Alibaba and JD.com Reach Truce Amid Intensifying Antitrust Scrutiny in China

The once formidable garden walls dividing China's biggest tech companies are slowly crumbling as Chinese tech giant Alibaba Group plans to tap on to the logistical services of JD.com amid slowing user growth and Beijing's antitrust scrutiny.

Alibaba announced that starting late October, users will be able to checkout and deliver their loots to their homes using the premium JD logistics services. In exchange, JD would add Alibaba's fintech arm Alipay as an additional payment option when users are paying for their shipment service. This partnership aims to benefit both parties and meet the government's anti-trust directives.

After a decade of competition, this is the first time the two companies have seen eye to eye on something. Both companies previously took a close ecosystem approach, where each company kept to themselves. But who knew that these bitter rivals could partner with one another?

Breaking the barriers between Chinese companies

This move could be the beginning of more partnerships between separate Chinese tech companies. Just one month ago, Taobao and Tmall announced that they will be integrating Tencent's WeChat Pay fully into their ecommerce platform.

But Chinese merchants are still waiting for the biggest integration yet; the integration of TaoBao and Tmall stores into WeChat's "mini program" ecosystem of applications that work within its main app. This partnership would signify a huge win for TaoBao and Tmall, given WeChat's extensive user base in China. Almost every smartphone user in China is on WeChat.

But the partnership between Alibaba and JD remains a questionable decision. While JD is known for its top tier logistics services albeit its steep price, JD's logistics arm will now have to compete with budget delivery services such as ZTO Express, YTO Express, STO Express, Best Express and Yunda Express, which have an average price per order of 2 Yuan (S$40 cents).

Most small businesses on Taobao also tend to sign annual contracts with the discount delivery services, which makes them incompatible with JD's services. But there are also Tmall merchants who tend to choose premier logistic services might decide to opt for JD. Experts also noted that one of the advantages that JD has over its budget competitors is its reliable home delivery, while most of the bargain services only deliver goods to parcel stations.

These give bargain express platforms collectively held 77% of China's delivery market last year.

Cainiao's struggle

This partnership could also pose challenges to Alibaba logistics unit Cainiao, whose domestic user base is static amid tough competition, forcing it to step up an overseas push. In March, Alibaba canceled Cainiao's planned initial public offering, citing challenging IPO market conditions.

According to sources, the agreement may help ease some of the challenges Alipay faces, as WeChat's integration into Taobao and Tmall operations has been putting increasing pressure on the platform.