Two Charts That Explain Why Alibaba and Jack Ma Are in Trouble

Jan 07, 2021 - 2 minutes read time

Alibaba Group

Chinese big tech is in trouble these days. And it’s not only because of Trump. 

The White House signed another executive order this week. It’ll ban Alibaba’s Alipay, Tencent’s QQ Wallet and WeChat Pay, and six other Chinese apps in the US. But the real trouble is at home. Beijing is cracking down on them too. 

The Chinese government has drafted antitrust rules aimed at curbing monopolistic behaviors by its giant internet platforms. It suspended the initial public offering of Ant Group, which could have been the world’s largest-ever IPO . Then Jack Ma disappeared

Between December 24th and 28th, Alibaba’s valuation fell by 13%, or $91bn. This happened despite the $6bn in share buy-backs aiming to avert the slide. The decline in Alibaba’s share price also weighed on other internet and technology companies. Games publisher and dominant social network operator Tencent Holdings and e-commerce giant JD.com felt the heat too. 

Chinese authorities have reputation for supporting national champions. Think about the alleged support that Huawei and TikTok have received. Then there is the forced technology transfer that Western companies have constantly complained about. Now, all of the sudden, Beijing has decided to rein in its own tech giants. Why? 

Here is a revenue breakdown of the five leading companies in China.

Two Charts That Explain Why Alibaba and Jack Ma Are in Trouble

JD.com and Alibaba are under extreme scrutiny. We haven’t heard of crackdowns against Huawei, Haier or Lenovo. Companies that have substantial overseas revenues are immune. 

Here is another picture. It looks at user volume among the three major platforms. 

Two Charts That Explain Why Alibaba and Jack Ma Are in Trouble

Again, it is WeChat and Alibaba being scrutinized. TikTok remains free as far as Beijing is concerned. 

What’s emerging here is that the companies still receiving government supports are ones that have already gone international. These companies earn foreign money and bring home profits. The reason why China’s big tech companies are falling out of favor is simple: They are disrupting state-owned enterprises without winning abroad. 

I gave an interview about this point on Bloomberg TV this week. You can watch the TV segment here. 

So what are the long-term implications? Alibaba and Tencent will speed up their plans to go abroad. Chinese big tech will survive. But to serve the national interest, it will have to expand internationally, very quickly. 

 

Stay healthy,

Howard Yu signature

This article is co-authored with Jialu Shan. She is a research fellow at the Global Center for Digital Business Transformation, a joint initiative of the International Institute for Management Development (IMD) and Cisco.


Comments


6 comments

M
Martin Theyer Jan 13, 2021 at 3:47pm

Great insights as usual - maybe there is an other side to it -a more human - maybe Huawei, Hayer and Lenovo are no threat to the government because their founders do not influence people‘s opinion - maybe Alibaba or Tencent owners do - so the owners could easily be seen as potential political rivals to the existing regime ? - food for thoughts

j
jooting Jan 08, 2021 at 8:02am

Thanks Howard, your article above is enlightening. About two years back, together with a few EMBA classmates we wrote a case about China Literature with the title “Is China Literature the next Marvel?”. The team ended the case questioning if the acquisition of New Classic Media was a strategic one… There were many possibilities which we analyzed but to receive a fine from the Chinese regulator for anti-trust reason was totally unexpected. Wonder what is the future for a platform like this, if it will continue to survive and thrive, and how...

M
Marat Abdullin Jan 07, 2021 at 5:39pm

Thanks for sharing your thoughts.

S
Saidah Jan 07, 2021 at 1:07pm

Thank you for keeping us abreast of these developments. You always provide excellent insights!

C
Camron Lynch Jan 07, 2021 at 2:17am

Excellent perspective on China's big tech crackdown!

R
Rogan Williams Jan 07, 2021 at 1:54am

Really interesting and informative piece, thanks for sharing.

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