Alibaba Group Holding Ltd led a frenzied second day of selling among China’s biggest tech companies, driven by fears that antitrust control could spread beyond Jack Ma’s internet empire and engulf the most powerful companies in the world. country.
Alibaba and its three biggest rivals – Tencent Holdings Ltd., food delivery giant Meituan and JD.com Inc. – have paid out nearly $ 200 billion in two sessions since Thursday, when regulators revealed an investigation into Ma’s signature firm’s alleged monopoly practices. This marked the official start of the Communist Party’s crackdown not only against Alibaba but also, potentially, in the larger and increasingly influential technological sphere.
“It is very difficult to predict the outcome of the Chinese government’s ongoing investigation into Alibaba and other major consumer Internet platforms,” Baird analyst Colin Sebastian wrote in a note. He lowered his price target on Alibaba’s U.S.-listed shares to $ 285 from $ 325, citing “the uncertainty surrounding government oversight and the potential for direct regulatory action in the coming year. “.
The company’s U.S. certificates of deposit fell 1.7% in pre-release, adding to the 13% decline in the last session, while JD.com lost 1.6%. The day’s trading in Hong Kong has been fierce: Alibaba fell 8% on Monday, losing $ 270 billion in value since its October high. Tencent and Meituan both fell more than 6%. Alibaba rival JD.com Inc. slipped about 2%.
The Chinese central bank on Sunday ordered the other online titan of Ma – Ant Group Co. – to return to its roots as a payment service and overhaul adjacent businesses from insurance to management. money, which prompted talk of a possible breakup.
Once hailed as the standard bearers of China’s economic and technological ascendancy, Alibaba and its compatriots now face increasing pressure from regulators worried about how quickly they are accumulating influence in sensitive areas such as media and education and are gaining influence in everyday life. hundreds of millions. That concern crystallized in November, when regulators torpedoed Ant’s initial $ 35 billion public offering before unveiling draft rules entrenching sweeping powers to crack down on anti-competitive practices in industries ranging from e-commerce to social media.
“The Chinese government is putting more pressure or wants to have more control over technology companies,” Jackson Wong, director of asset management at Amber Hill Capital Ltd., said by phone. “There is still very strong selling pressure on companies like Alibaba, Tencent or Meituan. These companies are developing at a pace deemed too fast by Beijing and have too large scales. “
It is unclear what concessions regulators may try to wreak havoc on Alibaba. Under existing antitrust law – currently being revised to include the internet industry for the first time – Beijing can fine violators of up to 10% of its revenue. In Alibaba’s case, that could mean a levy of up to $ 7.8 billion.
The Chinese e-commerce leader on Monday raised a proposed $ 4 billion to $ 10 billion share buyback program, in effect for two years until the end of 2022. But the buyback program has been overwhelmed by fears. that the action taken against Ant is just the tip of the iceberg. While the central bank has refrained from calling for a break, the financial services giant must now present specific measures and a timetable for overhauling its activity.
The State Administration for Market Regulation dispatched officials to Alibaba’s headquarters in Hangzhou last Thursday and the on-site investigation was completed the same day, according to local media. The People’s Daily – the spokesperson for the Communist Party – posted a comment over the weekend warning Alibaba peers to use the antitrust investigation into Alibaba as an opportunity to raise awareness of fair competition.
Ma, the flamboyant co-founder of Alibaba and Ant, has all but disappeared from public view since Ant’s IPO derailed last month. In early December, the man most closely identified with China Inc.’s meteoric rise was invited by the government to stay in the country, a person familiar with the matter said.
Ma is not on the verge of personal downfall, those familiar with the situation said. Rather, his very public rebuke is a warning that Beijing has lost patience with the inordinate power of its tech moguls, increasingly seen as a threat to the political and financial stability that President Xi Jinping bestows on.
Investors remain divided on the extent to which Beijing will take on Alibaba and its compatriots as Beijing prepares to roll out the new anti-monopoly regulations. The country’s leaders have said little about how much they plan to crack down on them or why they have decided to act now.
Some analysts predict an upcoming, but targeted crackdown. They point to the wording of the regulations that suggests a strong focus on online trading, from forced exclusivity deals with traders known as “Pick One of Two” to pricing based on algorithms favoring new users. The regulations specifically warn against predatory pricing – selling at lower prices – to eliminate rivals.
“As this latest investigation comes at a time when China is poised to take action against monopoly practices, we believe SAMR might want to use the BABA case as a precedent to send a message to the rest of the industry that the Authority is determined this time to tackle the “price problem,” Nomura analysts wrote in a note Monday.