Xi’s pressure against Jack Ma creates a new threat to Chinese technology

Chinese tech companies have done a pretty good job of convincing global investors that they were 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. injected billions in overseas acquisitions while developing apps and technologies that challenged Western rivals with little or no state interference. But Beijing’s pursuit of Ma and his Ant Group Co. after criticizing regulators arguably plays directly into the hands of China’s biggest critics in Washington, who have long argued that no Chinese technology giant or entrepreneur is beyond President Xi Jinping’s reach.

US authorities are now debating banning investments in Alibaba and Tencent, according to people familiar with the matter, which would be a dramatic blow to two of the companies whose shares are most owned by global investors. As early as Jan. 5, President Donald Trump signed an executive order to ban 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 support President Trump’s commitment to protect the privacy and security of Americans from threats from the Chinese Communist Party,” Commerce Secretary Wilbur Ross said in a statement on the order.

Beijing’s measures could increase pressure on the forthcoming Joe Biden administration to take further action harmful to China, although it is unclear how much of Trump’s aggressive policies the president-elect will pursue.

The party’s rule over the affairs has become even more evident in the past 12 months as Xi pushes to consolidate power ahead of next year’s major party congress, when he is expected to extend his rule for at least another five years. COVID-19 has only served to tighten its grip and spark a belligerent campaign to get the economy back on track and eradicate perceived threats to national security.

“You have to pay close attention to who ultimately controls regulation, who controls licenses – who is in charge,” said Mark Natkin, general manager of Beijing-based Marbridge Consulting. “And if you forget and you start to become overly critical or take on too much of a role that normally belongs to the party, then you go down a notch.”

Beijing has shifted to fundamentally reshape Ma’s trillion-dollar internet empire since Ant’s $ 35 billion public offering broke down in November, a record-breaking debut that would have been the entrepreneur’s crowning glory. Authorities then forced his online finance giant to restrict loans and devise a plan to divest its most lucrative businesses. The government has also begun an investigation into alleged anti-competitive practices at Alibaba. The billionaire has not been seen in public since November, and his absence from the recent filming of an African TV show created speculation about his whereabouts.

“There is a lot of power in the Chinese government’s infrastructure for economic and financial management, 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 with the Stanford Cyber ​​Policy Center. But “the Chinese government also values ​​these leading companies as drivers of technological independence. The party would have to see significant threats to break them down. “

The move against Ma is the latest signal that Beijing feels encouraged to risk international fallout from measures designed to address domestic challenges. Xi has previously defied threats from US sanctions to impose sweeping national security laws on the former British colony of Hong Kong. The IPO of Crushing Ant threatened to alienate a plethora of powerful global funders from Singapore’s sovereign wealth fund to Carlyle.

The US has also expressed concern about the influence of the Chinese government on private industry to justify its efforts to get ByteDance Ltd. to force the US share of its social network TikTok to sell and the global campaign to convince allies of Huawei Technologies Co. Supporters renounce. such actions are often referenced to Chinese policies, such as a 2017 law requiring companies to “support, assist and cooperate” with intelligence agencies.

Like Huawei, Ant has also declared to be independent from the Chinese government, saying in a 2017 filing to the US securities regulator that it is “a private sector company and while a handful of Chinese state or affiliated funds are a non- controlling minority interests, they do not participate in business management. “

The party has long had access to private companies, including foreign companies operating in China. One way to do that is through the presence of party committees in companies, including technology companies, which are made up of employees.

In addition, it sends officials to companies to monitor certain activities. Many tech leaders are also party members, including Ma, Lenovo founder Liu Chuanzhi and Huawei’s Ren Zhengfei. Pony Ma from Tencent and Lei Jun from Xiaomi Corp. are both delegates to the National People’s Congress.

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

But recent attempts to exert government influence on businesses and intervene in the business landscape have reached new levels. That fueled the Chinese hawks in Washington, who claim the party exerts too much influence over Chinese companies.

Xi needs business leaders by his side to achieve strategic goals such as the ‘dual circulation’ economic plan targeting domestic consumption, developing secure supply chains and reducing dependence on foreign technology. While the world’s second-largest economy was the first to recover from COVID-19, the recovery is showing signs of a spike even as global growth remains sluggish and ties with the US remain tense.

In July, in a rare direct plea to business, Xi called on executives, including those from the tech industry, to be more patriotic and help the post-pandemic economic recovery. “Excellent entrepreneurs must have a strong sense of mission and responsibility for the country and align the development of their business with the prosperity of the country and the happiness of the people,” he said.

Weeks later, the party unveiled plans to tighten control of the private sector by further expanding the United Front’s network operations into business. The policy will “strengthen ideological leadership” and “create a core group of private sector leaders who can be trusted in critical times,” according to the guidelines published at the time.

“Under President Xi, the CCP has tightened its grip on technology companies and redoubled its techno-nationalist initiatives,” wrote researcher Alex Capri in a recent report for the Hinrich Foundation. “In addition to placing party officials in prominent companies, it continues to castrate high-profile business leaders when they feel they were operating independently of party guidelines or became too influential.”