Commentary on Political Economy

Thursday, 7 January 2021

Xi’s Push Against Jack Ma Sparks New Threat for China Tech

Bloomberg News
Updated on 
  • New blow to claims that Chinese firms independent from Beijing
  • Trump ban against software apps follow moves to curb Huawei
Jack Ma
Jack Ma Photographer: Marlene Awaad/Bloomberg

Chinese tech companies did a pretty good job convincing global investors that they operated independently from the Communist Party. Now, Jack Ma has become a case study for the firms’ biggest skeptics.

Companies from Alibaba Group Holding Ltd. to Tencent Holdings Ltd. splashed out billions on overseas acquisitions while developing apps and technologies that challenged Western rivals, with little or no state interference. But Beijing’s pursuit of Ma and his Ant Group Co. after he criticized regulators arguably plays directly into the hands of China’s biggest critics in Washington, who have long asserted that no Chinese tech giant or entrepreneur is beyond the reach of Xi Jinping.

U.S. authorities are now debating whether to ban investments in Alibaba and Tencent, according to people familiar with the matter, in what would be a dramatic blow to two of the companies whose shares are most widely held by global investors. Already on Tuesday, President Donald Trump signed an executive order banning transactions with eight Chinese software applications including Ant’s Alipay, and Tencent’s WeChat Pay, citing concerns that Beijing will have access to the data collected by the platforms. “I stand with President Trump’s commitment to protecting the privacy and security of Americans from threats posed by the Chinese Communist Party,” Commerce Secretary Wilbur Ross said in a statement on the order.

Trump Order Would Ban Transactions With Chinese Payment Apps
Chinese software applications banned by Donald Trump. Photographer: Roy Liu/Bloomberg

Beijing’s moves could raise pressure on the incoming Joe Biden administration to push through further action detrimental to China, though it’s not clear how much of Trump’s aggressive policies the president-elect will continue.

The party’s sway over business has become even clearer over the past 12 months as Xi pushes to consolidate power ahead of next year’s big party congress, when he’s expected to extend his rule for at least another five years. Covid-19 has only served to strengthen his grip, fueling a war-like campaign to steer the economy back on track and snuff out perceived threats to national security.

“You need to be very mindful of who ultimately controls regulations, who controls licensing -- of who’s in charge,” said Mark Natkin, managing director of Beijing-based Marbridge Consulting. “And if you forget and you start to be overly critical or take too much of a role that normally belongs to the party, then you’re going to get chopped down a notch or two.”

Beijing has moved to fundamentally overhaul Ma’s trillion-dollar internet empire since demolishing Ant’s $35 billion public offering in November, a record-breaking debut that was to have been the entrepreneur’s crowning achievement. Authorities then forced his online finance titan to cap loans and devise a plan to hive off its most lucrative businesses. The government also launched a probe into alleged anti-competitive practices at Alibaba. The billionaire has not been seen in public since November and his absence from the recent taping of an African TV program he created spurred speculation of his whereabouts.

“There is a lot of power in the Chinese government’s economic and financial management infrastructure, and if Ant was going to erode that power, important people would see it as a step too far,” said Graham Webster, editor of the DigiChina project at the Stanford Cyber Policy Center. But “the Chinese government also prizes these leading companies as drivers of technological independence. The party would have to perceive significant threats to tear them down.”

The action against Ma sends the latest signal that Beijing feels emboldened to risk international fallout from measures meant to address domestic challenges. Xi has previously defied threats of U.S. sanctions to impose sweeping national security legislation on the former British colony of Hong Kong. Crushing Ant’s IPO risked alienating a plethora of powerful global financiers from Singapore’s sovereign wealth fund to Carlyle.

The U.S. has also cited concerns about Chinese government influence over private industry to justify its efforts to force ByteDance Ltd. to sell the American share of its TikTok social network and the global campaign to convince allies to swear off equipment made by Huawei Technologies Co. Supporters of such actions often cite Chinese policies such as a 2017 law that requires companies to “support, assist and cooperate” with intelligence agencies.

Like Huawei, Ant has also asserted its independence from the Chinese government, saying in a 2017 application to the U.S. securities regulator that it is “a private sector company and while a handful of Chinese state-owned or -affiliated funds own non-controlling minority stakes, they do not participate in company management.” 

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