Alibaba Ecosystem: Impact on China’s Economics

Alibaba reported a big quarter for its e-commerce business. But China’s most famous tech firm is still poised to face nervous investors on Tuesday as a regulatory crackdown by Beijing and co-founder Jack Ma’s fall from grace cast a shadow over its future.

The company reported a 37% jump in revenue for the quarter ended December compared to a year earlier. That was better than what analysts were expecting, according to forecasts from Refinitiv.

E-commerce Operation


Alibaba’s core e-commerce operations have benefited during the coronavirus pandemic as people turned to online shopping to buy things without leaving their homes. And the most recent quarter included the company’s big Singles Day sales blitz, which brought in tens of billions of dollars last year.

Alibaba, The reason of better China’s Economy

“Thanks to the rapid recovery of China’s economy, Alibaba had another very healthy quarter,” said Daniel Zhang, chairman and CEO of Alibaba, in a press release.

But strong revenue might not be enough to soothe concerns from investors, who have been rattled by worries over how hard Chinese authorities might come down on Jack Ma’s tech empire.

Entrepreneurial spirit

Jack Ma, who co-founded Alibaba more than two decades ago, has watched his businesses draw the ire of Beijing in recent months. He’s also been snubbed by state-run media: On Tuesday, the Shanghai Securities Journal praised prominent Chinese business leaders in an article about “entrepreneurial spirit.” While tech entrepreneurs such as Tencent’s (TCEHY) Pony Ma and Huawei’s Ren Zhengfei were mentioned, Jack Ma was not.

Revenue

Jack Ma built Alibaba into one of China’s most powerful tech titans. It generated nearly $80 billion in revenue for the fiscal year that ended last March, and it has a market capitalization of more than $700 billion, making it one of the world’s most valuable tech companies.

But Beijing has become increasingly concerned about the clout that big, private tech firms have over the financial industry and other sensitive areas, and how entrenched they have become to everyday life in China through digital payments apps and other services.

Shares

Last November, shares in Alibaba slid even though the company’s earnings topped estimates, as it reported results just after regulators shelved a highly anticipated IPO from its financial affiliate, Ant Group.

Since then, the landscape has worsened for Alibaba and other Chinese tech firms. President Xi Jinping in December called efforts to strengthen anti-monopoly rules against online platforms one of the most important goals for 2021, according to state news agency Xinhua. And regulators announced an antitrust investigation into Alibaba on Christmas Eve.

Ant Group

Meanwhile, ant group has been told to overhaul its online financial business after authorities criticized it for edging out rivals from the market place, harming consumer rights and taking advantage of regulatory loopholes for its own profit.

Yi Gang, the governor of the People’s Bank of China, said last week at a virtual Davos forum that regulator involvement in that company is ongoing.

Figurehead

Jack Ma who has retired from the company but still remains a figurehead has largely remained out of sight through all of this. He vanished from public view for months before briefly emerging in a video in January to speak to teachers at a philanthropic event.

Issues of Alibaba and Ant

The issues facing Alibaba and Ant have dented the former’s share price. Alibaba’s New York-listed shares are down about 17% since a peak in late October, a plunge that has wiped off more than $140 billion from its market capitalization. Alibaba shares were up in early trading Tuesday following the earnings release, however.

Views of analysts


Some analysts suspect Alibaba may survive regulatory scrutiny from China relatively intact. Martin Chorzempa, a senior fellow at the Peterson Institute for International Economics, said Chinese authorities likely want to be careful “not to kill the goose that lays the golden eggs,” after all.

But experts warn that the days of unchecked growth are probably over.

“It is clear that Beijing is going to narrow the scope of managerial independence through regulation and informal ‘guidance’ to the [Alibaba] conglomerate,” said Doug Fuller, an associate professor at the City University of Hong Kong who studies technological development in Asia.

Kevin Kwek

As for Ant Group, the company will likely still be allowed to go ahead with an IPO once regulators are finished grilling the company over anti-monopoly concerns and consumer privacy issues, according to Kevin Kwek, managing director and senior analyst at Alliance Bernstein.

But if it is forced to make any drastic changes, that could hurt Ant’s valuation when it eventually is able to list. Before the IPO was pulled, Ant was expected to become the largest initial public offering ever with a $34 billion share sale.

Conclusion

“You can bet the best minds of Ant are working on the challenges as we speak,” Kwek said. “The question is how much they end up ‘giving up’ and what that could mean for valuations.”