In China, there's no such thing as 'too big to fail'

NOT much is known about where Jack Ma is since his reported disappearance. And only time will tell about the implications on China's entrepreneurial landscape. But what emerges is that in China, no one is too big to fail. The State Administration of Market Regulation (SAMR) had announced two weeks ago that it had begun an anti-monopoly investigation into Alibaba. The complaint centres on having merchants to sell products exclusively on Alibaba. It's a practice commonly known as "picking one from two".

Regulators are also looking at Ant Group, the fintech company one-third owned by Alibaba. Its US$37 billion IPO, which was expected to be the biggest initial public offering ever, had recently been cancelled. Regulators are examining whether to treat Ant more like a bank and regulate it that way, or to break it apart.

From Dec 24-28, Alibaba's valuation fell by 13 per cent, or US$91 billion. This happened despite the US$6 billion in share buybacks aiming to avert the slide. The decline in Alibaba's share price also weighed on other Internet and technology companies. Games publisher and dominant social network operator Tencent Holdings, e-commerce giant JD.com and on-demand services giant Meituan all felt the heat.

Then you have Jack Ma's own outspokenness. He regularly attended international conferences like Davos, where he gave politician-like speeches. He dressed up as Michael Jackson at his own company event to amuse employees and business partners. He made a short film in 2017 showing off his kung fu skills. He criticised the "pawnshop mentality" of Chinese banks. He bluntly criticised financial regulation of slowing down innovation.

So it's the turn for regulations. Guo Shuqing, the chairman of China Banking and Insurance Regulatory Commission (CBIRC), said in a fintech conference that more attention will be paid on the following questions:

a) have the BigTech firms blocked newcomers?

b) have they collected data improperly?

c) have they refused to disclose information that should be made public?

d) have they engaged in conduct that misleads users and consumers?

To be sure, these questions are not uniquely Chinese. US regulators want to unwind Facebook's acquisitions of Instagram and WhatsApp, which might well spell the disintegration of the Facebook empire. The Federal Trade Commission was unhappy with the way Facebook is leveraging its user base and information. Europe just passed its Digital Markets Act to put an end to self-preferencing on App store and search results.

But China is carrying out its new rules on a far greater magnitude. Why now?

Think Huawei, Lenovo, and Haier. Chinese authorities have long supported national champions that are seen as world-beating. These companies have all won big domestically and gone on to unseat global players. That's how Japan and South Korea got rich. You nurture an advanced industrial base, impose an export requirement on it, then support the winners who bring cash home.

THE OVERSEAS FACTOR

This is where the disappointment lies. Alibaba's international commerce is about 10 per cent of its domestic revenue. Tencent's WeChat has more than a billion monthly users in China, but "merely" 70 million user accounts registered overseas. JD.com operates mostly within China. The only exception is TikTok, which is owned by ByteDance. It's the lone player that has made inroads into America's heartland. Is it a wonder that when TikTok faced political heat in India, the Chinese government approached ByteDance with offers of help? China's tech giants are disrupting domestic industries. They threaten the profit margins of state-owned banks, domestic retailers, and government-sponsored technology providers. They do all that without generating many wins abroad. And if these tech giants are all profiting inside China but failing to expand outside it, why should Beijing tolerate their charades anymore?

Does this matter to anyone outside of China? For one, the tech war between China and the US will only intensify during the Biden administration. If Alibaba, Tencent, JD.com and a host of other tech companies are to survive scrutiny from Beijing, they will need to gain traction for their own international expansion. They will not fight against Amazon in the US, but in South-east Asia, the Middle East, and part of Europe. Those will be the frontier markets for China Tech Inc.

2021 will prove itself again a year of acceleration. In this case, it will accelerate the battle for international market leadership between Chinese and US companies. The signal is now all clear.

• The writer is the LEGO® professor of management and innovation at IMD, and director of IMD's Advanced Management Programme.

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