Alibaba U.S.-Listed Shares Tumble Most Ever on China Monopoly Probe
(Bloomberg) - U.S.-listed Alibaba Group Holding stocks fell the most on concerns over China's investigation into suspected monopoly practices at the e-commerce company.
Affiliate Ant Group Co., the other pillar of billionaire Jack Ma's internet empire, was also invited to a high-level meeting on financial regulations. The pressure on Ma is central to China's broader efforts to contain an increasingly influential internet sphere: The draft antimonopoly rules released in November gave the government ample leeway to hold back entrepreneurs who, until recently, had unusual freedom to enter their areas expand.
The Alibaba investigation is "a warning that the winds have shifted," Bloomberg Intelligence said in a research report. According to analyst Vey-Sern Ling, there is a risk that business operations “can face long-term headwinds” as a result of such measures.
The stock fell 13% in its largest one-day decline in history. The decline brought Alibaba to its lowest level since July, and the stock is now 30% down from its October high. Around 141 million shares have been exchanged, most for a single session since debuting in 2014.
Alibaba said in a statement that it will work with regulators in its investigation and that its business will remain normal.
Alibaba and rivals like Tencent Holdings Ltd., once hailed as drivers of economic prosperity and symbols of the country's technological prowess, are facing increasing pressure from regulators after they have amassed hundreds of millions of users and affect almost every aspect of daily life won in China.
"It is clearly an escalation in coordinated efforts to contain Jack Ma's empire, which symbolized China's new 'Too-Big-To-Fail' entities," said Dong Ximiao, a researcher at the Zhongguancun Internet Finance Institute. "The Chinese authorities want a smaller, less dominant and more compliant company."
Read More: Jack Ma Goes Calm After Ant Group's Spectacular Undo
The state market regulator is investigating Alibaba, the top antitrust watchdog said in a statement without further details. Regulators like the Central Bank and the Bank Guard will separately invite subsidiary Ant to a meeting to bring home increasingly stringent financial regulations that are now 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 investigate and meet all requirements.
Ma, the flamboyant co-founder of Alibaba and Ant, has all but disappeared from the public eye since Ant's IPO last month. In early December, 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.
Ma is not on the verge of personal doom, those familiar with the situation have said. His very public reprimand is instead a warning that Beijing has lost patience with the overwhelming power of its technology moguls, who are increasingly seen as a threat to the political and financial stability that most praises President Xi Jinping.
Alibaba was down 8% in Hong Kong for five months. Asia's largest company after Tencent has caused losses to China's internet sector leaders since Ant's IPO, increasing the total fee to around $ 200 billion. Tencent and internet service giant Meituan fell more than 2.6% while SoftBank Group Corp., Alibaba's largest shareholder, was down 1.7% in Tokyo.
As China prepares for the introduction of the new antimonopoly regime, the country's leaders have said little about how tough they are going to contain or why they have decided to act now.
China's internet ecosystem - long sheltered from competition from Google and Facebook - is dominated by two companies, Alibaba and Tencent, via a labyrinthine investment network that includes the vast majority of the country's startups in areas from AI to digital finance. Her patronage has also nurtured a new generation of titans, including food and travel giants Meituan and Didi Chuxing - China's Uber. Those who thrive outside of orbit, with TikTok's largest owner, ByteDance Ltd. is are rare.
The house Jack Ma built is China's own creation: Tim Culpan
The antimonopoly rules now threaten to disrupt that status quo with a range of potential outcomes, from a harmless scenario of fines to the breakup of industry leaders. Some analysts predict there will be a tough crackdown, but a targeted one. They point to the language in the regulations that suggest a strong focus on online trading, from enforced exclusive agreements with traders known as "Pick One of Two" to algorithmic pricing that new users prefer. The regulations explicitly warn against selling at a lower cost in order to weed out competitors.
However, the various agencies in Beijing seem to be coordinating their efforts - a bad sign for the internet sector.
"There is nothing that the Chinese Communist Party does not control, and anything that appears to be twisting out of orbit in any way is being withdrawn very quickly," said Alex Capri, a Singapore-based researcher at the Hinrich Foundation.
Read More: $ 290 Billion Less, China Tech Investors Mull Nightmare Scenarios
The campaign against Alibaba and its colleagues was in full swing in November after Ma attacked Chinese regulators in a public address about time lag. Market regulators then suspended Ant's IPO - the world's largest at $ 35 billion - while the anti-monopoly watchdog shook the markets with its draft law shortly thereafter.
The Volkszeitung, the mouthpiece of the Communist Party, warned on Thursday that the fight against alleged monopolies was now the top priority. "Antimonopoly has become an urgent all-matters issue," said a comment that coincides with the probe's announcement. The "wild growth" of the markets must be curbed by law, he added.
The chances of Ant being able to revive its massive public listing next year are diminishing as China overhauls rules for the fintech industry, which has been booming in recent years as an alternative to traditional government-sponsored lending.
China is said to have set up a joint task force to oversee Ant separately, led by the Financial Stability and Development Committee, a regulator for the financial system, as well as various departments of the central bank and other regulators. The group is in regular contact with Ant to collect data and other materials, investigate its restructuring, and draft other rules for the fintech industry.
"China has tightened much of its bureaucracy so that the various regulators can now more easily work together," said Mark Tanner, general manager of the Shanghai-based consulting firm China Skinny. "Of all the regulatory hurdles, this is by far the greatest."
Analyze China's crackdown on its internet giants: QuickTake
(Updates New York closing prices.)
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