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Is this Alibaba’s watershed moment?

Is this Alibaba's watershed moment?

Hi everyone — This is Kenji in Hong Kong. The shockwaves from Ant Group’s cancelled IPO last year are still reverberating (see Big Story and Smart data). While Beijing is busy scrutinising private tech companies at home, it looks set to rock the global tech balance in AI and chips (Mercedes’ top 10). Turning to India, Mercedes tells us about the tragedy of vulnerable borrowers in the subcontinent being trapped by online P2P lending. Hope you stay well. 

The Big Story — Exclusive

Has the “Alibaba economic bloc” reached a watershed?

Ant Group, which is 33 per cent owned by Alibaba Group, is locked in an intense dispute with Beijing over data privacy. Alibaba, meanwhile, has sharply scaled back its investment in start-ups. Jack Ma, co-founder of Alibaba and leading shareholder in Ant, has largely disappeared from public view.

Key implications: A big question mark hangs over the future of Ant Group and Jack Ma. The extent to which Alibaba, which controls a broad portfolio of ecommerce and other businesses, will be drawn into the turbulence remains unclear.

A new set of online lending regulations looks set to throw Ant’s business model into jeopardy (see Smart data for details).

The People’s Bank of China, the central bank, is unhappy with Ant’s progress in handing over data on the 500m customers that have taken out loans, according to people familiar with the matter.

Upshot: The Jack Ma saga highlights a growing contradiction at the heart of the Chinese state, writes Jamil Anderlini, Asia editor at the Financial Times. Beijing needs private enterprise to drive growth but orders businesspeople to “identify politically, intellectually and emotionally” with the ruling Communist party.

Mercedes’ top 10

  1. Are we the last generation to draw any distinction between our physical and virtual lives? John Thornhill, the FT’s innovation editor, investigates in a cracking new series of the FT Tech Tonic podcast.

  2. A two-year study concluded China will surpass the US as an AI superpower, while Washington’s superiority in semiconductors is under threat.

  3. A sky-high valuation for a US drone maker has however raised hopes for the country’s drone race with China.

  4. Severe drought is alarming Taiwan’s tech manufacturers, who fear their output is under threat, while Taipei tries to calm things down.

  5. Countries that dominate battery production may soon wield the same type of power enjoyed by oil-producing nations in the 20th century. But which will it be: China, Japan or the west?

  6. Zoom fatigue is a real problem, according to researchers at Silicon Valley’s Stanford University.

  7. Masayoshi Son’s long-held dream of merging the former Yahoo Japan and WhatsApp rival Line has been realised. But can the combined entity counter the growing threat of US tech giants in Japan?

  8. China’s Xiaomi has resuscitated its defunct messaging app and it looks suspiciously similar to Clubhouse, the chat platform banned by Beijing.

  9. Zomato is preparing to launch an IPO, one of the first of India’s crop of unicorns expected to go public this year.

  10. TSMC is stuck between the US, its strategic ally, and China, its biggest trading partner. The situation, writes John Thornhill, captures how Taiwan’s room for manoeuvre is becoming as thin as TSMC’s wafers.

California-based Skydio has become the first US drone maker to be valued at more than $1bn © Skydio

When sages speak

  • The pandemic is fuelling a techno-nationalist zeitgeist as governments resort to export controls and sanctions in strategic sectors such as semiconductors, 5G networks and other “dual-use” technologies, say Alex Capri and Wolfgang Lehmacher for the Hinrich Foundation.

  • Here is a comprehensive explainer on China’s digital renminbi plans and its implications from the China Power Project at CSIS, a Washington-based think-tank. It includes a podcast discussion between Bonnie Glaser and Kevin Desouza.

Our take

China’s battles with risky online lending practices are being mirrored elsewhere in the region. Apps and websites offering quick loans have proliferated in India and south-east Asia, where hundreds of millions of people are unable to access the formal credit system.

Suicides by vulnerable debtors in India — where effective interest rates can be as high as 60 per cent a week — have sparked a regulatory response. A fast-growing peer-to-peer lending sector in Indonesia has also been dogged by high default rates.

Tech giants including Google are being drawn into the fray. In India, Google has removed several lending apps from its Play Store following pressure from the Reserve Bank of India, the central bank. But shut-down apps can re-emerge under new or similar names within days on the companies’ online app stores.

Weeding out illicit lenders will require more collaboration between tech companies and governments. The need is especially great in Asia, where education lags behind that in western countries. The problem is that tech companies globally have taken a hands-off approach to regulating their online platforms. Until there is greater collaboration, policing illegal apps is akin to playing a game of Whac-A-Mole.

— Mercedes

Spotlight

Zhang Jindong is winning at football but losing in business. His retail company, Suning, is bleeding red ink even as Inter Milan — which Suning bought in 2016 — flies high at the top of Italy’s Serie A league.

Suning is shutting down swaths of its brick-and-mortar stores as it focuses on online sales in a bid to turnround its business after a Rmb3.9bn ($603m) net loss last year.

Suning will also unload part of the 40 per cent stake held by Zhang and group companies as part of the rescue plan. It will cut loose Jiangsu Football Club, defending champions of the Chinese Super League. Inter Milan, which is overseen by Steven Zhang, the 29-year-old son of Zhang Jindong, has been in talks over a potential sale to private equity.

Art of the deal

Sea’s Shopee platform went from obscurity five years ago to being the leading player in south-east Asia, beating even rival Alibaba’s regional offering, Lazada © Reuters

South-east Asia’s most valuable company has made the leap into investment, buying former Hillhouse Capital partner David Ma’s Hong Kong-based hedge fund in a $1bn deal. Sea is trying to establish fintech as a third growth driver after gaming and ecommerce.

Tencent-backed Sea, which is now valued at more than $100bn, has form in making a success of non-core businesses. Its Shopee platform went from obscurity five years ago to being the leading player in south-east Asia, beating even rival Alibaba’s regional shopping platform Lazada. The creation of a corporate investment arm — to be known as Sea Capital — shows the company is serious about bolstering its financial services business and taking on regional competitors such as Singapore-based Grab and Indonesian unicorn Gojek.

The deal followed similar moves last year by Sea to boost its financial services arm. In December, the company won a digital banking license in Singapore. It also acquired the Indonesian lender Bank BKE. The question is when the fast-growing company will start to make money. Net losses for 2020 widened to $1.6bn from $1.4bn a year earlier.

Smart data

Consumer and SMB loan volume enabled by Ant compared with major Chinese banks

The chart above shows that Ant Group, which was forced to pull its record $37bn initial public offering last year, is the undisputed king of consumer lending in China.

But Beijing is intent on cutting it down to size. New regulations, which come into force next January, stipulate that banks will be required to manage the risks incurred in joint lending with internet platforms such as Ant. They will be “strictly banned” from outsourcing the function, as they have been doing, to the internet companies.

This effectively blocks a big part of Ant’s business. The company receives loan applications via smartphones and forwards them, together with its credit assessments of applicants, on to partner banks. It earns fees from the banks for providing the information on consumers.

About the author

Erin Clark

Erin is a sports enthusiast who loves indulging in occasional football matches. She is a passionate journalist who flaunts a perfect hold over the English language. She currently caters her skills for the sports and health section of Report Door.

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