For many years, Jack Ma was the poster child for China’s technological rise, until he gave a controversial speech which led to the Communist Party turning him into “public enemy number one”.
- Alibaba founder Jack Ma is $32.5b poorer after criticising the government
- His speech is regarded as a “tipping point” for Beijing’s wider tech crackdown
- US-China rivalry is a factor behind the CCP’s crackdown on Chinese firms listing overseas
It was also the “tipping point” for Beijing’s wider crackdown on tech giants, which has wiped out more than $1 trillion from the value of those stocks.
The outspoken tech billionaire launched a blistering attack on the Chinese financial system and its “pawnshop” mentality on October 24 – while talking up his financial technology firm Ant Group, which was about to list on the Hong Kong and Shanghai stock markets.
He basically criticised the government for lacking innovation, which turned out to be a big mistake given the CCP isn’t known for its love for dissenting voices.
Soon afterwards, Beijing quashed the fintech’s public listing, apparently at the behest of President Xi Jinping.
It was a big shock for global investors at the time since Ant (despite its name) was one of the world’s biggest financial companies (on par with PayPal).
It was expected to raise $47.5 billion ($US34.5b) and become the largest initial public offering (IPO) in history.
China’s competition regulator also announced it was probing Ma’s other company, e-commerce giant Alibaba, for “suspected monopolistic practices” — which led to a record fine of 18.2 billion yuan ($3.8 billion).
The company was punished, in particular, for its so-called “choosing one from two” practice.
Basically, merchants who wanted to sell their goods on Alibaba had to sign exclusive agreements, which banned them from offering their products on rival shopping websites.
The flamboyant tycoon (who famously tried to channel Michael Jackson’s dance moves at his office party) has since been forced into hiding and is rarely seen in public now.
This debacle has also cost Mr Ma his top spot on Forbes’ China rich list.
He’s now ranked fourth, with a net worth of $US42.1 billion ($58 billion), It’s a long way down from last year’s $US90.5 billion.
Tech titans getting ‘too powerful’
Since Jack Ma’s fall from grace, Beijing has cracked down on more than 30 companies in its booming technology sector.
Tech giants like Tencent, JD, Meituan, Didi, Baidu and many others have been caught in the firing line.
These are China’s biggest companies and are the local equivalents of Amazon, Facebook, Google and Uber.
“Without Jack Ma’s speech, the regulators first would not be so infuriated, and they would not take this bold step of reporting the whole matter to its top leaders,” said Angela Zhang, a Chinese legal expert at Hong Kong University.
“However, these kinds of regulatory tensions have been there for a really long time.”
China’s regulation of its tech sector had been relatively lax before this point. This helped to fuel the rapid rise of those companies and their dominance in the lives of their consumers.
The businesses facing the greatest risk are the “consumer-facing” companies, which have the most exposure to the masses — where the chief executive’s power and influence rival that of the ruling party.
“One thing that Xi [Jinping] doesn’t want are alternative centres of power to be created,” said Richard McGregor, China expert and senior fellow at the Lowy Institute.
“It’s what’s what happened in Russia in the 1990s”, after the collapse of the Soviet Union, he added.
“We saw the creation of the oligarch class, who quickly became political activists.”
Tencent and its ‘spiritual opium’
Many Chinese tech firms have shares listed on Wall Street, where it’s tougher for Beijing to regulate that money.
They are now being penalised for alleged breaches of competition law which happened long ago.
Internet giant Tencent – which owns the WeChat social media app – was a high-profile casualty of Beijing’s recent crusade. Its shares are listed in Hong Kong, while its related entity Tencent Music is listed in the US.
In mid-July, regulators blocked a merger between Douyu and Huya, two of China’s biggest live-streaming video game sites (which Tencent owns stakes in).
If the merger had been allowed to proceed, Tencent would have attained a majority stake in the combined business.
To make matters worse, the company also copped a 500,000-yuan penalty for anti-competitive behaviour – in particular, its takeover of streaming company China Music back in 2016.
That acquisition gave Tencent a huge advantage over its Spotify-like music streaming competitors – as it attained about 80 per cent of exclusive music library rights in China.
The competition regulator ordered Tencent to give up its exclusive music rights within 30 days.
It did not take long for Tencent to surrender. In a statement, the company said it will “comply with all the regulatory requirements, fulfil our social responsibilities and contribute to healthy competition in the market”.
Then in early August, its shares plunged after Chinese state media published a harsh editorial, likening online games to “spiritual opium” and “electronic drugs” (saying they were too addictive, in other words).
Tencent rolled over again, by voluntarily pledging to limit the time that children could play its games – to just one hour per weekday, and no more than two hours during holiday periods.
“China also wants to make sure that these companies are firmly under its own control, as we’re heading into a very competitive period of geopolitical competition between the US and China,” Mr McGregor said.
He believes this is a key reason driving Beijing’s policies as “the Chinese leadership is no longer comfortable with its big companies being listed overseas in America”.
It certainly doesn’t want the risk of its Chinese consumer data falling into foreign hands.
Crackdown helped by lack of ‘checks and balances’
Weeks before Didi made its debut on the New York Stock Exchange, China’s cybersecurity watchdog had warned the ride-hailing company to examine its data security and delay its public listing.
The company didn’t listen and managed to raise $6 billion on its first day of trade.
But retribution came swiftly as China suspended Didi’s app from the nation’s mobile stores, causing its share price to tank.
Didi was also accused of illegally collecting data from its users – and the company promptly waved the white flag.
“We sincerely thank the responsible departments for guiding Didi to look into the risks,” Didi wrote in a submissive statement, published on Weibo, a popular Chinese social media platform.
In contrast, the US tech giants have been a lot more litigious and have never given up that easily in response to any lawsuit impugning their compliance with competition laws.
“Because of the checks and balance in the US judicial system, for example, you see these kind of actions to face an uphill battle in the courts,” Dr Zhang said.
She also said China’s tech crackdown is an attempt to fix “social problems, safety issues and social inequality”.
In that regard, food delivery companies like Meituan (China’s answer to Deliveroo and Uber Eats) have also come under fire.
They are being pushed by regulators guarantee that their riders will get a minimum wage, insurance and more lenient delivery deadlines, after copping heavy criticism on social media for their treatment of workers.
In a statement, Meituan said it will “resolutely implement” guidelines issued by China’s market regulator to “effectively enhance labour rights”,
Investors ‘complacent’ about political risk
Some analysts have warned it is becoming too risky to invest in Chinese companies, given the unpredictability of the crackdowns.
Chinese markets have also performed much worse than most of the other stock indexes across the globe.
The Hang Seng index has dropped 5.9 per cent since January 1, wiping out all its gains in the year to date. The Shanghai Composite, meanwhile, has lost 0.5 per cent.
In contrast, Australia’s key index, the ASX 200, has surged to record high levels, having jumped by more than 12 per cent in the past eight months.
“But from their perspective, they’ve got a longer-term view, they want to make sure that these companies are working not just in the company’s interest … but in the government’s interest.”
“If they’ve got to take some pain along the way to achieve that objective, then the Chinese government is quite happy to do that., as they’ve demonstrated time and time and again, over the decades.”
He also noted that many investors had become “complacent” about the risk of investing in Chinese stocks, assuming the tech giants were “too big to touch”.
“Well, that’s not the case. There’s nothing that the Chinese Communist Party won’t touch or won’t bring back under its control if it feels that’s necessary.”