a planned IPO of Ant Financial, a microlending company one-third owned by Alibaba.

Neither Alibaba nor the state regulator, China’s State Administration for Market Regulation (SAMR), commented on Thursday’s announcement.

The practice of “choosing one over the other” refers to reports that Alibaba puts pressure on its third-party sellers to commit to selling only on the company’s platform and agreeing not to sell on competitors’ platforms. Alibaba has called its conduct “standard market practice,” while competitors like JD.com and Pinduoduo have long complained about Alibaba’s practice.

According to the Wall Street Journal, China’s central bank and other financial regulators will meet with executives of Ant Financial “to urge the firm to implement financial regulations and other rules.” The company’s Shanghai and Hong Kong IPOs were expected to raise nearly $40 billion.

China’s government recently has begun to exert more control of the country’s technology giants like Alibaba and Ant Financial. A Chinese bank official told The Wall Street Journal that the government is concerned that “market power may potentially morph into political power.”

The more active engagement of Chinese financial regulators runs in parallel with recent U.S. legislation that could result in the delisting of Chinese companies on U.S. equity exchanges if regulators are not allowed to inspect the companies’ financial audits. The legislation was signed by the U.S. president last week, and the companies have three years to comply.

Alibaba’s shock traded down nearly 9% in Thursday’s premarket session, at $233.65 in a 52-week range of $169.95 to $319.32. The consensus price target on the stock is $338.37. Alibaba’s market cap has reached $693.5 billion.

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