On Saturday (10 April) morning, Chinese regulators announced the verdict on Alibaba for the latter’s violation of anti-trust rules and abuse of market dominance. A CNY 18.228 billion (US$2.78 billion) fine, or 4% of Alibaba’s domestic revenues in 2019, was imposed.

The company said it accepted the decision and would “resolutely implement” the rulings of State Administration of Market Regulation, or SAMR.

We felt it is worth to look at three questions here:

1. Is the fine big or small in relative terms?

While the fine is ‘record’ according to most media reports, we have to look at it in relation to Alibaba’s size, as well as what the law actually permits.

The anti-trust rules in China stipulates that fines could range between 1-10% of the previous year’s sales. In 2015 Qualcomm was fined US$975 million, or 8% of its annual sales, in 2015.

In the latest quarter earnings for Q3 FY 2020, Alibaba recorded revenue of US$33.7 billion and a net income of US$11.9 billion. As in, the quarterly profit in the latest quarter is more than 4 times of the fine.

In that regard, the fine is really not that significant. And this demonstrates that the SAMR’s intention is to ‘teach a lesson’, rather than crippling Alibaba.

2. Are the troubles over for Alibaba?

We do not know yet. Ant Group, the first amongst the Alibaba universe to face regulatory actions, has yet to receive its own version of the regulatory verdict.

We could not rule out that Cainiao, the logistics network of Alibaba, might face similar investigations. Its portfolio of companies were trying to force agents to block the ascending J&T Express.

By the way, J&T was also fined last week for dumping, driving the delivery price per parcel to be below CNY 1 (US$0.15).

3. Will that spill over to other big techs in China?

There is a lot of speculation of “who will be next”: Tencent? Meituan? or Pinduoduo? Alas, a lot of the speculation here is emotions-driven – we do not have facts in the public domain.

All of them would have some practices that are worth investigating, but it does not mean they need to be investigated. We tend to believe that the government is intending to just use Alibaba to send a signal, such that the platforms will regulate their own actions moving forwards.

There is really no incentive for the Chinese government to hurt the platform economy – regulating large platforms is a whole lot easier than regulating a lot of small companies.

Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at hello@mworks.asia.