(Bloomberg) – Chinese technology companies did a very good job of convincing global investors that they operated independently of the Communist Party. Now, Jack Ma has become a case study for the biggest corporate skeptics.
Companies like Alibaba Group Holding Ltd. and Tencent Holdings Ltd. have spent billions on acquisitions abroad while developing applications and technologies that defied Western rivals, with little or no state interference. But Beijing’s search for Ma and his Ant Group Co., after he criticized regulators, probably plays directly in the hands of China’s top critics in Washington, who have long claimed that no Chinese technology giant or businessman is beyond Xi Jinping’s reach.
US officials are now debating whether to ban investments in Alibaba and Tencent, according to people familiar with the matter, in what would be a dramatic blow to two of the companies whose shares are most widely owned by global investors. As early as Tuesday, President Donald Trump signed an executive order banning transactions with eight Chinese software applications, including Ant’s Alipay and Tencent’s WeChat Pay, citing concerns that Beijing will have access to the data collected by the platforms. “I uphold President Trump’s commitment to protect the privacy and security of Americans from threats by the Chinese Communist Party,” Commerce Secretary Wilbur Ross said in a statement on the request.
Beijing’s measures may increase pressure on Joe Biden’s new government to implement further damaging actions to China, although it is unclear to what extent Trump’s aggressive policies will continue.
The party’s influence on business has become even clearer in the past 12 months, as Xi pressures to consolidate power before the party’s grand congress next year, when he is expected to extend his government for at least another five years. Covid-19 served only to strengthen its control, fueling a war-like campaign to put the economy back on track and extinguish threats to national security.
“You need to be very aware of who ultimately controls the regulations, who controls the licensing – who is in charge,” said Mark Natkin, managing director at Marbridge Consulting, based in Beijing. “And if you forget and start being overly critical or take on a role that normally belongs to the party, you will be taken down a notch or two.”
Beijing has fundamentally reshaped Ma’s billion-dollar Internet empire since the demolition of Ant’s $ 35 billion public offering in November, a record debut that would be the businessman’s greatest achievement. The authorities then forced his online finance titan to limit loans and devise a plan to eliminate his most profitable businesses. The government has also launched an investigation into alleged anti-competitive practices at Alibaba. The billionaire has not been seen in public since November and his absence from the recent recording of an African TV show he created sparked speculation about his whereabouts.
“There is a lot of power in the Chinese government’s economic and financial management infrastructure, and if Ant were to erode that power, important people would see this as a step too far,” said Graham Webster, editor of the DigiChina project at Stanford Cyber Policy Center. But “the Chinese government also values these leading companies as drivers of technological independence. The party would have to perceive significant threats to overthrow them. “
The action against Ma sends the last sign that Beijing is encouraged to risk the international repercussion of measures to address internal challenges. Xi had previously challenged threats from U.S. sanctions to impose broad national security legislation on the former British colony of Hong Kong. Crushing Ant’s IPO risked alienating a plethora of powerful global financiers from Singapore’s sovereign wealth fund to Carlyle.
The United States also cited concerns about the Chinese government’s influence on private industry to justify its efforts to force ByteDance Ltd. to sell its American stake in its social network TikTok and the global campaign to convince allies to renounce equipment manufactured by supporters of the Huawei Technologies Co. These actions often cite Chinese policies, such as a 2017 law that requires companies to “support, help and cooperate” with intelligence agencies.
Like Huawei, Ant also affirmed its independence from the Chinese government, saying in a 2017 application to the U.S. securities regulator that it is “a private sector company and while a handful of Chinese state funds or affiliates have a non-controlling minority participate, they do not participate in the management of the company. ”
The party has long been targeting private companies, including foreign ones operating in China. One way to do this is through the presence of party committees in companies, including technology companies, which are made up of employees.
In addition, it sends employees to companies to oversee certain activities. Many technology leaders are also members of the party, including Ma, Lenovo founder Liu Chuanzhi and Huawei’s Ren Zhengfei. Pony Ma from Tencent and Lei Jun from Xiaomi Corp. are delegates to the National People’s Congress.
The party has also intervened on several occasions to punish executives for mismanagement, including Wu Xiaohui of Anbang Insurance Group.
But recent efforts to exert government influence on companies and intervene in the business landscape have reached new levels. This provided fuel for China’s hawks in Washington, who argue that the party has too much influence over Chinese companies.
Xi needs business executives at his side to achieve strategic goals, such as the “dual circulation” economic plan focused on domestic consumption, developing secure supply chains and reducing dependence on foreign technology. Although the world’s second largest economy was the first to recover from Covid-19, its recovery is showing signs of peak, even with slow global growth and tense ties with the United States.
In a rare direct appeal to the business sector in July, Xi called on executives, including those in the technology industry, to be more patriotic and help with the post-pandemic economic recovery. “Outstanding entrepreneurs must have a strong sense of mission and responsibility towards the nation and align the development of their business with the prosperity of the nation and the happiness of the people,” he said.
Weeks later, the party revealed plans to increase control over the private sector, extending its United Front network operations even further to the business community. The policy will “strengthen ideological orientation” and “create a central group of private sector leaders that can be trusted at critical times”, according to the guidelines published at the time.
“Under President Xi, the CCP has strengthened its control over technology companies and doubled its technonationalist initiatives,” wrote researcher Alex Capri in a recent report to the Hinrich Foundation. “In addition to putting party officials in prominent companies, it continues to neutralize high-profile corporate executives, where there is a perception that they were operating independently of the party’s policy or becoming very influential.”
(Updates with debate on the prohibitions of Alibaba and Tencent in the third paragraph)
For more articles like this, visit us at bloomberg.com
Subscribe now to stay up to date with the most trusted business news source.
© 2021 Bloomberg LP