Virendra Pandit
New Delhi: When Deng Xiaoping kicked off the four-pronged modernization of the People’s Republic of China (PRC) in the 1980s, he was focused more on making his country a superpower like the USSR and the USA, in that order.
With his far-sightedness, China did emerge as the world’s second-largest economy by 2020. What the Communist leader may not have, however, bargained for was the perils of concentration of wealth in a Communist nation!
Three decades on, Jack Ma, China’s wealthiest entrepreneur until last week worth USD 48 billion, has made the capitalist dictatorship, camouflaged by the Communist Party of China (CPC), jittery.
PRC’s President-for-Life Xi Jinping is now directly pitted against all that Jack Ma, and many Chinese billionaires like him, stand for: freedom.
And the impact of this struggle between China’s politics and economy has begun to show.
Jack Ma is giving China its own financial ‘Boris Yeltsin’ moments.
Beijing’s regulatory crackdown on technology czar Alibaba has triggered a widespread sell-off among the PRC’s internet giants, with nearly 150 billion pound-sterling (Rs. 14,86,684 crore) wiped off the four top companies since Christmas Eve, that is in five days flat!
China is now in a Catch-22 position: if it tries to control home-grown ‘red’ billionaires, global investors would massacre its stock markets, as indicated since December 24; if Beijing fails to move against Alibaba and Jack Ma, the billionaires would crush the authority of the CPC and, in particular, Jinping, to smithereens.
Shares in Alibaba fell 8 percent on the Hong Kong bourses on Monday, the second big drop in as many trading days after an equally-steep decline last Thursday, the prior trading session. Internet company Tencent and meal delivery app Meituan fell almost 7 percent, and e-commerce giant JD.com was down over 2 percent, media reported.
Since the Communist regime announced a competition investigation against Alibaba, a pall of gloom descended over China’s biggest technology firms. It was widely interpreted as a sign that Beijing is trying to control internet giants that could concentrate on economic power.
On Sunday, in the second round of crackdown, regulators ordered Alibaba’s payments affiliate Ant Group to significantly pare down its operations, halting its expansion into several areas of finance.
In November, at the regulators’ “request”, Ant Group was forced to pull away from what would have been the world’s biggest IPO offering. Alibaba owns 33 percent in Ant Group.
The reason was Jack Ma, China’s second-best known face globally after the President, had criticized the outdated Communist regime for slowing innovation. Beijing feared that the company’s expansion into financial products could threaten China’s state-backed banks.
Alibaba is now being investigated for allegedly forcing merchants on its shopping portal to sign exclusivity deals barring them from dealing with rivals. Its price drop on Monday came despite it announcing that it would almost double a share buyback program to USD 10 billion over the next two years.
The crackdown poses an existential threat to the online empire built by a flamboyant Ma, who had founded Alibaba in 1999 in a one-bedroom flat. Despite stepping down as its chairman in 2019, he is seen as the global face of Alibaba and Ant Group, which runs the Alipay app.
In November, Ant Group was preparing for what would have been the world’s largest initial public offering worth USD 37 billion when it was suddenly shut down by Beijing just 48 hours before trading would have begun in Shanghai and Hong Kong. Before the suspension, investors had valued Ant at US$316 billion, more than the valuations of China’s biggest banks and those of the US and the UK.
Alibaba shares have fallen by a third since Ant’s IPO was pulled out.
Uncertainly has since gripped the Chinese ‘miracle’.
To get even with the enormous power Jack Ma and other billionaires have accumulated, Beijing announced new anti-monopoly proposals in November, ostensibly to protect competition and ensure fair choice.
The fact is the CPC and Xi Jinping are scared of a possible counter-revolution led by billionaires and disintegration of the country the way the Soviet Union disappeared in the early 1990s. Poverty was the bane of Moscow; prosperity is the bane of Beijing.
Jack Ma’s ‘crime’!
Reports said Alibaba’s shares have lost more than a quarter of their value since October 24, when Ma accused China’s financial regulators and state-owned banks of operating a “pawnshop” mentality at a high-profile summit in Shanghai. He also criticised overbearing regulation and the state dominance of banking.
“We shouldn’t use the way to manage a train station to regulate an airport,” Ma said. “We cannot regulate the future with yesterday’s means.”
“It is impossible for the pawnshop mentality to support the financial demand of global development over the next 30 years,” said Ma. “We must leverage our technological capabilities today and build a credit system based on big data, to get rid of the pawnshop mentality.”
Ma was speaking alongside senior officials such as Wang Qishan, a former security tsar and the Chinese leader Xi Jinping’s right-hand man; Yi Gang, the governor of China’s central bank; and Zou Jiayi, vice-minister at the ministry of finance. Ma’s comments went viral on Chinese social media and were seen as a direct attack on government officials.
Some speculated that Jack Ma and other billionaires were in touch with the anti-Jinping faction of the CPC.
Predictably, Communist party officials hit back, accusing Alibaba of breaching various regulations and intervened to block the USD 37 billion floatation of Ant Group just two days before dealing was due to begin on the stock markets.
Jack Ma is now ‘poorer’ by USD 10 billion, and is currently second-richest after Pony Ma, Chairman, and CEO of rival tech firm Tencent.
Li Chengdong, a Beijing-based technology analyst, said the action against Ant was also weighing heavily on other Chinese tech companies. “The new regulations are hurting big internet platforms, so Tencent and other tech companies are also seeing their share prices going down,” Li said. “Alibaba now is the target of the regulators so the reaction is stronger.”
The downward spiral intensified when Chinese regulators announced on Thursday the launch of an antitrust investigation into Alibaba and said they would summon its Ant Group affiliate to meet. Alibaba’s U.S. shares sank more than 15 percent during the day.