Is Alibaba’s fate a warning to China’s tech giants?

It’s been a tough week for Chinese tech firms.

Over the weekend, Chinese billionaire Jack Ma’s e-commerce giant Alibaba was fined $2.8bn (£2bn) by Chinese regulators, who said it had abused its market position for years.

Then on Monday, Chinese digital payments firm Ant Group – an affiliate of Alibaba – announced a drastic restructuring plan with regulators forcing it to act more like a bank than a tech firm.

And on Tuesday, 34 companies, the who’s who of China’s tech world, were summoned by officials and warned: let Alibaba be a lesson to you.

  • China forces Jack Ma’s Ant Group to restructure
  • Alibaba accepts record fine and vows to change
  • China’s tech giants fall under regulator’s pressure

They’ve been given one month to “self-reflect” and conform to China’s new guidelines for stage organizations.

Alibaba is the granddad of China’s tech industry. It overwhelms the commercial center there with more than 800 million clients in China alone.

That is the reason it was a reminder for others in the tech area when the firm was fined and authoritatively censured.

The examination concerning Alibaba confirmed that it had mishandled its market position for quite a long time by confining vendors from working together or running advancements on rival stages. The fine adds up to about 4% of the organization’s 2019 homegrown income.

Industry players advise me “everybody is tense”. The enormous firms are stressed they’re straightaway.

Organizations like Tencent, JD.com, Meituan, Bytedance and Pinduoduo are on the whole tak

No-one can be more powerful than the Partying a gander at Alibaba’s experience, and attempting to abstain from intersection any red lines set by Beijing.

Apparently, Alibaba’s fine is about expanded guideline in the rambling Chinese tech area, and for some, it is a decent sign that the market has developed.

“In the event that you read the laws, Chinese controllers are attempting to be more forward looking and think ahead, trying to manage an industry that is moving so quick,” says Rui Ma, a China tech expert and co-host of the digital broadcast Tech Buzz China.

“They are including the utilization of calculations, not simply piece of the pie. They are attempting to comprehend the stage economy and attempting to be in accordance with what more created economies are doing.”

Yet, the moves are additionally seen as political.

They are a sign that under President Xi Jinping, nothing can be greater or all the more remarkable in the existences of normal Chinese individuals than the Communist Party.

These organizations have made an option virtual world for Chinese individuals, and have a colossal hold over their lives. You can’t overcome a day without getting to one of these applications in China.

Yet, that equivalent impact over the existences of Chinese individuals places them in direct rivalry with the Chinese Communist Party.

Sources in China’s financial circles tell me they suspect it “irked a lot of the top leadership in Beijing” when the godfather of Chinese tech Jack Ma made a speech dismissing the traditional banking sector last year.

The speech led to state media criticising Mr Ma’s businesses Alibaba and Ant Group. Then Mr Ma and his team were summoned by regulators and the much-anticipated share market launch of Ant was suspended.

Observers tell me what Mr Ma said at that symposium has cost him dearly.

It is clear both Ant and Alibaba are keen to draw a line under these events.

In an investor call this week, Alibaba’s executive vice-chairman Joe Tsai said: “From a regulatory standpoint….in our case we have experienced the scrutiny and we’re happy to get the matter behind us.”

He added: “I think on a going forward basis, globally the trend is that regulators will be more keen to look at some of the areas that you could have unfair competition.”

China tech’s ‘Wild West’ is changing

Chinese tech firms were born and grew up in an environment with little or no regulation.

The sector operated a bit like the Wild West, with a “build it and they will come” philosophy.

And for a long time the government actively encouraged that

China has had national schemes to promote entrepreneurship and innovation,” Angela Zhang, associate professor at the University of Hong Kong tells me.

She is an expert on Chinese law and is the author of a recent book called Chinese Antitrust Exceptionalism.

“In the past regulators were a bit more lax in their approach. They used alternative regulatory tools which were more lenient to the tech firms.”

But that regulatory landscape is changing as China tries to rein in these firms.

Killing the chicken to scare the monkeys

Prof Zhang says that while Beijing is keen to rein in the sector – it won’t want to kill off the economy’s golden goose.

“In Chinese there is a phrase, killing the chicken to scare the monkeys,” she says. “Alibaba will be used as an example, as a lesson for other tech firms to learn from.

“If you put yourself in the shoes of the Chinese leadership, they definitely want economic prosperity. Growth is a major priority of the government. Alibaba’s experience will ensure the others fall in line.”

Rui Ma agrees, and says the rules will help to foster more innovation for smaller companies in China who up till now have been squeezed out by the big players.

“Local venture capitalists I’ve spoken to are generally supportive of these regulations,” she says. “They think there’s more opportunities to find younger, newer companies that never stood a chance before.”

Leave a Reply

Your email address will not be published. Required fields are marked *