The State Administration of Market Regulation, China's top antitrust regulator, has launched an investigation into Alibaba Group Holding's alleged monopolistic practices.
The regulator said that it was investigating reports of the company forcing merchants to exclusively use its platform as their only distribution and sales channel.
The regulator said that Alibaba is suspected of engaging in monopolistic business practices that stifle innovation and fair competition. One of those practices - called "forced exclusivity" - has become rampant in China's internet industry where companies give merchants no other option but to use their platforms.
Alibaba said in a statement that it will be cooperating with regulators on the investigation. The company assured customers that its business operations will remain normal during the entire length of the probe.
"In the short term, the investigation will chip away at Alibaba's growth as it can no longer take the market share so quickly by undercutting smaller rivals, but the real impact wouldn't be as big as expected [because] China's e-commerce industry is a fairly competitive sector that's hard for new entrants to enter," analysts at Xufunds Investment Management said.
Alibaba's stock dropped by more than 7.7% in Hong Kong Wednesday after the regulator announced the launch of the probe. The dip was the largest intraday fall in more than a month. Shares of Alibaba's subsidiaries including Alibaba Health and Alibaba Pictures also declined.
Market experts said that the investigation is overall "good for the e-commerce industry" as it will prevent big players from dominating and growing too quickly.
State-owned People's Daily said that the investigation does not equate to a change of the state's attitude toward e-commerce companies. Instead, the probe is meant to bolster regulations to promote healthy development in the sector.
Separately, the People's Bank of China has summoned the executives of Alibaba's Ant Group to discuss new regulations that will be imposed in the country's rapidly growing fintech industry. The executives will be meeting with regulators covering the country's banking, insurance, foreign exchange and securities sectors. The date of the planned meeting has yet to be finalized.