Jack Ma’s clash with Beijing has cost Alibaba and Ant over $1.14 trillion

HONG KONG – As billionaire Jack Ma’s clash with the Chinese government draws to a close after almost three years, it is clear how costly the conflict has proven for his companies, Ant Group and Alibaba Group Holding.

The Chinese authorities said on Friday they would wrap up a probe into Ant, with the financial technology company

paying a fine of almost US$1 billion (S$1.35 billion).

The investigation began after Mr Ma critiqued Beijing’s regulation of the financial sector in 2020, forcing Ant to pull the plug on what would have been

the largest initial public offering (IPO) in history.

The costs go far beyond the latest fine. The crackdown has added to an erosion of confidence in the private sector in China as the country faces growing weakness in everything from consumer spending and the housing market to exports and infrastructure investment.

Ant has had to overhaul its business model, pulling back from sensitive sectors and easing up on competition with state-backed banks. Its valuation, envisioned at about US$315 billion after the IPO, has dropped to about US$78.5 billion.

On Saturday, Ant proposed to buy back as much as 7.6 per cent of shares in an effort to provide a chance to cut stakes for investors ensnared by a years-long regulatory crackdown at the fintech powerhouse. Alibaba is weighing whether to offer up some of its Ant shares to the buyback, the company said on Sunday in an exchange filing.

Alibaba has not fared any better. President Xi Jinping’s administration targeted the e-commerce pioneer in a crackdown on leading Internet platforms, and Alibaba said earlier this year it would split into six major businesses.

Alibaba’s market value is US$234 billion even after an 8 per cent rally in shares on Friday with the end of the Ant probe. This is about US$620 billion off of its peak in 2020.

“The companies have done their mea culpas and the punishments are over – at least for this series of issues,” said Ms Kendra Schaefer, a partner at Beijing-based consultancy Trivium China.

Mr Ma’s Hangzhou-based empire was at the heart of a Communist Party smackdown that hit wide swathes of the private sector, from real estate and online education to games and ride-hailing. Mr Xi recalibrated the country’s economy to emphasise “common prosperity” and support for the middle class. The reforms wiped more than US$1 trillion from Chinese stocks, with venture capitalists and institutional investors paying a price for the party’s values.

While China’s latest measures may signal an easing of the crackdown, the policy priorities of ensuring social stability and national security remain unchanged.

“You have to take care of employees and society, and then you can take care of your investors,” said Ms Schaefer. “That’s really the message now.”

The lost value for Mr Ma’s businesses of more than US$850 billion is a sign of how difficult it will be to rebuild trust with international investors. Not only have corporate profits come under pressure as economic growth slowed, but national priorities have also shifted in fundamental ways.

China’s economic woes are now multiplying, putting pressure on Mr Xi to rebuild support in the private sector. In a downside scenario – with a sharper property slump, slow pace of reforms and

more dramatic United States-China decoupling

– Bloomberg Economics sees China’s economic growth decelerating to 3 per cent by 2030.

Along with Ant, the People’s Bank of China levied fines on several other banks and Tencent Holdings. Ant and Tencent put out their own statements after the fines, suggesting they have largely completed the reforms necessary under the country’s regulations.

Mr Ma’s fall from grace began in October 2020 when the long-outspoken entrepreneur stepped onto a stage in Shanghai at the Bund Summit to address investors and government officials. With Ant poised to go public in a blockbuster IPO, Mr Ma gave a 20-minute roasting of what he called anachronistic regulations that would stifle innovation in the country.

Just days later, officials summoned Mr Ma to the China Securities Regulatory Commission and explained they had found an array of shortcomings in Ant’s business that range from consumer lending and wealth management to online payments. The IPO, which could have raised US$35 billion, was called off. 

The fintech giant has since been hit with additional regulatory roadblocks and forced to behave more like a traditional bank. 

Once Asia’s most valuable company, Alibaba’s core domestic commerce business was hammered by an antitrust probe and, ultimately, a record fine of US$2.8 billion in 2021. It is further hamstrung by increasingly fierce competition with rivals including JD.com and PDD Holdings, and a loss of market share in the cloud business to state-backed rivals. 

After Alibaba posted its third consecutive quarter of single-digit revenue growth, China’s largest e-commerce company unfurled a historical management reshuffle in June.

It brought back Mr Ma’s long-time lieutenants, Mr Joseph Tsai and Mr Eddie Wu, to run the empire just months after the firm announced a plan to break into six major units. The pair bear the hope of turning around a company that has struggled to regain its footing since Beijing’s crackdown. 

However, investors seemed ambivalent to the shake-up. Alibaba’s stock fell 1.5 per cent the day the new appointments were unveiled, and slipped for the next three trading days. A split Alibaba may also only compound Ant’s woes. 

Mr Ma, who remains the spiritual leader of Alibaba, showed up in Hangzhou last month ahead of the management shake-up. He went home in early March following a prolonged period of travelling overseas after the government made attempts to persuade Mr Ma to return as a means to showcase the authorities’ support for private entrepreneurs.

Chinese officials have sought to reassure both foreign and Chinese firms that the country is open for business again, challenged by a bumpy post-Covid-19 economic recovery and ongoing tensions with the US over tech supremacy. 

That campaign has not been particularly effective. The aggregate venture capital investment in China has dropped to US$3.6 billion in the first four months of 2023, down 50 per cent year on year, according to data provider Preqin. BLOOMBERG