Xi’s push against Jack Ma poses a new threat to Chinese technology

Chinese technology companies did a pretty good job of convincing global investors operating independently of the Communist Party. Now, Jack Ma has become a case study for the biggest skeptics in companies.

Alibaba Group Holding Ltd. Companies at Tencent Holdings Ltd. they dodged billions in overseas acquisitions while developing applications and technologies that challenged Western rivals, with little or no state interference. But Beijing’s pursuit of Ma and its Ant Group Co. after criticizing regulators it probably plays directly into the hands of China’s biggest critics in Washington, who have long claimed that no Chinese tech giant or entrepreneur is out of President Xi Jinping’s reach.

U.S. authorities are now debating a ban on 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 more broadly global investors. As early as January 5, President Donald Trump signed an executive order banning transactions with eight Chinese software applications, including Tencent’s Ant’s Alipay and WeChat Pay, alleging concern that Beijing will have access to data collected by platforms. “I agree with President Trump’s commitment to protect the privacy and security of Americans against threats from the Chinese Communist Party,” Commerce Secretary Wilbur Ross said in a statement on the order.

Beijing’s moves could increase pressure on the incoming Joe Biden administration to push for actions detrimental to China, although it is unclear which of Trump’s aggressive policies the president-elect will continue.

The party’s influence over business has become even clearer over the past 12 months, as Xi pressures to consolidate power ahead of next year’s big party congress, when his government is expected to extend. at least five more years. COVID-19 has only served to strengthen its control, fueling a war-like campaign to steer the economy on the right track and eliminate perceived threats to national security.

“You have to be very careful about who controls the regulations, who controls the licenses, who is in charge,” said Mark Natkin, CEO of Beijing-based Marbridge Consulting. “And if you forget and start being overly critical or taking on too much of a role that normally belongs to the party, then you’ll be cut off one or two scales.”

Beijing has moved to fundamentally overhaul the billionaire Internet empire since Ma, since it overthrew Ant’s $ 35 billion public offering in November, a record debut that would have been the main achievement of the employer. Authorities forced their online finance title to limit loans and design a plan to withdraw their most lucrative businesses. The government also launched an investigation into alleged anti-competitive practices on Alibaba. The billionaire has not been seen in public since November and his absence from the recent recording of an African television program he created stimulated 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 it as a step too far,” said Graham Webster, editor of the DigiChina project at the Center for Stanford cyber policies. But “the Chinese government also rewards these leading companies as drivers of technological independence. The party should perceive significant threats to overthrow them. “

The action against Ma sends the last signal that Beijing feels encouraged to risk the international fall of measures aimed at tackling national challenges. Xi has previously challenged threats of US sanctions to impose general security legislation on the former British colony of Hong Kong. Creating Ant’s IPO risked alienating a large number of powerful global financiers from Singapore’s sovereign wealth fund to Carlyle.

The United States has also cited concerns about the Chinese government’s influence on private industry to justify its efforts to force ByteDance Ltd. to sell the American part of its TikTok social network and the global campaign to convince allies to swear in equipment manufactured by Huawei Technologies Co. supporters. of these actions they often cite Chinese policies, such as a 2017 law, which obliges companies to “support, assist and cooperate” with intelligence agencies.

Like Huawei, Ant has also asserted 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 state-owned or affiliated Chinese funds they own a minority without control participations in the management of the company ”.

The party has long reached 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, that are made up of employees.

In addition, it sends officials 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. they are delegates to the National People’s Congress.

The party also intervened on several occasions to punish executives for mismanagement, including Anbang Insurance Group’s Wu Xiaohui.

But recent efforts to exert government influence over companies and intervene in the business landscape have reached new levels. This has provided fuel to Washington’s Chinese hawks, who argue that the party exerts too much influence on Chinese companies.

Xi needs business executives on his side to achieve strategic goals such as the “dual circulation” economic plan focused on domestic consumption, the development of secure supply chains and the reduction of 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 as global growth remains slow and ties with the United States they remain stable.

In a rare direct request to the business sector in July, Xi called on executives, including those in the technology industry, to be more patriotic and help post-pandemic economic recovery. “Outstanding entrepreneurs must have a strong sense of the mission and responsibility of 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 unveiled plans to tighten control over the private sector by expanding its Front Unit network operations to the business community. The policy will “strengthen ideological orientation” and “create a core group of private sector leaders who can be trusted during critical times,” according to the guidelines published at the time.

“Under President Xi, the CCP has tightened control of technology companies and doubled its techno-nationalist initiatives,” researcher Alex Capri wrote in a recent report for the Hinrich Foundation. “In addition to placing party officials within prominent companies, it continues to neutralize high-profile corporate executives where there is a perception that they were operating independently of party leadership or becoming too influential.”