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(CNN) – This year could be the most important for Alibaba since it was founded two decades ago.
China’s most famous technology company faces a number of challenges at home and abroad that run the risk of fundamentally changing it forever. Chinese authorities are investigating the company on antitrust grounds as part of a mounting crackdown on the tech industry, while pressuring its expanding financial subsidiary Ant Group to review its business.
Washington could also be a threat. While the Trump administration has pushed back a proposal to ban US investment in Alibaba and two other prominent Chinese tech companies, tensions between the US and China are not likely to subside anytime soon.
And in the midst of it all, the company’s front man, co-founder and former president and CEO Jack Ma, has been out of the public eye for months.
“Alibaba, like all other great Chinese technologies, is in [an] existential crisis, “said Alex Capri, a senior fellow at the Hinrich Foundation and visiting principal investigator at the National University of Singapore.
A growing repression at home
Capri pointed to the growing repression within China as a particular concern for Alibaba and its peers.
President Xi Jinping is urging officials to control the country’s tech champions. Last month, he called efforts to strengthen antitrust efforts against online platforms as one of the most important goals for 2021, according to the state news agency Xinhua.
Alibaba’s antitrust investigation and investigations at other companies have underscored that priority. On Thursday, another Chinese e-commerce company, VIP Shop, confirmed that authorities were also investigating it for “alleged unfair competition practices.” And Alibaba’s e-commerce competitor Pinduoduo has been caught up in a public firestorm over its work culture, suggesting that the government is keen to provoke broader criticism of the industry.
Beijing’s desire to extend its influence over private tech companies extends far beyond such investigations. And while the crackdown has accelerated in recent weeks, the government has been laying the groundwork for some time. Capri noted that some tech companies have been forced to join forces with state-owned companies, as was the case when Ant Group’s Alipay partnered with state-owned UnionPay in 2018 to develop new technology.
“In the coming weeks and months this trend will accelerate,” Capri said. “Access to and control of data and digital platforms is key. So if this means dividing Alibaba or making it a quasi-state company, this could happen.”
While Alibaba’s business is predominantly located in China, any major change to its operations could have global ramifications. The company has been listed on Wall Street since 2014, when it held the record for the largest initial public offering in the world. It has SoftBank of Japan as the majority shareholder. Global investment powerhouses, including Vanguard, T. Rowe Price and BlackRock, have also bought.
External pressures
However, Beijing may want to be a little careful about how hard it presses Alibaba and other companies. The United States has been punishing Chinese companies from left to right as tensions between the two countries continue to simmer. It has just hit China’s second-largest smartphone maker, Xiaomi, with a ban on US investment.
The New York Stock Exchange halted the trading of a group of Chinese companies this week to comply with an executive order that prohibits Americans from investing in businesses that are considered affiliates or that support the Chinese military. And President Donald Trump recently enacted new rules that could force Chinese companies to withdraw from American stock exchanges if they fail to meet American auditing standards.
The Trump administration reportedly considered banning Americans from investing in Alibaba and other tech companies, causing their shares to tumble last week. And while Reuters and Bloomberg report that the plan is no longer on the table, analysts warn that these companies may not be out of the woods just yet.
“Washington’s focus on these issues will continue under a [Joe] Biden, “Capri said, referring to the president-elect.” So even if there is a return to measured language and diplomacy, we could see a more strategic decoupling of Chinese digital companies. “
Alibaba’s cloud services, for example, could face the kind of global backlash that Huawei’s 5G business has faced.
“China will not want to appear [like it would be willing] destroy one of its greatest national champions in full view of a new administration in DC, “said Rana Mitter, professor of modern Chinese history and politics at Oxford University. He added that he suspects any kind of change in the business of Alibaba would be on a “medium scale”, rather than “total breakdown”.
“I think Beijing will want to get an idea of what is behind the rhetoric of the Biden team before evaluating the effect of any American move,” Mitter added.
Yet Beijing allows Washington’s behavior to influence its decisions, co-founder Ma’s prolonged silence exacerbates Alibaba’s troubles at home and “can only undermine market confidence in the company,” said Brock Silvers, chief investment officer at Kaiyuan Capital.
“The Ant Group IPO is now a distant memory, and the company looks like it could split and regulate towards a very low overall valuation,” he said. Chinese regulators shelved the long-awaited public offering last November, and there is no sign that it is reviving. On Friday, the Financial Times reported that Ant Group’s top global investors have been left in limbo after investing billions of dollars in anticipation of the offering.
And while it seems more likely that Alibaba will remain intact, the company is not immune from regulatory threats.
“Whether 2021 is kinder to Alibaba may depend on the ultimate nature and duration of Jack Ma’s sudden silence,” Silvers said.
This story was first published on CNN.com.
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