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Alibaba has not had the best 14 months. Since Chinese regulators abruptly rejected the initial public offering of financial technology subsidiary Ant Group, China’s tech giants have been fighting.
As a result of these regulatory efforts, the slowdown in the Chinese economy has slowed and competition has increased, its market capitalization has fallen by $ 358 billion and $ 846 billion on the eve. Ant IPO 2020 October.
With the New Year in such a difficult environment, Alibaba, described as China’s response to Amazon, faces a potential challenge in 2022, even as analysts consider the company’s deep pockets and ability to adapt to the broader Chinese market.
The Ant deal, which was scheduled for a double listing in Shanghai and Hong Kong, was to raise $ 34 billion. This would make it the biggest IPO of all time.
Instead, the agreement is frozen indefinitely Ant is working to comply with a number of new regulatory requirements under Beijing’s crackdown on Big Tech, which is to reduce the market power of technology giants, boost consumer protection and restore the government’s role in the Chinese private economy.
Beijing has been ruled by Xi Jinping, the most powerful Chinese leader since Mao Zedong became president. At one time the humble technology grapes seemed unassailable.
In fact, Jack Ma Alibaba’s founder was so confident in his company’s position that he criticized Chinese financial regulators in the face in a vicious Shanghai October 2020 speech, saying “the game of the future is about innovation, not just regulatory skills”. .
“Aside from Ma’s Shanghai speech, Alibaba became a poster boy for government repression because of his size and wealth,” Daniel Tuk, founder and managing director of Hong Kong-based Active Creation Capital, a wealth management consultant, told Al Jazeera. “The company and other major Chinese technology platforms have essentially become a threat to government authority.”
Although Alibaba was fined $ 2.8 billion in September after regulators abused its market position, the amount was too small for the company, which earns more than $ 100 billion a year in revenue. The necessary changes in the business model will have wider consequences. Restructuring will reduce the profitability of Ant Group’s former lending business and reduce its enormous data collection capabilities.
“Rising regulations in China mark the end of an era of so-called‘ wild growth ’in Chinese technology companies,” Winston Ma, managing partner and founder of venture capital firm CloudTree Ventures, told Al Jazeera. “The new regulatory framework entails more control and potential changes in the business models of China’s Internet giants.”
In December, Alibaba unveiled a restructuring plan to split its main e-commerce business into global and internal units.
“Through the reorganization, Alibaba will be able to more clearly identify domestic demand to grow sales in China effectively through the China Digital Business Unit, while expanding its e-commerce and logistics business overseas through the Overseas Digital Business Unit,” said Yannie Liao, industry analyst. At the Taipei Marketing & Consulting Institute (MIC), he told Al Jazeera.
With the success of Taobao and TMall’s flagship e-commerce platforms, Alibaba has long been China’s largest online marketplace.
However, China’s e-commerce market share has steadily fallen from 78 percent in 2015 to roughly 51 percent in 2021, according to research firm eMarketer. Most of that decline came before China’s crackdown on Big Tech, reflecting increased competition and changing consumer habits. Alibaba’s e-commerce business is primarily based on search, which is less popular with younger Chinese shoppers than live streaming or other interactive forms of shopping.
At the same time, China’s economy is slowing, and consumer habits are reflecting this change. The gallant spending that defined the go-go years of China in the late 2000s and early 2010s is falling. Deutsche Bank estimates that the Chinese economy will grow by only 5% this year, compared to 8.1% in 2021.
Forecasts for Southeast Asia
“In the face of many uncertainties caused by the impact of the pandemic, the consumer perspectives of young consumers [those born since 1990] it is becoming more rational, “Cheng Shi, chief economist at ICBC International Securities, wrote in a comment to Chinese media in Yicai in September.” We believe this will continue even after the pandemic ends. “
The outlook for emerging Southeast Asia is higher. Internet economies in countries such as Indonesia, the Philippines and Vietnam are relatively in their infancy, similar to China in 2010, and Alibaba pushed Lazada to expand aggressively across the region through its Singapore-based e-commerce platform. Lazada’s annual active consumers rose 80 percent in the 18 months to September 2021 to 130 million, Alibaba said at an investor presentation late last year.
Today, Alibaba remains the largest e-commerce retailer in China and the second largest Internet company in China in terms of market capitalization, following the giant game Tencent. Analysts say Alibaba’s deep pockets are key to the future.
With regard to China’s Big Tech crackdown, “the government needs to restructure private companies to meet the latest demands,” Hong Kong Yum, Hong Kong’s Euromonitor research manager at Hong Kong, told Al Jazeera. “As long as they are financially sound, they can successfully shape their business.”
Yum said Alibaba’s cash flow remains stable, even though the company has to deal with it. Growth in net income fell sharply in 2021, but still managed to increase by 4 percent to $ 20.9 billion. In the fiscal year leading up to the crackdown, Alibaba’s net revenue rose nearly 68 percent to $ 20.2 billion.
Such tremendous growth is unlikely to return to Alibaba, but it is not alone. All Chinese Internet companies have a more difficult business environment.
Being good for Alibaba is a lasting ability to meet the needs of China, the world’s largest e-commerce marketplace. Despite the company’s international expansion efforts, China remains a priority.
“Alibaba is still focused on China because of that [company’s] it is the largest source of revenue and still offers great market potential, ”said Yum’s Euromonitor.
Alibaba’s cloud computing unit earned $ 9.18 billion in 2021 [File: Tingshu Wang/Reutrers]GlobalData, a data and analytics firm, predicts that China’s e-commerce market will grow by 11.6 percent year-on-year between 2021 and 2025 to $ 3.3 trillion.
Cloud computing, on the other hand, offers additional growth opportunities for Alibaba. In 2021, the company’s Alibaba Cloud unit earned $ 9.18 billion, up 50 percent year-on-year. MIC’s Liao noted that Alibaba’s cloud computing revenue has expanded quarterly since the first quarter of 2020.
However, there are also regulatory barriers to cloud computing. Active Creation Capital’s Tu stated that before the national data security law was enacted, Beijing in August ordered state-owned companies to speed up the migration of their data from private operators like Alibaba and Tencent to government cloud infrastructure.
There will be a huge loss of business, although Alibaba can still work with the private sector. China’s public cloud services market was worth $ 19.4 billion by 2020, according to research firm International Data Corporation.
“In the context of ongoing repression and reform, Alibaba should be pivoted and targeted in areas where it synchronizes with national initiatives:‘ hard technologies ’such as semiconductors, artificial intelligence and quantum computing,” Tuk said.
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