Bringing tech giants to their knees

Editorial | Mary Ma 16 Nov 2020

The mainland's Double Eleven shopping frenzy has officially concluded with record sale figures.

But the record-breaking achievement has not saved technology giants including Alibaba and Tencent, which should have benefited enormously from this event - the first since the coronavirus outbreak.

On the contrary, their share prices tumbled drastically - and the culprit was Beijing's desire to regulate the technology sector.

There was a real sense of deja vu. Once acclaimed as the world's biggest initial public offering exercise, the final countdown to Ant Group's lift-off was aborted in the last few seconds.

On both occasions, the jubilation ended fizzled into nothing.

Some usually reliable media, including the Wall Street Journal and Bloomberg, reported that President Xi Jinping personally halted Ant's historic IPO because he was unhappy with the way its actual controller, Jack Ma, had snubbed state regulators.

It is impossible to verify these reports - unless someone who can officially speak on behalf of either Xi or the central authority is willing to comment on them.

While the reports may be true, they did not seem to align well with the mainland's current situation.

It is more likely than not that, while the central government was adamant that it must regulate Ant, it also wanted the US$37 billion (HK$287 billion) IPO to proceed as this would have generated tonnes of capital in foreign currency for the country.

Furthermore, lawsuits of any kind - including the class action recently filed against Alibaba in the US - must be the last thing Beijing would wish to see. That Ant's plan to list had to be aborted may have been due to an insurmountable technicality.

If it had to be regulated according to the Basel Accords, Ant would have had to drastically lower its valuation in order to meet the equity ratio requirement - and that would have substantially deviated from the description in the prospectus.

It is now much clearer that Ant's plight was just a curtain raiser.

There is no question that Beijing is resolved to expand its economic grip that has already brought giants to their knees in other sectors, including real estate.

The mainland's technology giants are now in the cross hairs. Last Tuesday's announcement of proposed antitrust regulations targeting the internet industry was just the beginning. The State Council's statement expected regulators to release further rules on internet transactions in June next year.

On the one hand, regulators are seeking to create a framework to curb anti-competitive acts to protect the real economy. On the other hand, they may also require companies operating as so-called variable interest entities - meaning those in actual control do not necessarily own a majority stake - to obtain special approval.

The development is not entirely unexpected.

In addition to the politics in the mainland, anti-trust regulation is a global trend. Giants such as Facebook and Google are currently facing anti-trust probes in the US and may have to be carved up to limit their political and economic influence.

Having grown so large, Chinese technology giants may follow a similar destiny.

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