[ET Net News Agency, 28 December 2020] China's State Administration for Market
Regulation (SAMR) on 24 December announced that it has initiated an investigation into
Alibaba (BABA) (09988) in response to complaints about the alleged picking-one-from-two
(POFT) practice, whereby e-commerce merchants, mostly those owning well-known brands, are
forced to choose one e-commerce marketplace as their exclusive online distribution
channel.
Nomura said this tactic is prevalent in China's internet space beyond the e-commerce
vertical, as dominant platforms often use it to maintain exclusivity on certain product
offerings. Most internet giants run big portfolios of diversified businesses, so many of
them are both beneficiaries of the POFT tactic in areas where they lead, and victims in
those where they lag behind.
During the three-day (16-18 December) annual Central Economic Work Conference (CEWC)
chaired by President Xi to chart out the top economic agenda for next year, China listed
anti-monopoly supervision as one of its key tasks for next year, vowing to prevent
disorderly capital expansion.
Nomura thinks CEWC's message is likely setting the stage for closer scrutiny by
regulators over business practices of Chinese internet companies in the year to come. But
it believes Chinese authorities will try to strike a balance between regulation and
growth, particularly in dealing with cases involving those giants that not only form a
cornerstone of China's entire internet industry but also spearhead technological
innovation that the country so badly needs.
It expects that BABA shares to trade under pressure in the near term due to this
regulatory overhang. Nomura maintained its "buy" call on BABA, with a target price of
US$361 per ADS, or HK$349.8 per HK-listed share. (KL)