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China Limits Its Tech Companies

by News Team
04/01/2021

Xi Jinping is not used to giving instructions in vain. In September of last year, the Chinese leader stressed the importance of making “efforts to unite the private sector around the Party”, with the aim of “promoting its healthy development.”

These words began an antitrust campaign in the digital sector aimed at limiting both structural risks and the power of its actors. The big hit has been Alibaba , the first technology company in the country and the ninth company in the world by market capitalization.

The first blow came in mid-November, when the authorities halted the Ant Group IPO , destined to be the largest in history, with just 48 hours notice. The financial services firm was already poised to rake in $ 34.5 billion (€ 29.5 billion) through a simultaneous debut in the Hong Kong and Shanghai parks , an amount that would dwarf Saudi Aramco’s $ 29 billion peak. in December 2019 .

Ant is one of the most innovative organizations in the world , to the point of having no equivalent outside of China. Its primary service is Alipay, an electronic payment platform with a huge social implantation. This represents the gateway to a colossal ecosystem fed by the huge amount of data generated by each transaction.

Ant can thus offer personalized loans, investments or insurance. The firm is proud to use a scheme named 310 : when contracting any financial product, 3 minutes are enough to fill out a form, which is approved in 1 second by the intervention of 0 human beings. Alibaba still owns a third of the company that was once its subsidiary.

The mathematics of its IPO would have put Ant in a position to outperform the first state banks. With the ambition and the capacity, in addition, to control a significant percentage of the national credit; thanks to the ubiquity of its telephone application in the 1,560 million mobile phones in the country and the simplicity of its services.

The Government understood that this possibility posed an intolerable risk, and at the last minute interrupted its dairy accounts, modifying the legal requirements.

Since then the corrections have been constant. The latest took place this week, when the People’s Bank of China provided a new public slap on the wrist in the form of a statement .

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After a meeting with Ant managers, the central bank assured in its text that it must “return to its origins” as an electronic payments company and “rectify errors” made “in key business areas”, even demanding “an implementation schedule ”.

Ant, with his head down, has already taken steps to demonstrate his compliance, such as limiting the credit available to his users. Eric Jing, its CEO, has assured that he “listens carefully” to criticism from “regulators and customers.”

The mother house has not been unscathed either. Last week the State Administration for Market Regulation announced the opening of an investigation against Alibaba, accused of monopolistic practices.

Provincial authorities in Zhejiang, where the tech giant is based, have already searched its headquarters, questioned employees and requisitioned documents. As a result of its collision with the Party, Alibaba has lost almost a quarter of its share price since the end of October, equivalent to the evaporation of 260 billion dollars (213 billion euros).

Government harassment also has an ad hominem dimension . What happened shows the fall from grace of Jack Ma, founder of Alibaba and one of the best-known faces in the country. “If the Government needs Alipay, I will give it to them,” he said solicitously in 2013.

Just before Ant’s failed IPO – of which he is the majority shareholder – he unchecked himself with controversial statements criticizing the legislation. financially and their “pawn shop” mentality. Whoever was the richest man in China has seen how in recent months his wealth has decreased from 51,000 million euros to 40,000, according to data from Bloomberg.

The future is not rosy for the businessman and philanthropist: the authorities have instructed him not to leave the country, according to different media.

Despite the fact that the Chinese model remains nominally communist, private companies have been the engine of its economy for many years. These have gone from adding 443,000 in 1996 to 15.6 million in 2018, to constitute 84% of the total.

One of the items on Xi’s domestic agenda is to increase the Party’s control over them and align them with state priorities. The first step was the issuance in mid-September by the Central Committee of the General Office of the Chinese Communist Party of a document entitled “Opinion on Strengthening the Work of the United Front of Private Economy in the New Era.”

Its purpose was “to enhance the focus of wisdom and strength of entrepreneurs in the goal and mission of the great rejuvenation of the Chinese nation.” To do this, he aspired to create “a column of reliable and available businessman at key moments.”

The government targeted the digital sector in this way. Not only because it is a strategic area, but also because it is one of the industries whose actors have accumulated greater social preponderance thanks to lax regulation. But that is over.

In November, the competent authorities published the initial draft of new antitrust guidelines on the Internet. Two weeks later, the Central Economic Work Conference, the annual meeting of this body, in charge of setting the course in financial and banking matters, concluded.

The resulting document contained an epigraph in which the institution agreed to strengthen control over financial services and electronic commerce companies, with the intention of “strengthening antitrust and preventing a disorderly expansion of capital.”

This resulted in two rounds of fines. The first in mid-December against Alibaba itself, China Literatura – of which Tencent is the majority shareholder – and Hive Box for “not reporting on past agreements for the evaluation of the authorities.”

The second this week, due to “irregular pricing.” The victims on this occasion were JD – the second e-commerce company in the country -, Tmall – owned, again, by Alibaba – and Vishop.

All the sanctions were set at 500,000 yuan (62,700 euros), a modest amount despite exceeding the maximum established by the 2008 Antitrust Law. This step, however, marks the first time that institutions have acted against Internet companies, anticipating a growing trend that goes to show that in China nothing is above the Party. And this, in turn, is increasingly indistinguishable from Xi Jinping’s word.

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