After almost three years, the clash between Jack Ma and the Chinese government comes to an end. This is a particularly costly “conflict” for the companies of the famous Chinese entrepreneur, founder of Ali Baba e Ant Group. Beijing authorities announced on Friday that they would end an investigation into Ant Groupafter deciding that Chinese fintech should pay a fine of almost 1 billion dollars.
The investigation began after Ma’s criticism of Beijing’s financial sector regulation as late as 2020, forcing Ant a suspend what would have been the IPO largest in history.
The backstory
Ma’s Hangzhou-based empire in China has been at the center of the Chinese Communist Party’s regulatory crackdown, which has affected large swathes of the private sector, from real estate to online education, entertainment and video games, and the ride-hailing. Xi has recalibrated the Chinese economy by emphasizing, according to him, “common prosperity” and support for the middle class.
Chinese government reforms have cost more than 1 trillion of dollars in terms of market value to the tech giants. Institutional and international investors have paid a heavy price for the moods of the Communist Party.
While China’s latest moves may signal an easing of the private sector crackdown, the party’s political priorities of ensuring social stability and national security remain unchanged.
The cost of the clash between Ma and Beijing
The value that the companies of Jack Ma, Ant and Alibaba have lost in terms of market cap is over 850 billion dollars. But it’s not just about economic damage but also about the confidence of international investors. Not only have corporate profits been put under pressure by the slowdown in economic growth, but also by the shift in policy priorities of the Chinese government.
But now that China’s economic woes are multiplying, the time is right for the Chinese government to rebuild support in the private sector.
However, let us remember that Ant and Alibaba were not the only victims of Xi’s government. There People’s Bank of China hit the video games giant with fines, Tencent Holdings and various Chinese banks. Following the fines, both Tencent and Ant have issued statements that they have largely completed the necessary reforms under the country’s regulations. But let’s see in detail the difficulties that Ma’s two companies had to go through, undoubtedly the most affected by the strict regulations of the Chinese authorities.
The consequences for Ant Group
The costs of the clash between Ma and Beijing, the entrepreneur’s companies go well beyond the latest fine. The crackdown on Ma’s companies and big tech in general has added to the erosion of confidence in the country’s private sector as China faces growing weakness in everything from consumer spending to the housing market, exports and infrastructure investments.
Returning to Jack Ma’s companies, however, Ant had to review its business model, withdrawing from sensitive sectors and easing competition with state-owned banks. The valuation of him, estimated at approx 315 billion dollars after the IPO, it dropped to approx 78.5 billion of dollars.
According to Bloomberg reports, Ant offered to buy back on Saturday until 7.6% of own shares in an effort to offer the option of cutting quotas to investors trapped by years of regulatory crackdown.
The consequences for Alibaba
The squeeze on Alibaba has fared no better. Beijing has targeted the e-commerce giant in a crackdown on the entire tech sector. Recall that Alibaba said earlier this year that it would split into six major companies.
Alibaba’s current market value is $234 billion after an 8% rise during last Friday’s US session following the announcement of the end of the investigation by the Chinese authorities into Ant Group. The company has lost approx $620 billion of its value compared to its peak in 2020.
Alibaba 3-year weekly chart
“The two companies have made their mea culpa and the punishments are over, at least for the time being,” he said. Kendra Schaeferpartner of the consulting firm Trivium China.