Chinese e-commerce technology giant Alibaba Holdings Group (Alibaba) closed Monday (April 12) with a 6.5 percent jump in Hong Kong shares, sweeping away the gloom of a huge 18.228 billion yuan ($2.8 billion) fine imposed by Chinese regulators on Friday (April 10) for monopolistic practices.
In response, some observers said that while the fine was unprecedentedly high, it was still within the company’s reach as it only accounted for 4% of Alibaba’s annual revenue. As a result, stock market investors seemed to be buying lower on Monday, pushing up Alibaba’s shares on the grounds that “the shortfall is over” or “regulatory uncertainty has been removed.
However, two analysts outside of China saw things differently, saying that Chinese regulators are coming down hard on founder Jack Ma and Alibaba, which will have a negative impact on the overall innovation environment in China’s technology industry. They also say that the sky-high fines are intended to “make an example of the monkey” and that it will be difficult to see large platform companies of similar size in China in the future, and that the tightening regulatory environment means that the CCP’s hand is already in the technology industry, which is dominated by private companies, and that more technology companies may be hunted down or controlled by the CCP in the future. Under this premise, the platform economy industry faces rising political risk and increasing uncertainty about the rules of the game in China.
Rising Political Risks
Fraser Howe, co-author of the book “Red Capitalism,” said that the Chinese government’s “red capitalism” is the most important factor in China’s economy. Fraser Howie (Photo courtesy: Fraser Howie) Howie)
Fraser Howie, co-author of the book “Red Capitalism,” said in an interview with the Voice of America that the reason for Alibaba’s stock price rise in Hong Kong on Monday was simple: although Alibaba was facing an astronomical fine, the result was much better than the previous rumors that it would be spun off one by one. Alibaba is facing an astronomical fine, but the result is lighter than the previous rumors that it will be spun off one by one. Therefore, in the eyes of stock market investors, this means that Alibaba can still retain its leading position as an e-commerce platform in the future. In addition, the fine represents the end of the anti-monopoly investigation against Alibaba, and the Chinese regulator has also drawn a “clear” red line on anti-monopoly, so it seems that all the negative aspects of Alibaba have come to an end.
But Hoy believes that stock market investors are not seeing clearly the real political risks of private companies doing business in China. He said the sky-high fine, coupled with the fact that Beijing has pressured Alibaba founder Jack Ma to halt enrollment at Hangzhou’s Lakeside University, a “highly vindictive but unreasonable” move, represents the future of the Communist Party’s control over large technology companies, especially in China. Such a “highly retaliatory but unreasonable” move represents the future of the Communist Party’s tightening control over large technology companies, especially those with monopolistic positions. Worse, he said, the seemingly clear red lines of monopoly drawn by regulators, for example, no more “platform selection” or “(pit)-killing” competition, are full of arbitrariness, and he asked who can guarantee that the existing rules of the game will not be further tightened in the future. will not be further tightened in the future?
They seem clear, but there’s no guarantee that they’ll stay the same,” Hoy said. That’s the biggest problem with doing business in China. The rules of the game are always changing with the political climate. Five years ago, we were seeing a viable development model, but now it’s not viable at all.”
Political retaliation
Five years ago, he said, China’s technology industry flourished without any interference from state-run enterprises. But now, he said, the Communist government under Communist Party President Xi Jinping is making it clear that it wants private tech companies to hand over big data to state-run enterprises, a clear trend of “the state advancing and the people retreating.
Veteran venture capitalist and president of Landor Asia, Qiyuan Huang (Photo courtesy: Qiyuan Huang)
In an interview with the Voice of America, veteran venture capitalist and president of BlueScope Asia Huang Qiyuan also said that if the rumors of the Chinese Communist Party cracking down on Lakeside University are true, it means that the Chinese Communist Party is taking “political revenge” against Jack Ma, or “preventing” Xi Jinping’s political enemies. The “Ma gang” has expanded to include Jiang Zhicheng, the grandson of former Chinese leader Jiang Zemin, and other close friends of Ma’s in the business community. In the eyes of the Communist Party, he said, Ma is already a disobedient entrepreneur, not a member of the “Patriot Alliance” worthy of cultivation.
But he said the CCP’s heavy-handed treatment of Jack Ma, whether it is a special case or a general rule, has cast a shadow on the minds of other entrepreneurs, who are all like “birds of a feather”. He said this may also be one of the reasons why many Chinese technology companies, such as Jingdong Technology, have withdrawn their plans to list in A-shares or taken a wait-and-see stance in the first quarter of this year because of the wrong political atmosphere and the tightening of listing scrutiny.
Overall, while China’s regulators have imposed an astronomical fine on Alibaba and drawn a red line for monopoly, it is good for market order, but Huang Qiyuan does not deny that there are concerns, especially about the potential to suppress the innovation environment for start-ups and limit their development.
No more super platforms
After being regulated, all start-ups will be very cautious,” said Huang. The impact of this is that no one will build a super platform. They may do a smaller platform, that is, it may be in a certain industry, such as the financial industry, but will not be like Ant Financial, it may do a smaller platform, or a certain vertical, (do) a vertical (vertical integration) platform and so on. What you will see in the future is that it is not possible to have a super platform anymore.”
Huang Qiyuan said China’s anti-monopoly regulation is heavily political and different from the U.S., which focuses on a market economy. He said China can’t sit back and watch private companies become “behemoths” that aren’t controlled by the Communist Party, so the main purpose of the Alibaba fine is to “kill the chicken and warn the monkey” and put other tech giants like Tencent and Meituan on alert.
I think the situation in China is still different from that in the United States,” said Huang Qiyuan. China’s situation, the main thing is that it wants private enterprises is to be obedient, so this is called a stick to beat the head bird, you think if it is too outstanding (too prominent), too vocal about the government (more criticism of the government), it (the Chinese Communist Party) basically will have opinions, it is basically to disciplined.”
Since the CCP does not appear to be trying to put Alibaba to death, Huang Qiyuan believes that Alibaba’s future prospects are still promising. He said that if the outlook for China’s economy and e-commerce development is optimistic, Alibaba’s position as the leading online e-commerce company and its future support by the domestic demand theme, its shares may still be favored or sought after by stock market investors.
Domestic demand theme support
Huang Qiyuan said, this is also the “God of stock” Warren Buffett’s deputy Munger (Charlie Munger) in early April “bottom”, a large buy market value of nearly $ 40 million Alibaba stock one of the reasons behind.
In the face of the sanctions, Alibaba last week synchronized an open letter, saying that “the government’s regulation and services, the community’s criticism, tolerance and support, is the key to Alibaba’s growth along the way”, adding that it was “grateful and at the same time reverent”.
Such a reaction drew comments from Bloomberg News describing it as “how bizarre” and saying that Alibaba’s move was unusual and showed the Chinese tech giant’s inability to fight back under regulatory pressure from Communist authorities.
However, Huang Qiyuan said Alibaba’s response of “bowing to the ground” and “absolute obedience” was exactly what the Chinese government wanted. Does Alibaba dare to disobey, he asked? “The head is about to fall off and it’s about to say Bye Bye.”
Pulling the sleeve is also a kind of love?
In response to Alibaba’s sky-high penalty reprieve, a single view within China, mostly positive, the e-commerce circle is generally hailed.
CCTV commented last week that the fine “is an effective regulation of the illegal behavior of platform companies, which does not represent a denial of the importance of the platform economy in social development, nor does it represent a change in the state’s attitude toward the development of the platform economy. Commented that, for better development, “pulling the sleeve is also a kind of love.”
Ma Guoliang, executive director of Chinese e-commerce platform Dianshangbao (Photo courtesy: Ma Guoliang)
Ma Guoliang, the executive director of Dianshangbao, which helps provide back-office services for dozens of Chinese e-commerce platforms, took a similar view in a written response to an interview with Voice of America. He said, “The anti-monopoly penalty is for the love of giants like Ali and Tencent, for the maintenance of competition order, and for the protection of future innovation. The current Ali and Ali stock price, the negative or negative out is good.”
Ma Guoliang believes that Alibaba’s situation is very similar to that of Apple in the U.S. “Although market share has declined, the company’s value barriers are more solid and its profitability is stronger. It can create longer-term value for customers, the company, shareholders and even the country.”
But he said Alibaba’s business practices of 9 yuan (RMB) package shipping, counterfeit goods, imitation goods and tens of billions of subsidies cannot create long-term value for customers. On the contrary, only by improving supply chain efficiency, customer unit price and service will there be enough resources to innovate and create the good things consumers want.
Benefit from the shortage of e-commerce
Ma Guoliang believes that the most efficient e-commerce traffic in China is Alibaba, and Jingdong has the most efficient supply chain. But how Alibaba maintains this traffic realization efficiency depends on the demand of high-value customer scenarios, not low-value traffic scenarios.
He said Alibaba’s shares have been undervalued for a long time since the fourth quarter of last year, but he is extraordinarily bullish now that the short-side is out. As for the Chinese government’s move to crack down on Jack Ma’s Lakeside University, Ma Guoliang, who was a senior product operator at Taobao, thinks it may be a miscommunication. He believes, “Jack Ma is still the same Jack Ma and has not fallen from grace because of it.”
Wang Xin, director of Beijing-based Zhiyuan International Center for Economic Cooperation and Research, believes that the relationship between Ali and Ma Yun should now be viewed properly separately, and that “the Lakeside University thing is a measure to control the over-extension of the company after it gets bigger, and a signal to companies not to overreach on all sides.”
For Alibaba’s consolidation, Wang Xin believes that it is beneficial to e-commerce. He said in writing to the Voice of America: “Small merchants, small businesses have more profit margin. This is kind of a normal thing and a good thing. The next step is for e-commerce platforms to be more regulated, and for the government to be more stringent in regulating companies like Ali (especially in finance). Ali’s previous rapid expansion model may have to change.”
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