China exerts a significant influence on global e-commerce. Much of the focus is on Alibaba, one of the largest e-commerce platforms in the world.
China’s President Xi Jinping has tightened regulations for e-commerce and technology companies. He argues that the government must control the private sector even when companies are listed.
In late 2020, Jack Ma, the founder of Alibaba, criticized the Chinese government for being risk-averse, and retaliatory measures soon followed. Ma had planned to list Alibaba’s financial arm, Ant Group, in November 2020 with the largest IPO in history at $37 billion. A day after his announcement, the Chinese government halted the IPO and Ma disappeared from public view. In 2021, Alibaba was fined $2.8 billion for being a monopoly. Since then, the company has lost around $400 billion in market value.
Alibaba’s planned IPO of Ant Financial has been halted by the Chinese government.
State control
In his bid to curb overconsumption, Xi has spoken at length about “general prosperity” — the view that all citizens should achieve moderate prosperity and that the wealthy should give back to society. Xi blames the country’s tech sector for widening wealth inequality. He has made it clear that he is willing to sacrifice economic growth to uphold the Communist Party’s ideology.
In 2022, Alibaba and Tencent, a Chinese tech and entertainment conglomerate and owner of messaging app WeChat, announced significant layoffs — about 15% of its workforce.
As of September 2022, government enforcement actions wiped out over $1.5 trillion in market value from Chinese companies. 98 fines have been imposed on major Internet companies including Meituan, JD.com, Baidu, Alibaba and Tencent. These companies have been hit with cumulative penalties totaling $3.25 billion.
Following its IPO in the US, Didi, China’s largest ridesharing company, became the subject of a cybersecurity scrutiny by the Chinese government.
Uncertainty in the stock markets
US regulators threatened to delist Alibaba and more than 270 other China-based companies identified under the Holding Foreign Companies Accountable Act of 2020 after years of wrangling over audit compliance.
The Securities and Exchange Commission has requested full access to audit working papers stored in China. The Chinese government blocked this access, citing national security concerns. The share prices of these Chinese companies fell due to uncertainty.
Finally, on August 26, the Chinese and US governments signed an agreement that allows US regulators to view the Chinese audit documents of the companies concerned. Nevertheless, some of these companies want to switch to the Hong Kong Exchange.
singles day
In recent years, Alibaba’s Singles Day has been on 11/11. the biggest global online shopping event of the year, with record-breaking revenues and live-streamed entertainment from international celebrities.
This year’s Singles Day was muted as neither Alibaba nor JD.com — which also hosts a November 11 event — released the entertainment, nor did they announce sales figures. Alibaba cited pandemic restrictions as the reason it didn’t have its usual gala, alluding to “macro challenges and implications related to Covid-19.” In line with the government’s Shared Prosperity policy, e-commerce merchants do not encourage overconsumption.
Still, Alibaba reported that 290,000 brands from over 90 countries participated in 7,000 product categories this year. Alibaba’s Tmall marketplace offered Singles Day deals on more than 17 million products, up 3 million from last year.
Alibaba’s third-quarter results for the period ended September 30, 2022 were announced on November 17. Despite its challenging situation, the company achieved year-over-year revenue growth of 3%, totaling $29 billion, although it posted a net revenue loss of $3.2 billion. Cross-border trade slowed.
Many investors now describe Alibaba as risky and volatile, depending on the whims of the Chinese government. Earlier this year, its CEO Daniel Chang said, “We believe we’ve conquered essentially every consumer with purchasing power in China. We will focus on a shift from user acquisition to user retention.”
The effects of mixing capitalism and communism are still unfolding. Alibaba is facing stiffer competition from rivals JD.com, mobile-only marketplace Pinduoduo, and new live-streaming e-commerce platforms like ByteDance’s short-video platform Douyin — known outside of China as TikTok — which owns shares of Alibaba’s Tmall (B2B) and have taken over Taobao (C2C).
As these competitors grow larger, they, too, will find themselves in the Chinese government’s crosshairs.