More than four months after a high profile crackdown on Jack Ma’s financial empire marked the beginning of a regulatory overhaul for China’s big tech companies, details of the penalties set to be imposed on internet giant Alibaba are becoming clear. In-depth business reporting by The Wall Street Journal and Bloomberg News in recent weeks has revealed how Alibaba faces penalties from Beijing for a multitude of infractions, including not only alleged anticompetitive practices, but also violations relating to its vast media holdings, including one incident in which executives at Alibaba ordered social media censorship for private gain.
Last week, The Wall Street Journal’s Keith Zhai and Lingling Wei published an extensive story about Beijing’s plans to “tame” tech giant Alibaba:
Antitrust regulators are considering levying a record fine against Alibaba exceeding the $975 million that Qualcomm Inc. paid in 2015 over anticompetitive practices, so far the largest in China’s corporate history, according to people with knowledge of the matter.
Those people said Alibaba also will be required to end a practice that has been dubbed “er xuan yi”—literally, “choose one out of two”—under which, regulators believe, the tech giant punished certain merchants who sold goods both on Alibaba and its rival platforms, including JD.com. The precise remedies Alibaba will have to take likely will be hammered out only after a decision is announced, according to one of the people.
[…] While painful, none of the measures under consideration would come close to crippling the company, whose businesses include online retail, entertainment, media and cloud computing. Unlike Ant, which regulators viewed as a disrupter and a threat to the stability of the financial system Alibaba is considered the pride of China, a showcase for technology innovation that also is vital to the nation’s economy. Some 780 million Chinese consumers, or half of the country’s population, made purchases through the company’s platforms last year. [Source]
The eleventh hour cancelation of e-payment giant Ant Group’s IPO in November of last year has been widely reported as a key episode in Beijing’s crackdown against Jack Ma’s financial empire. But Zhai and Wei reported that a critical turning point in the government’s view of Alibaba came months earlier in May 2020, when China’s internet watchdog issued a report to top leaders saying that Alibaba had used “capital to manipulate public opinion.”
Bloomberg News’ Lulu Yilun Chen, Coco Liu, and Jin Wu reported on the incident that prompted that rebuke from the Cyberspace Administration of China. Censors on Weibo, in which Alibaba holds a major stake, allegedly wiped comments about a top Alibaba executive’s extramarital affair:
In the Spring of 2020, a scandal involving a top Alibaba Group Holding Ltd. executive enthralled China’s netizens. The wife of Jiang Fan, then the youngest partner at the e-commerce giant, had taken to the Twitter-like Weibo to warn another woman, a model and prominent social media influencer, not to “mess” with her husband.
The post ignited a frenzy of online speculation, with thousands of Weibo users questioning whether Jiang and the internet star were having an affair, and if that swayed Alibaba’s business decisions or investments. The episode was morphing into a public relations debacle for the firm. Then, traffic about the favored Jack Ma lieutenant and contender for Alibaba’s top job started disappearing.
[…] The scale and speed with which the website removed posts rankled government officials, who saw it as crossing a line, a person familiar with the matter said, asking not to be identified discussing sensitive topics. The episode drew the attention of authorities not just to Weibo, but also to the influence its most powerful backer, Ma, and his companies had in the media, the person said.
Censorship in China is directed by Party apparatchiks on issues considered to be sensitive and of national importance, but here it was employed in a seemingly trivial private conflict. [Source]
The incident involving Alibaba executives’ intervention into Weibo’s content moderation practices has alarming implications, and the punishment handed down by Beijing is revealing in itself. Yaqiu Wang, China researcher at Human Rights Watch, wrote in an opinion column for MSNBC that the crackdown on Alibaba underscores how for Chinese authorities, the power to dictate what is censored is very much “for me, but not for thee”:
But don’t mistake the party’s move as a defense of free speech. In November, Xu Lin, a top official in the party’s Central Propaganda Department, said in a public speech that China must “resolutely prohibit dilution of the party’s leadership in the name of convergence,” meaning media convergence, and “resolutely guard against risks of capital manipulating public opinion.”
The message is clear: Only the party can censor and manipulate public opinion. [Source]
By exploiting the censorship apparatus for Alibaba’s own executives’ gain, the internet giant may have brought the spotlight on its vast media holdings. This week, The Wall Street Journal’s Jing Yang reported that Beijing asked Alibaba to dispose of those media assets, as authorities have grown concerned about the conglomerate’s influence over public opinion:
China’s government has asked Alibaba Group Holding Ltd. to dispose of its media assets, as officials grow more concerned about the technology giant’s sway over public opinion in the country, according to people familiar with the matter.
Alibaba … has through the years assembled a formidable portfolio of media assets that span print, broadcast, digital, social media and advertising. Notable holdings include stakes in the Twitter -like Weibo platform and several popular Chinese digital and print news outlets, as well as the South China Morning Post, a leading English-language newspaper in Hong Kong. Several holdings are in U.S.-listed companies.
The total value of Alibaba’s media assets couldn’t be obtained. Holdings in publicly listed companies had a combined market value of more than $8 billion as of before the U.S. stock market opened on Monday, according to a Wall Street Journal tally. That includes a roughly $3.5 billion stake in Weibo Corp. and a nearly $2.6 billion stake in Bilibili Inc., a video platform that is popular among younger Chinese people. [Source]
Not saying CCP doesn't have quibbles with SCMP's HK news but is SCMP the main issue? Graphic shows, objectively, a ton of media holdings for a big tech co with proven power to censor Weibo posts about its execs–a prerogative of state itself! @jingyanghk https://t.co/doP3VVYo0f pic.twitter.com/90Mj71uyj9
— Gerry Shih (@gerryshih) March 16, 2021
While Alibaba’s media holdings are vast, and the impact of their sale potentially wide-ranging, much discussion has focused on the possible impact of a forced sale of the South China Morning Post. Even since its acquisition by Alibaba in 2015, the Post has continued to break and report news that has been at times critical of the Chinese government, such as in-depth local coverage of the 2019 Hong Kong protests and the implementation of the Hong Kong National Security Law. Observers have remarked that putting the SCMP up for sale now may be particularly challenging, given the great uncertainty about Hong Kong’s political climate under the new National Security Law.
Terrible time economically and politically for SCMP to be looking for a new owner though, if it does come to that. Who would risk buying a newspaper in the middle of both a recession and NSL crackdown?
— 𝕛𝕒𝕞𝕖𝕤 𝕘𝕣𝕚𝕗𝕗𝕚𝕥𝕙𝕤 🇭🇰🏴 (@jgriffiths) March 16, 2021
The SCMP is an easy target for criticism. But it still reflects a far wider diversity of opinion than you will find in Chinese state media. Under Jack Ma, it remained a newspaper rather than a propaganda organ – and it seems this has been noticed
— Matthew Brooker (@mbrookerhk) March 15, 2021
In another sign of Beijing’s wariness about Alibaba’s sprawling influence, this week, Chinese internet companies abruptly pulled a popular internet browser made by Alibaba, UC Browser, from domestic app stores. The Financial Times reported that the decision came just a day after a top leadership meeting where Xi Jinping issued a blunt warning about the tech sector’s growing influence.
Further shake-ups have recently taken place at Jack Ma’s other corporate giant, Ant Group. On March 12, Ant’s Chief Executive Simon Hu resigned from the company citing “personal reasons”, amid a major revamp of its entire business. The Wall Street Journal reported that Hu had been part of an internal working group working with regulators on how to rectify its businesses. Unlike Alibaba, which seems likely to escape its antitrust violations with no more than a large fine, Ant Group’s penalties have cut deeper, requiring a major business restructuring and significantly higher capital requirements to operate its personal lending business. On the same day that Hu resigned, Ant announced a series of voluntary financial self-discipline rules, including a commitment not to issue loans to minors and to limit loan amounts to young people or those with poor ability to repay to limit the burden they could take on.
Ant Group has also been the target of significant ire from the public, including from young people angry about its micro-lending practices, which have encouraged users to amass debt via personal loans liberally granted on the Alipay app. CDT has previously written about the youth-led social media backlash against Jack Ma and his companies. Nonetheless, analysts believe that after a regulatory overhaul Ant’s core fintech micro lending business is expected to survive.
But after months of dominating headlines in relation to China’s tech crackdown, it is beginning to appear that Alibaba and Ant are not alone in being targeted for reform. Last week, Bloomberg News reported that Tencent was next in line to face penalties under China’s broad fintech clampdown:
Pony Ma’s Tencent Holdings Ltd. has been put on notice.
Asia’s largest conglomerate was censured by China’s antitrust watchdog on Friday as Beijing expands a crackdown that began with Jack Ma’s online empire.
The token fine is just the beginning. China’s top financial regulators see Tencent as the next target for increased supervision after the clamp down on Jack Ma’s Ant Group Co., according to people with knowledge of their thinking. Like Ant, Tencent will probably be required to establish a financial holding company to include its banking, insurance and payments services, said one of the people, seeking anonymity as the discussions are private.
[…] Along with Ant, proposed rules to break up market concentration in digital payments and rein in consumer lending online will damage prospects for Tencent’s WeChat Pay and its wider fintech business. [Source]
Tencent was not the only company to face penalties last week. The Wall Street Journal reported that market regulators fined 12 companies in total, including Tencent, Baidu, food delivery giant Meituan, and Bytedance, the parent company behind Tiktok, Douyin, and Jinri Toutiao. But the penalty on Tencent has attracted particular attention as the businesses and fortunes of the “two Mas,” Jack and Pony, have long been juxtaposed against each other. Following the regulatory crackdown on Jack Ma’s companies, journalists in recent months commented on the divergent fates of the two billionaires. But a recent investigation by the Financial Times into Jack Ma’s private jet activity suggested the billionaire was “down, but not out.” And now, it would seem that the relative good fortunes enjoyed by Pony Ma and Tencent in recent months are set to come to an end.
1/ Jack Ma "crosses the river by feeling the stones," while Pony Ma "crosses the river by watching what Jack does."
Best #China tech Weibo comment in a while. It was used to describe Pony Ma's recent move to step down as legal representative for Tencent's fintech business pic.twitter.com/RjuaXZqkTy— Liza Lin (@lizalinwsj) November 16, 2020
Hardly the most important angle of Alibaba v China, but I'd offer one definitive conclusion at this point: the Ma model for all successful Chinese entrepreneurs from now on will be Pony, not Jack, and things will be a helluva lot more boring for everyone else.
— Simon Rabinovitch (@S_Rabinovitch) December 25, 2020
