Beijing has asked Alibaba to divest its vast media holdings, including its investments in Chinese and foreign newspapers, broadcasters and social media platforms, the Wall Street Journal said Monday (March 15), citing unnamed people familiar with the matter.
The report said Alibaba owns stakes in mainland media outlets such as Caixin, 36 Krypton and Business Review, and previously spent up to $2 billion to buy Hong Kong‘s South China Morning Post. In terms of social media platforms, Alibaba is rumored to hold a 30% stake in Sina Weibo and wholly control the video streaming platform Youku, as well as taking stakes in entertainment production companies Light Media, Huayi Brothers and Culture China. The Wall Street Journal reports that Chinese Communist Party officials are rumored to be alarmed by the size of Alibaba’s media holdings, and have asked Alibaba to spin off the long list of media investments, as they are concerned that Alibaba’s massive media presence will continue to pose a challenge to China’s domestic and foreign propaganda efforts.
Anti-monopoly fines issued
China’s State Administration of Market Supervision on Friday (March 12) formally imposed administrative fines totaling 6 million yuan ($923,000) on 12 Chinese internet companies, including Tencent and Baidu, for monopolistic acquisitions, and Tencent’s share price fell heavily for two consecutive days after the news. The market also started to talk about how strong China’s anti-monopoly crackdown will be and what kind of anti-monopoly sanctions Jack Ma‘s Alibaba Group, the leading e-commerce company, will face in the future.
Prior to that, the Wall Street Journal last Thursday (March 11) cited sources familiar with the matter as saying that China’s antitrust regulators are considering issuing a record-breaking fine to Alibaba that could exceed the $975 million paid by Qualcomm for its monopolistic practices in 2015, and that Alibaba is officially required to completely stop forcing merchants to “The report also cited Beijing-based companies familiar with the matter.
However, the report also cited officials familiar with Beijing’s top thinking as saying that as long as Alibaba draws a clear line in the future with its recklessly vocal founder Jack Ma and follows the Communist Party’s instructions more closely, the official disposition and consolidation plan for Alibaba could take a turn for the worse and become more moderate, as China also does not want to crack down on a platform commonly used by Chinese consumers or a company widely watched by international investors.
Taming the tech giant?
A number of industry watchers interviewed by Voice of America had differing views on this. One foreign observer at a Beijing-based consultancy, who asked not to be named, said it would be in the best interest of the Beijing regime to “tame” the tech giants, rather than kill them or spin them off. However, one Chinese economist believes that the game between Chinese regulators and tech giants may still be a tug-of-war, and it remains to be seen how it will eventually evolve.
The Beijing-based expat consultant analyzed the political thinking behind the Communist Party’s recent tightening of economic regulations on platforms. He told VOA that the global anti-monopoly wave has given the Chinese Communist Party ammunition to play the role of a responsible power state to “tame” the tech giants in its territory so they don’t grow wild and take market share from state-owned enterprises in the future. He said Beijing also intends to make the big tech companies members of a “national team” alongside the state-owned enterprises they used to challenge, working together to serve the interests of Beijing’s regime and play one of the engines that support the domestic economy.
The expatriate adviser said Beijing is planning a very different relationship between the state and the market, a “chain” in which tech companies serve the state and invest for the long term in core R&D areas (e.g., artificial intelligence) to support industry and the real economy. Thus, he said, Beijing’s focus is on nurturing a group of large but compliant technology companies, not on imposing death penalty fines or spin-off orders.
With that in mind, it is likely that these private tech companies will no longer be able to exalt private shareholder rights in the future to expand wildly or challenge Chinese state-owned enterprises in the market.
Leveling the playing field
The expatriate adviser said Chinese tech companies are powerless in the face of strong official regulation. It is also better for private shareholders’ rights to avoid stepping on the official line to avoid official crackdowns, especially since Chinese regulators’ bottom lines are often more elusive than those set by regulators in Europe and the United States, compared to other large multinational Internet companies whose revenues are overly concentrated in the domestic market and Chinese users.
However, he also predicted that Chinese tech giants will continue to dominate the market, although their expansion will slow in the coming years, especially in areas of “systemic risk” as Chinese regulators create a more level playing field for smaller start-ups, SOEs and SMEs.
In terms of the progress of regulatory amendments to the anti-monopoly law, China’s State Administration of Market Supervision and Administration published on February 7 the “Anti-Monopoly Committee of the State Council’s Anti-Monopoly Guidelines on the Platform Economy”, which clearly defines the latest monopoly standards and related norms, as well as four basic enforcement principles: i. Protecting fair competition in the market: preventing I. Protecting fair market competition: preventing disorderly expansion of capital, supporting innovation, and enhancing international competitiveness, etc. Second, scientific and efficient regulation: according to the development of the platform economy, the law and specific characteristics, and constantly strengthen and improve supervision, strengthen the enforcement of the target and scientific. Stimulate innovation and creativity: create an orderly and open competitive environment, lower barriers to market entry, guide operators to spend more resources on technological innovation, quality improvement, service enhancement and model innovation, and prevent and stop restrictive competition or inhibit the innovative development of the platform economy. Fourth, to protect the legitimate interests of all parties, including operators, consumers and practitioners, etc.
Additional amendment to the source of anti-monopoly law
In addition, China’s Anti-Monopoly Law, which has been in force since August 2008, was also amended at the end of January this year for public consultation. It is now widely expected that the amendment to the Anti-Monopoly Law will be completed this year, and the new version of the Anti-Monopoly Law will serve as the latest legal source for law enforcement agencies at all levels to investigate and deal with violations after it is passed by the National People’s Congress and promulgated into law.
According to the new draft law, with the possibility of raising the fine to “up to 10% of the company’s annual revenue”, the Chinese Communist Party will change its more tolerant regulatory attitude towards the new economy and enter an era of strict regulation to strengthen the rules of fair competition in the market, as well as to enhance the management of digital, financial and taxation.
Analysts expect this tightening regulatory environment to have a significant impact on China’s technology giants, including e-commerce sites such as Alibaba and Jingdong, or technology industries such as Alipay and WeChat Pay.
Scholars: Anti-monopoly government and business game in progress
In an interview with the Voice of America, a Beijing-based economics scholar, who asked not to be named, said the game between regulators and tech giants is still a tug-of-war, and it will depend on how the game continues to evolve in the future. Beijing’s position does not appear to be ironclad, he said, as it also involves a tug-of-war between the political and economic forces represented by the shareholders behind the tech giants.
In the case of Alibaba, he said, “Some people are advocating anti-monopoly to crack down on Ali (Baba), while others are still eager to see Ali go public and (let) them hurry (to cash in their investment). …… So, Ma Yun and Ali become a symbol, more complex, part of the people to fight him, is to stand in the public interest position to speak, and support Ali, (hope) hurry to list to cash that group of people (are) are ready to cut leeks.”
As some industry watchers have analyzed, the economist said, there may also be a group of people who want to keep Alibaba and therefore find ways to make it work for the Chinese economy, including the rural economy, by taking advantage of the situation. Thus, they will actively lobby not to kill Alibaba with a single stick. However, the scholar questions, if Alibaba’s strong position of monopoly in the market is not broken, in a market that is not competitive, even if the Beijing regime leads Alibaba to serve the country and provide better services to the rural economy, there is no free lunch under the sky, can farmers afford to pay the price of the services provided by Alibaba with a dominant market position? Won’t they be squeezed?
Red Capitalist
He said that the interest structure behind Alibaba is complex, and although it is private, there are also state-owned enterprise shareholders, and both factions may be powerful Communist Party members or official, the difference only lies in which faction can benefit from it or how much it benefits. Therefore, Alibaba’s interest structure will probably determine its final fate: which faction will win? Will it be spun off or not? Will it hit the state-owned shareholders instead? He said the calculations behind the stakes are complex and tangled, and there could be variables at every step.
According to Alibaba’s latest annual report for fiscal year 2020, the company’s largest shareholder is still Japan’s Softbank, with a 24.9 percent stake as of the end of 2019. As for the original second largest shareholder Altaba (Yahoo’s predecessor) holdings are now all out. Founder Jack Ma and Vice Chairman Tsai Chongxin, who are still at the heart of the company’s decision-making, hold 4.8% and 1.6% of the shares, respectively.
The major shareholders revealed in Alibaba’s latest annual report appear to be private investors with no official overtones. However, according to numerous media reports, the Chinese government-led sovereign fund China Investment Corporation, Boyu Capital, founded by Jiang Zhicheng, the grandson of former Chinese leader Jiang Zemin, and CDB Capital, an investment arm of CITIC Capital and China Development Bank, all helped Ma oust his second-largest shareholder, Yahoo, back in 2012. They both helped Ma get rid of Yahoo, buying back nearly half of the company’s shares in what was described as a “mysterious national team”. As Alibaba’s share price rose after its IPO, these close friends of Jack Ma and powerful Communist Party members were able to make a significant return on their investment.
There is no public information on how much of Alibaba or other companies under Ma’s business empire these official institutions and princelings still hold, and it is difficult to get a full picture.
Xi Jinping‘s Potential Political Enemies
However, according to another investigative report in the Wall Street Journal in mid-February, the key reason why the listing of Alibaba’s independent Ant Group was halted is suspected to be that the Chinese government, in investigating Ant’s opaque shareholding structure, found that the secret investors behind Ant still included many of Ma’s close friends, such as Jiang Zhicheng and Li Botan, the son-in-law of Jia Qinglin, a former member of the Politburo Standing Committee of the Communist Party of China.
Members of the “Crown Prince Party”.
The Wall Street Journal reported that the private equity firm led by Jiang Zhicheng, Boyu Capital, and the investment institution controlled by Jiang’s Shanghai gang and Li Botan, Beijing Zhaodu Investment Group, are all major shareholders of Ant, which fully demonstrates Ma’s close and long-term relationship with these powerful Communist Party members, or Red capitalists. However, in the view of some analysts, Ma’s success is as much about the power elite as it is about the power elite.
They say that Ma’s close political and business ties, built through his business map and the distribution of stakes in Ali or Ant, now appear to be a thorn in the side of Xi Jinping and his inner circle of decision makers, who are highly fearful of potential threats and challenges and eager to cut off the golden veins of these political enemies and powerful people. After the setback in the Ant IPO case, Alibaba-owned media “36 Krypton” reported on Saturday (March 13) that Ant Chief Executive Officer Hu Xiaoming has resigned as CEO, and the reason for his departure is unknown. After Hu’s departure, Ant Group Chairman Inouye will also serve as CEO.
Political considerations of anti-monopoly
Veteran venture capitalist Qiyuan Huang, President of Landor Asia (Photo courtesy: Qiyuan Huang)
In an interview with the Voice of America, veteran venture capitalist and current president of BlueScope Asia, Qiyuan Huang, said that, like the United States and other countries around the world, Chinese regulators are concerned that the rapid advances in technology are making technology companies larger and more powerful. And their continued expansion threatens to turn them into “uncontrollable monsters. Therefore, governments, including China’s, must step in and rectify the problems of unfair competition or the growing gap between the rich and the poor.
However, Huang Qiyuan agrees that China’s regulation does carry additional political considerations. In the case of Ant’s IPO, for example, if Ant succeeds in raising $35 billion, coupled with its user base of 800-1 billion people, such a scale and power could overtake the Chinese government. He said the Chinese government may worry that when the power of the private sector becomes too large, it will create a counterweight to the government. So the CCP’s additional consideration is not to allow private power to be so large that it can overtake the government, or have the ability to counterbalance it.
Nevertheless, Huang believes that the CCP should not nationalize large technology companies or include them in a “national team” of mainly state-owned enterprises, as this would stifle the efficiency and innovation of private enterprises.
Mainland China, even including Xi Jinping, will not go back to the old model of state-owned enterprises because it’s stupid and state-owned enterprises are just not efficient,” he said. The best of these companies in mainland China are private companies …… It (CCP) is needed to be able to regulate (technology giants), but not to nationalize it, because after nationalization, it will kill (stifle) the whole spirit of entrepreneurship, this entrepreneur (entrepreneur) innovation. So, the spirit of innovation and enterprise management will be lost because of the nationalized system, so, from a certain point of view, this is to destroy the real core value of a company.”
Huang Qiyuan said that international talents, including Chinese returnees, will rarely want to work in Chinese state-owned enterprises because their management model is too rigid and too focused on aligning with central policies, lacking the innovation and flexibility of private enterprises and the drive to align with world trends. Therefore, he believes that although China is strengthening the regulation of private technology companies, the premise is still encouraging innovation and therefore will not return to the old path of public and state-run to destroy innovation.
Anti-monopoly in line with international trends
Anti-monopoly in line with international trends
Cheng Kin Han, Associate Professor, Department of Law, The University of Hong Kong (Photo courtesy: Cheng Kin Han)
The size of a company is not a problem, as long as it doesn’t abuse its dominant market position,” he said. Basically, the tech giants are big, and they will continue to find new ways to abuse their market position. Anti-monopoly law and enforcement officers can only keep catching up behind them.”
Zheng Jianhan believes that although the staffing establishment of China’s State Administration of Market Supervision and Administration is small, the force of regulation will not be compromised as long as the central government is determined to investigate and deal with it, as exemplified by the Ant IPO case. He said that in the past few months, large technology companies should have felt the Chinese government’s determination to combat monopoly, and are also cautiously responding, and pay close attention to the progress of the “anti-monopoly law” amendment.
He added that the most common objection to stronger monopoly regulation by governments is to stifle innovation, but he said that companies that exploit consumers with innovative practices, abuse their personal data or distort the market order are not really encouraged to innovate.
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