[News] Is Alibaba's fate a warning to China’s tech giants?

[Mr.Talha]

 

It's been a tough week for Chinese tech firms.

Over the weekend, Chinese billionaire Jack Ma's e-commerce giant Alibaba was fined $2.8bn (£2bn) by Chinese regulators, who said it had abused its market position for years.

Then on Monday, Chinese digital payments firm Ant Group - an affiliate of Alibaba - announced a drastic restructuring plan with regulators forcing it to act more like a bank than a tech firm.

And on Tuesday, 34 companies, the who's who of China's tech world, were summoned by officials and warned: let Alibaba be a lesson to you.

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They've been given one month to "self-reflect" and comply with China's new rules for platform companies.

Alibaba is the grandfather of China's tech industry. It dominates the marketplace there with over 800 million users in China alone.

That is why it was a wake-up call for others in the tech sector when the firm was fined and officially reprimanded.

The investigation into Alibaba determined that it had abused its market position for years by restricting merchants from doing business or running promotions on rival platforms. The fine amounts to about 4% of the company's 2019 domestic revenue.

Industry players tell me "everyone is tense". The big firms are worried they're next.

Companies like Tencent, JD.com, Meituan, Bytedance and Pinduoduo are all looking at Alibaba's experience, and trying to avoid crossing any red lines set by Beijing.

No-one can be more powerful than the Party
On the face of it, Alibaba's fine is about increased regulation in the sprawling Chinese tech sector, and for many it is a good sign that the market has matured.

"If you read the laws, Chinese regulators are trying to be more forward looking and think ahead, in an attempt to regulate an industry that is moving so fast," says Rui Ma, a China tech analyst and co-host of the podcast Tech Buzz China.

"They are including the use of algorithms, not just market share. They are trying to understand the platform economy and trying to be in line with what more developed economies are doing."

But the moves are also seen as political.

They are an indication that under President Xi Jinping, nothing can be bigger or more powerful in the lives of ordinary Chinese people than the Communist Party.

These companies have created an alternative virtual world for Chinese people, and have a huge hold over their lives. You can't get through a day without accessing one of these apps in China.

But that same influence over the lives of Chinese people puts them in direct competition with the Chinese Communist Party.