Ma’s Tencent Holdings Ltd. has been down 15 percent since early November, and Wang Xing’s Meituan food (1) delivery giant was down almost a fifth from its peak last month. Since late October, Alibaba’s American depositary receipts have declined by more than 25 percent. Ma’s problems started just as he was preparing to take over the payment company Ant Group Co. public. Instead, China’s regulators pulled out what would have been the world’s largest initial public offering just two days before its scheduled debut in November (2).
On Nov 2, two days before its planned debut on the Hong Kong and Shanghai stock exchanges, China suspended a blockbuster initial public offering of financial technology giant Ant Group Co. Ant was on track to make about 34.5 billion dollars with investors already subscribing to the IPO, which was about 3.6 trillion yuan. The fact that a single digital financial firm was about to raise 3.6 trillion yuan quite easily proved the market’s confidence in China’s digital society’s Future. But at the same time, the way Beijing had to be strict on those who go against the government was underlined (3). And the incident appears to symbolize the Chinese government’s position on going forward with digital giants. Ant’s IPO’s suspension came days after a controversial speech made at a forum in Shanghai on Oct 24 by the group’s co-founder, Jack Ma. Ma, who sarcastically criticized Beijing for its tight regulations and outdated system in front of top government officials (4).
Ant’s best-known service, Alipay, began as Alibaba’s shopping platform. It kept the payments in check until the buyers had received their purchase. It was central to Alibaba’s growth because it allowed buyers to feel safer shopping online. It is now more widely used than cash or credit cards in China. The company was launched in 2011 and later rebranded as Ant Financial and then Ant Group. At the time, Alibaba suggested that the move was due to regulatory changes in China. Jack Ma has acquired a large stake in the spin-off company, which has expanded to include other financial services such as insurance, wealth management, and consumer loans. Ant earns fees from banks, but without the requirement to hold reserves and with less risk to its balance sheet. When the IPO was suspended from the Hong Kong Stock Exchange, it stated that it was because the company “may not meet the listing qualifications or disclosure requirements” and also suggested that “recent changes to the fintech regulatory environment” might have been an obstacle (5).
How ANT’s fortune changed after the situation
Ant’s rapid growth can be connected to its business philosophy, with problem-solving as its core element. It has consistently sought to improve the quality of service for customers and businesses using digital technology. A typical example is the Alipay online payment platform, which is available in Japan as well. It was considered a constant headache in China to settle payments between individuals or small and medium-sized businesses and consumers via credit cards or cash. In exchange for the goods they sold, sellers had a hard time collecting money. Buyers were unable to receive the items for which they paid. Through its holding payment system that allowed electronic transactions with Alipay securing the transaction, Alipay solved these problems. Alipay has expanded nationwide with its secure, simple, and low-cost payment method in conjunction with its rival Tencent (6) Holdings Inc.’s WeChat Pay (7).
With the rising growth of its Yuebao financial investment and XiangHu Bao online mutual aid insurance, Ant ended up becoming the world’s largest fintech group, backed by Alipay’s (8) enormous fund-collecting capabilities. Alibaba got itself listed on the New York Stock Exchange in 2014, raising 21.8 billion dollars, which was around 2.27 trillion yuan. At the same time, it accelerated and improved investment and the acquisition of related companies worldwide, forming a business ecosystem across finance, commerce, and industry that could be referred to as the “Alibaba Empire.” Along with the Alibaba business model, the network has expanded widely to other countries in Asia, including Japan (9). Alibaba has shifted its business focus from around 2016 to consumer-to-business (C2B) services, aiming to become a data technology company. In C2B services or businesses that develop products and services based on consumer needs, Ma saw a future and dived in, using AI and big data.
When enterprises grow and grow stronger, the government naturally seeks to tighten control over any enterprise that gains the potential to become a force to undermine society. China’s stopping Ant’s IPO was Beijing’s clear message. In 2019, Alipay, WeChat Pay, and other online banks were requested to deposit 100 percent of their debited bank funds on their central bank accounts. Because the large amount of smartphones paid distorts the yuan’s structure, the Central Bank was having difficulty implementing monetary policies, including monetary operations. The government’s objective was to ensure financial stability (10). The recent rumors are that Chinese authorities will also impose restrictions on capital resources and interest rate caps, leading to Ma’s government critique. But the policy change did not help Ant to manage the funds cheaply.
The Chinese government’s reaction
However, the digital yuan will not achieve that goal by itself unless the exchange and capital accounts of the yuan are liberalized. The more realistic option is to replace the electronic payment system in China, which will probably significantly impact ALIPAY’s business.
China investigated the suspected monopolistic practices of Alibaba Group Holding Ltd. and brought the affiliate Ant Group Co. to a high-level meeting on financial regulations, escalating its scrutiny of the twin pillars of the Internet empire of billionaire Jack Ma. Pressure on Ma is being created in a broader effort to ensure that the government closes on their influential internet sphere. The November draught anti-monopoly rules gave the Government-wide latitude to restrain entrepreneurs who recently enjoyed unusual freedom to expand their realms. Once hailed as a driver of economic prosperity and a symbol of the country’s technological prowess, Alibaba and rivals like Tencent Holdings Ltd. face increasing pressure from regulators after amassing hundreds of millions of users and gaining influence in almost every aspect of daily life in China.
On Monday, China’s e-commerce leader raised the proposed repurchase program from 4 billion dollars to 10 billion dollars, effective for two years through the end of 2022. But the buyback program was swamped by concerns that the measures taken against Ant were just the start of a huge problem. While the central bank had stopped the call for a break-up, the financial services giant now needs to develop specific measures and a timetable for its business’s overhaul (11). According to local news reports, officials were dispatched by the State Administration for Market Regulation to Alibaba’s Hangzhou headquarters, and the on-site investigation was completed on the day. The People’s Daily, which works for the Communist Party, wrote a comment over the weekend warning Alibaba’s peers to take the anti-trust investigation into Alibaba as an opportunity to raise their awareness of the fair competition.
In the turn of opportunities
According to its website, Alibaba, which holds a 37 percent stake in Asian football champions Guangzhou Evergrande Taobao, launched Alisports in September 2016 to develop the sporting economy innovatively with digital thinking. Since its establishment, Alisports has signed agreements on streaming NFL American football games in China, sponsoring the FIFA World Cup Club, and partnerships with both the World Amateur Boxing Organization AIBA and the governing basketball organization FIBA. The Chinese government said in 2014 that it was aiming to expand the country’s sports market to more than 5 trillion yuan by 2025 to become a vital driver for sustainable economic and social development (12). Many Chinese companies are looking to ride the wave, with high-profile deals including Behemoth Wanda’s acquisition of Swiss sports marketing group Infront and a share of Spanish football club Atletico Madrid, as well as a consortium led by state-sponsored China Media Capital buying a 400 million dollar stake in Manchester City’s Premier League giants.
What the Future holds for Alibaba
The management of Alibaba retained its earnings estimates of 500 billion yuan for the fiscal year 2020. The company’s near-term objective is to boost annual active consumers from the current 730 million to more than one billion in the next five years and nearly double its annual gross volume of goods from 5.7 trillion yuan in fiscal 2019, more than 10 trillion yuan by 2024 (13). Over the long term, Alibaba wants to reach two billion global consumers by the fiscal year 2036, create 100 million jobs, and support over 10 million profitable small and medium-sized enterprises on its platforms. Over the last two years, Alibaba has added more than 200 million users to its Chinese retail market and 130 million active users to its international markets. The company is now 85 percent penetrated the developed areas of China, and 40 percent penetrated the less developed areas, which still suggests a great deal of room for growth (14).
AliCloud, Alibaba’s cloud unit, remains the dominant player in China with a market share of 43 percent. Ali cloud is expanding vigorously in the Asia-Pacific region, with a presence in Malaysia, Indonesia, Hong Kong, and Macau. Given its regional expertise, AliCloud is also targeting companies from developed countries wishing to enter the Chinese market. Alibaba’s video streaming website Youku saw 46 percent year-over-year growth in paying subscribers during the June quarter (15), driven by its improved content production unit. Alibaba also owns an online ticket platform for live events called Damai, which has more than 70 percent of China’s market share as of 2018. Alibaba’s digital finance subsidiary Ant Financial covers wealth management, microfinance, insurance, credit services, and Alipay’s digital payment platform. According to Alibaba, more than 740 million consumers and 28 million small businesses use Ant Financial for digital financing, and more of Ant Financial’s service offerings have been used.