Two Charts That Explain Why Alibaba and Jack Ma Are in Trouble

Chinese big tech is in trouble these days. And it’s not only because of Trump. 

The White House signed another executive order this week. It’ll ban Alibaba’s Alipay, Tencent’s QQ Wallet and WeChat Pay, and six other Chinese apps in the US. But the real trouble is at home. Beijing is cracking down on them too. 

The Chinese government has drafted antitrust rules aimed at curbing monopolistic behaviors by its giant internet platforms. It suspended the initial public offering of Ant Group, which could have been the world’s largest-ever IPO . Then Jack Ma disappeared. 

Between December 24th and 28th, Alibaba’s valuation fell by 13%, or $91bn. This happened despite the $6bn in share buy-backs aiming to avert the slide. The decline in Alibaba’s share price also weighed on other internet and technology companies. Games publisher and dominant social network operator Tencent Holdings and e-commerce giant JD.com felt the heat too. 

Chinese authorities have reputation for supporting national champions. Think about the alleged support that Huawei and TikTok have received. Then there is the forced technology transfer that Western companies have constantly complained about. Now, all of the sudden, Beijing has decided to rein in its own tech giants. Why? 

Here is a revenue breakdown of the five leading companies in China.

JD.com and Alibaba are under extreme scrutiny. We haven’t heard of crackdowns against Huawei, Haier or Lenovo. Companies that have substantial overseas revenues are immune. 

Here is another picture. It looks at user volume among the three major platforms. 

Again, it is WeChat and Alibaba being scrutinized. TikTok remains free as far as Beijing is concerned. 

What’s emerging here is that the companies still receiving government supports are ones that have already gone international. These companies earn foreign money and bring home profits. The reason why China’s big tech companies are falling out of favor is simple: They are disrupting state-owned enterprises without winning abroad. 

I gave an interview about this point on Bloomberg TV this week. You can watch the TV segment here. 

So what are the long-term implications? Alibaba and Tencent will speed up their plans to go abroad. Chinese big tech will survive. But to serve the national interest, it will have to expand internationally, very quickly. 

 

Stay healthy,

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