Alibaba’s restructuring and Jack Ma’s return home are all part of China’s plan


Hong Kong
CNN

Alibaba sign restructuring lifted its shares in New York and Hong Kong as investors bet on a return of regulatory support for the Chinese tech industry and private businesses after more than two years of brutal repression.

But the nature of the overhaul, in which the internet conglomerate will split its business into six separate divisions, is a sign that Beijing’s campaign against big tech hasn’t fundamentally changed. Regulators remain intent on reducing the tech giants’ monopolistic nature and limiting their power, though they are urging private companies to do their part to create jobs and spur a faltering economy.

The news of the restructuring came shortly after Return co-founder Jack Ma to mainland China. Ma has spent time abroad and otherwise kept a low profile since the Chinese government launched a crackdown on the tech sector in late 2020.

“It looks like the breakup of Alibaba was orchestrated by Beijing,” said Brock Silvers, chief investment officer of Kaiyuan Capital.

“The idea is reinforced by the sudden appearance of Jack Ma, which now appears to be a planned media event meant to boost market sentiment at a critical moment.”

An Alibaba LOGO hangs on a wall of the Century Trade Building in Shanghai, China, March 9, 2023.

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The $260 billion market cap surged 12% in Hong Kong on Wednesday after rising 14% overnight on Wall Street, pushing the tech sector up in Asia Pacific.

Ma is considered a symbol of China’s technology industry and a barometer of the Chinese government’s support for private business. His presence is seen as evidence of a more favorable approach to the private sector at a time when China’s economy is in dire need of growth.

In October 2020, the once big businessman criticized the country’s financial regulation system for being too rigid and unfriendly to small businesses. As a result, authorities delayed Ant Group’s planned $35 billion IPO at the last minute.

A wide-ranging regulatory crackdown against Big Tech followed, which later swept through China’s most powerful private companies, wiping out vast sums of their market value. Alibaba shares are still down 70% from their peak just days before regulators abruptly canceled Ant Group’s IPO.

But nearly three years later, the dynamics have changed.

The Chinese government is currently facing serious economic problems. His seeks to accelerate growth And restore confidence in the technology sector after three years of strict Covid-19 control.

Alibaba’s restructuring is “part of [Beijing’s] strategies to build confidence in the private sector,” said Hong Hao, chief economist at Grow Investment Group.

By changing policy, Chinese leader Xi Jinping recently urged the government to support private business, calling on entrepreneurs to play a role in spurring growth and technological innovation so that China can better resist what it called “containment” and “crackdown” from the West, led by the United States.

Prime Minister Li Qiang, a trusted ally of Xi, who was confirmed as the country’s No. 2 official this month, has since taken a series of steps to restore ties between the government and the private sector.

“For some time last year, there were inappropriate discussions and comments in the public, which caused concern among some private entrepreneurs,” Premier Li said. said at its first press conference earlier this month.

China may need Alibaba now, but analysts say it is no longer as strong as it used to be.

According to Silvers, the breakup appears to “curb the influence of the tech titans.” “It would serve as a stark reminder of Beijing’s uncomfortable relationship with the private sector, despite recent assurances.”

Beijing serious problem is that private technology firms have become too big and powerful. During years of lockdown, the government has sought to lessen the monopoly nature of many high-profile tech companies by imposing heavy fines on them, banning apps from stores, and requiring some firms to completely overhaul their businesses.

“[Alibaba’s restructuring plan] offers a way to limit the monopoly power and influence of the platform,” Hong said.

This could serve as a model for other Chinese tech giants in the future.

“Tencent is obvious [one] next,” Hong said, adding that the social media and gaming giant has already begun to reduce its stake in portfolio companies, including food delivery company Meituan.

Investors and analysts have welcomed Alibaba’s restructuring.

The move marks the most significant overhaul in the company’s 24-year history and will “unlock the value” of its various businesses, the company said in a statement Tuesday.

Alibaba’s business will be divided into six divisions: domestic e-commerce, international e-commerce, cloud computing, local services, logistics, media and entertainment.

The domestic e-commerce group, which includes Taobao and provides the majority of the company’s revenue, will remain a wholly owned unit. The remaining five, meanwhile, will have their own CEOs and may conduct separate public listings.

“The market is the best litmus test and every business group and company can do independent fundraising and IPOs when they are ready,” Alibaba CEO Daniel Zhang said in an email to employees.

Some analysts welcomed the move, believing it would cause investors to re-evaluate Alibaba’s value.

Citi analysts said on Tuesday that their target price for Alibaba’s U.S.-listed shares is $156 a share, up nearly 60% from Tuesday’s closing level.

– Riley Zhang of CNN contributed to the story.