China has launched an investigation into alleged monopoly practices in Alibaba Group Holding Ltd. and convened affiliate Ant Group Co. for a high-level meeting on financial regulations, increasing scrutiny over the two pillars of billionaire Jack Ma’s Internet empire.
The State Administration for Market Regulation is investigating Alibaba, the main antitrust body said in a statement without further details. Regulators, including the central bank and banking inspector, will separately summon Ant affiliate to a meeting to promote increasingly stringent financial regulations, which now pose a threat to the growth of the world’s largest online financial services company. Ant said in a statement on its official WeChat account that it will study and meet all requirements.
Formerly hailed as drivers of economic prosperity and symbols of the country’s technological prowess, Alibaba and rivals such as Tencent Holdings Ltd. faces increasing pressure from regulators after accumulating hundreds of millions of users and gaining influence over almost every aspect of daily life in China. Actions in SoftBank Group Corp., Alibaba’s largest shareholder, eliminated gains from trading up to 2.7% less in Tokyo. Alibaba shares in Hong Kong fell 3.4%.
Investors are divided over how far Beijing will go after Alibaba – Asia’s largest corporation after Tencent – and its compatriots as Xi Jinping’s government prepares to implement a series of new anti-monopoly regulations. The country’s leaders have said little about how hard they plan to crack down or why they have decided to act now. Draft rules released in November give the government an unusual freedom to control technology entrepreneurs like Ma, who until recently enjoyed an unusual freedom to expand his empires.
Read More: Jack Ma is quiet after the spectacular defeat of Ant Group
Alibaba’s flamboyant co-founder has virtually disappeared from public view since Ant’s initial public offering derailed. In early December, with his empire under regulatory scrutiny, the man most closely identified with the meteoric rise of China Inc. was advised by the government to stay in the country, said a person familiar with the matter. Alibaba representatives were not immediately available for comment.
The country’s internet ecosystem – long protected from competition by companies like Google and Facebook – is dominated by two companies, Alibaba and Tencent, through a labyrinthine investment network that covers the vast majority of the country’s startups in AI arenas digital finance. Its sponsorship has also prepared a new generation of titans, including food and travel giant Meituan and Didi Chuxing – China Uber. Those who thrive outside their aura, being the largest owner of TikTok ByteDance Ltd., are rare.
Antimonopoly rules now threaten to disrupt that status quo with a series of potential outcomes, from a benign scenario of fines to a disruption of industry leaders. Beijing’s various agencies now appear to be coordinating their efforts – a bad sign for the Internet sector.
“Of all the regulatory hurdles, this is the biggest one by far,” said Mark Tanner, managing director of Shanghai-based China Skinny consultancy. “China has simplified bureaucracy a lot, so it is easier for different regulatory bodies to work together now.”
Read More: Below $ 290 billion, China’s technology investors reflect on nightmare scenarios
(Updates with Ant response from the second paragraph)