Beijing’s Campaign Against Big Tech Continues
Alibaba is one of China’s biggest technology giants, with a market valuation of over $400 billion. The company has undergone a massive restructuring in recent months, splitting its business into six separate units to reduce regulatory risks and unlock hidden value. In the aftermath of the restructuring, some employees have expressed concerns about potential layoffs, while investors have become more optimistic about the future of China’s tech industry.
The restructuring comes in the midst of Beijing’s campaign against Big Tech, which has been ongoing since last year. Regulators have sought to limit the power of tech giants like Alibaba and Tencent, who for years have dominated China’s digital landscape. The crackdown has included investigations into anticompetitive practices, as well as restrictions on mergers and acquisitions.
Alibaba’s Shares Surge Amid Regulatory Support
Despite the regulatory pressures on Chinese tech companies, Alibaba’s shares have recently surged in both New York and Hong Kong. The market reacted positively to the news of the company’s restructuring, with shares soaring by 15%. Investors are betting on the return of regulatory support for China’s tech industry and private businesses.
The split of Alibaba’s business into six separate units is a sign that Beijing’s campaign against Big Tech hasn’t fundamentally changed. Regulators still intend to reduce monopolistic behavior and limit the power of tech giants, even as they urge private companies to do their part to create jobs and boost the economy.
Jack Ma Returns Amid Economic Challenges
The return of cofounder Jack Ma to mainland China is perceived as evidence of a more supportive approach to the private sector. At a time when China’s economy badly needs growth, Premier Li Qiang has rolled out a series of measures intended to repair ties between the government and the private sector.
Ma had been out of the public eye for several months last year, after he made critical comments about China’s financial regulatory system. His return has been seen as a signal that the government is willing to work closer with private businesses to revitalize the economy.
Restructuring Plan Limits Monopoly Power
Alibaba’s restructuring plan serves as a way to limit monopoly power and platform sway, and could serve as a model for other Chinese tech giants going forward. Each of the six business units will have to face the tests of market forces themselves, including the possibility of seeking their initial public offerings (IPOs).
Some analysts welcomed the move, believing it will lead investors to reassess the valuation of Alibaba. By splitting up into separate units, investors will have an easier time investing in the business units they prefer the most. Value investors will be able to pick the value entities while growth investors can go for the faster-growing companies.
The core ecommerce business containing Taobao and Tmall is where the majority of Alibaba’s profits are being generated. The Cloud Intelligence Group has a more pronounced growth profile, as the cloud computing market is still rather small but fast-growing in China.
Layoff Concerns Among Alibaba Employees
However, not everyone is thrilled about Alibaba’s restructuring plan. The shift away from CEO Daniel Zhang’s centralized approach sparked concerns about substantial layoffs in the central platform. In 2022 alone, Alibaba reduced its headcount by about 20,000.
Trudy Dai, an Alibaba founder Jack Ma student, took charge of a new China digital commerce team in early 2021, weakening Zhang’s influence. Alibaba’s restructuring plan slashed Zhang’s powers, who faced criticism for failing to boost the share price.
After the restructuring is complete, Alibaba Group will follow a holding company management model overseen by Zhang. He will also be CEO of the Cloud Intelligence Group while Dai will lead Alibaba’s main revenue driver Taobao Tmall Commerce Group. Executive Jiang Fan will become the CEO of the Global Digital Commerce Group.
The splitup should reduce perceived regulatory risks, as the different business units will be separated, but it remains to be seen how the restructuring plan will ultimately affect Alibaba’s employees. Nevertheless, the market remains optimistic about the future of China’s tech industry, as policymakers seek to strike a delicate balance between regulatory oversight and economic growth.
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