China’s famous tech Company ‘Alibaba’ is facing an “existential crisis”

China Big Tech Companies are in Deep Crisis

China’s famous tech company ‘Alibaba’ is facing double threat, at home and in aboard that will risk fundamentally changing it forever. Chinese authorities are investigating the company on “antitrust ground” as part of a growing crackdown on the tech industry.

While Trump has backed off the proposal to invest in Alibaba and other Chinese tech firms, U.S. – China tensions still exist and are not going anywhere soon.

In the middle of all this, former chairman and CEO Jack Ma have been out of public views for months.

Crisis at home

Alibaba is facing an “existential crisis” in China. Chinese authorities are investigating the company on “antitrust ground” as part of a growing crackdown on the tech industry, while also pushing its sprawling financial affiliate, Ant Group, to overhaul its business.

Other Chinese companies like e-commerce company VIP shop has also confirmed that it, too, was being investigated by authorities for alleged unfair competition practices and so as Alibaba’s e-commerce competitor Pinduoduo (PDD), this has been caught in a public firestorm over its work culture.

President Xi Jinping has declared efforts to strengthen anti-monopoly efforts against online platforms as one the most important goals for 2021, according to news agency Xinhua. While the investigation on several companies has been accelerated in recent weeks, the government was laying the plan for some time. Few of the tech companies had cracked down and were compelled to join forces with state business. In 2018, Ant Group’s Alipay had to team up with state-owned UnionPay to develop new technology.

“The coming weeks and months will see this trend accelerated. Access to and control of data and digital platform is key. If this means breaking up Alibaba or making it a quasi-state owned company, this could happen”, said Alex Capri, a research fellow at Hinrich Foundation and a visiting senior fellow at the National University of Singapore.

Alibaba’s business is centrally in China but any changes in its operation could have global ramifications. This company has traded on Wall Street since 2014 and held the record for the world’s largest IPO. Japan’s Softbank (SFTBF) is its major shareholder and other major global investment companies including BlackRock, Vanguard and T. Rowe Price have all bought in, too.

Pushback from abroad

The tension between the United States and China continues to grow, as a result the U.S. has been punishing Chinese companies. China’s second-biggest smartphone maker, Xiomi, has been banned from accessing American investment.

President Trump recently signed into law new rules that could force Chinese companies to delist from the American stock exchange if they don’t meet the standards.

Trump administration reportedly considered prohibiting Americans from investing in Alibaba and other tech companies, prompting their stocks to fall last week. While reports claim that the plan if off of the chart for now, but it hints that Chinese companies might not be out of danger yet.

To comply with an executive order that bans Americans from investing in business affiliated with or supportive of the Chinese military, the New York Stock exchange has halted trading in a group of Chinese firms.

“Washington’s focus on these matters will continue under Biden administration. Thus, even if there is a return to measured language and diplomacy, we could see more strategic decoupling from Chinese digital companies,” said Capri.

Rana Mitter, professor of history and politics of modern China at Oxford University said, “China won’t want to seem [like it would be willing] to destroy one of its biggest national champions in plain sight of a new administration in DC.”  He suspects any kind of change to Alibaba’s business would therefore be on a “medium scale,” rather than “full breakup.”

However Beijing allows Washington’s behavior to influence its decisions, co-founder Ma’s prolonged silence compounds Alibaba’s troubles at home — and “can only undermine market confidence in the company,” said Brock Silvers, chief investment officer for Kaiyuan Capital.

“Whether 2021 is more kind to Alibaba may depend on the ultimate nature and length of Jack Ma’s sudden silence,” Silvers said.

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