Is China's economy really in trouble?

Alibaba in trouble : Jack Ma's dangerous power struggle with the Politburo in Beijing

In the end, it took a television casting show to make the world public aware of the problems of one of the largest internet corporations. Alibaba, Amazon's Chinese counterpart, has been in trouble for months. But it wasn't until the founder and owner Jack Ma did not appear to record his own TV show "Africas Business Heroes" and was replaced on the jury that the world wondered: Where has Jack Ma gone?

Because there is still no trace of the richest man in China. Ma, who otherwise never avoids a camera, has not shown himself to the public for months. He no longer tweets, he does not appear in public. The Bloomberg news agency reports that the Chinese authorities have banned him from leaving the country. Other sources report that he is even being held.

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Only one thing seems clear: the rapid rise of the private company Alibaba in the communist state is to be regulated. Jack Ma's group has become too powerful for the party leadership. The consequences should not only be felt by Ma.

Ma built up public pressure

The power struggle over the regulation of large Internet companies in China has been simmering for a long time. “In the past, too, authorities have already tried to regulate Alibaba more tightly,” says Kristin Shi-Kupfer, Sinology Professor at the University of Trier. "But the company was mostly able to ward off this through informal agreements and certainly also compromises with the party leadership."

Ma, who gave up the operational business at the end of 2019, was not squeamish about it. "He has often - also publicly - built up pressure, for example he has repeatedly criticized what he saw as the encrusted structures of the state financial system or the regulatory authorities," said Shi-Kupfer. He had bet that the importance of Alibaba as the engine and face of China was too important for the authorities to escalate the dispute.

At the beginning of November it became clear that that was all over. At the time, Ma Ant Financial, Alibaba's financial arm, wanted to go public. With projected revenues of around $ 35 billion, it would have been the largest IPO of all time. But the Chinese government let him run. One day before the trading floor debut, the Shanghai Stock Exchange announced that the “regulatory environment” had changed. The IPO had to be canceled; Ma was summoned by the authorities.

Authorities are investigating suspected monopoly

The international trust in the Chinese financial sector seemed to be clearly less important to the government here than to send a clear signal to the Internet companies. And the party is continuing this course. At the end of December, the Chinese authorities announced that they had opened an investigation into Alibaba for possible violations of competition law. The Chinese group is suspected of "monopoly practices".

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In fact, Alibaba is very important in everyday life in China, especially in the financial sector. "The company has built its own ecosystem and is present in many central areas of the economy, especially digital services," explains Shi-Kupfer. At its heart is the Alipay payment service under the umbrella of Ant Financial. According to Alibaba, more than 700 million people use the service every month, which makes it possible to pay for purchases with their smartphones.

This method of payment is very common in China, even beggars have notes with QR codes so that they can accept donations digitally. More than 14.4 trillion euros are transferred annually through the service. In addition, Ant Financial gives loans to households and smaller companies, offers asset management and insurance - and thus extends far into the state-controlled financial sector. Authorities are also likely to be irritated that tech companies Tencent and Baidu have also grown in size in this sector.

Ma as a model for entire strata of the population

Alibaba's rise has long been considered a shining example in the People's Republic. "Like Alibaba, Jack Ma has always been a role model for entrepreneurial success for many Chinese," says Shi-Kupfer. "From former English teacher to multi-billionaire - Ma’s story is part of a’ Chinese dream ’and has found many imitators in the following years due to the meteoric rise of no fewer companies in the digital economy." "Beijing has more or less accepted that Alibaba has built up its own administrative structures, for example, according to hearsay, with its own customs clearance at the headquarters in Hangzhou."

But at some point Ma's power has become too great. According to experts, Alibaba's very aggressive investment and expansion behavior in recent years has caused frowns among some entrepreneurs and economic observers - but above all within the political elite. Ma also went his own way in the dialogue with the USA. "There should have been personal arrangements in a one-to-one conversation between him and Donald Trump," reports Shi-Kupfer. "The Chinese government will certainly watch very closely how Trump acts, considering what he could possibly divulge."

At least as innovative as Amazon

From an entrepreneurial point of view, Alibaba does not have to shy away from international comparison. The annual turnover before the corona crisis was around 72 billion US dollars, well below that of the US competitor Amazon (280 billion dollars). But when it comes to online shopping, Alibaba is more inventive.

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Here, shopping is more like a leisure element that can rival Netflix. "Instead of watching your favorite series online, you also like to go shopping for a while," wrote China expert Björn Ognibeni in the "Handelsblatt" at the end of last year. Alibaba achieves this by not scrolling through bland product lists as they do in western online shops, but by presenting articles with videos, background information or small games. It also offers small retailers the opportunity to sell their products via live streaming.

Part of the shopping experience is that many orders in large cities are not only delivered on the same day, but within a few minutes - preferably also by drone. And Alibaba is also active in the food trade. In October 2020, the majority of the leading supermarket chain in China was taken over for a good three billion euros.

The external impact of current events is devastating. According to inside information, the outgoing US government is even considering blacklisting Alibaba to include companies that are allegedly controlled by the Chinese military. According to the Reuters news agency, Alibaba now wants to issue a US dollar bond to test how investors currently assess Alibaba's situation. With a view to the share, this is sorely needed: since the end of October it has lost almost 30 percent of its value.

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