(Bloomberg) – Chinese technology companies have done well by convincing international investors that they are operating independently of the Communist Party. Now Jack Ma has become a case study for the firm’s biggest skeptics.
Companies of Alibaba Group Holding Ltd. to Tencent Holdings Ltd. spread billions on foreign acquisitions as they developed programs and technologies that challenged Western competitors, with little or no state intervention. But the pursuit of Beijing to Ma and its Ant Group Co. after criticizing regulators, probably plays directly into the hands of China’s biggest critics in Washington, who have long claimed that no Chinese technology giant or enterprise is out of reach of Xi Jinping.
U.S. officials are now debating whether to ban investments in Alibaba and Tencent, according to people familiar with the matter, which would be a dramatic blow to two of the companies most global investors own. President Donald Trump already on Tuesday signed an executive order that includes 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 agree with President Trump’s commitment to protecting the privacy and security of Americans from threats by the Chinese Communist Party,” Trade Minister Wilbur Ross said in a statement on the order.
Beijing’s moves could increase pressure on the incoming Joe Biden administration to undermine further actions that are detrimental to China, although it is not clear how much Trump’s aggressive policy will continue for the president-elect.
The party’s battle over affairs has become even clearer over the past twelve months as Xi strives to consolidate power ahead of next year’s major party congress, when he is expected to extend his government for at least another five years. Covid-19 only contributed to strengthening its grip and launching a warlike campaign to get the economy back on track and to eradicate perceived threats to national security.
“You have to be very careful about who ultimately controls regulations, who controls licensing – who is responsible,” said Mark Natkin, managing director of Marbridge Consulting in Beijing. “And if you forget and start getting too critical or taking on too much of a role that normally belongs to the party, then you’ll go chop a little or two.”
Beijing has embarked on the fundamental overhaul of Ma’s trillion-dollar internet empire since the breakdown of Ant’s $ 35 billion public offering in November, a record debut that would have been the entrepreneur’s main achievement. Authorities then forced its online finance titan to limit loans and devise a plan to bring down its most profitable businesses. The government has also launched an investigation into alleged anti-competitive practices in Alibaba. The billionaire has not been seen in public since November, and his absence from the recent recording of an Afrikaans TV program he created has sparked speculation about his whereabouts.
“There is a lot of power in the Chinese government’s infrastructure for economic and financial management, and if Ant is going to defend that power, important people will see it as a step too far,” said Graham Webster, editor of the DigiChina project at the Stanford Cyber Policy Center. But “the Chinese government is also rewarding these leading companies as drivers of technological independence. The party will have to face significant threats to break them down. ”
The action against Ma sends the latest signal that Beijing feels encouraged to venture international outreach due to measures to address domestic challenges. Xi has previously faced threats of US sanctions to impose comprehensive national security legislation on the former British colony of Hong Kong. Crushing Ant’s IPO has risked alienating a plethora of powerful global financiers from Singapore’s sovereign wealth fund to Carlyle.
The US has also expressed concern over the Chinese government’s influence on the private industry over its efforts to buy ByteDance Ltd. forcing the U.S. to sell part of its TikTok social network, and the global campaign to persuade allies to buy equipment manufactured by Huawei Technologies Co. such actions often cite Chinese policies, such as a 2017 law requiring businesses to ‘support, assist and cooperate’ with intelligence agencies.
Like Huawei, Ant also argued for its independence from the Chinese government, saying in a 2017 application to the U.S. security regulator that it “is a private sector and a handful of Chinese state-owned or associated funds own a minority-owned minority interests,” they do not participate in company management. ”
The party has long entered into private enterprises, including foreign enterprises operating in China. One way to do this is through the presence of party committees in companies, including technology companies, that consist of employees.
In addition, it sends officials to companies to oversee certain activities. Many technical leaders are also party members, including Ma, Liu Chuanzhi, founder of Lenovo, and Ren Zhengfei of Huawei. Tencent’s Pony Ma and Leomi Jun of Xiaomi Corp. are both delegates to the National People’s Congress.
The party has also stepped in on several occasions to punish managers for mismanagement, including Wu Xiaohui, Anbang Insurance Group.
Recent efforts to exert government influence on companies and to intervene in the business landscape have reached new levels. It supplies fuel to the Chinese hawks in Washington, which claims that the party exerts too much influence on Chinese companies.
Xi, for its part, needs business executives to achieve strategic goals, such as the ‘double circulation’ economic plan aimed at domestic consumption, the development of secure supply chains and the dependence on foreign technologies. While the second largest economy in the world was the first to emerge from Covid-19, its recovery is showing a peak, although world growth remains sluggish and is hampering ties with the US.
In a rare direct plea to the business sector in July, Xi called on executives, including those from the technology industry, to be patriotic and help the economic recovery after the pandemic. “Outstanding entrepreneurs must have a strong sense of mission and responsibility for the nation, and must align their development enterprises with the prosperity of the country and the happiness of the people,” he said.
Weeks later, the party unveiled plans to tighten control over the private sector by further expanding its United Front network operations to the business community. The policy will ‘strengthen ideological leadership’ and ‘create a core group of leaders in the private sector that can be trusted at critical times’, according to the guidelines at the time.
“Under President Xi, the CCP has tightened its grip on technological ventures and doubled its techno-nationalist initiatives,” researcher Alex Capri wrote in a recent report for the Hinrich Foundation. “Apart from the fact that party officials are placed in prominent companies, it continues to castrate high-profile corporate executives, where the perception exists that they are operating independently of party lines or becoming too influential.”
(Updates with debate on Alibaba and Tencent ban from third paragraph)
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