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As Alibaba and Tencent swell, so does their political risk

The two Mas have contrasting strategies for keeping Beijing happy

Jack Ma taps his inner Michael Jackson at Alibaba's annual party in Hangzhou on Sept. 8.   © Getty Images

HONG KONG Virtually every day, the People's Daily and its English-language counterpart, the China Daily, feature either President Xi Jinping or Premier Li Keqiang -- or both -- on their front pages. That is hardly surprising since the newspapers reflect the views and wishes of the Chinese Communist Party. More surprising, though, is the fact that one of China's most highly valued startups, Toutiao, a customized news website backed by Sequoia Capital China, also features the two leaders prominently most days.

No matter how powerful or influential a new-economy company in China may be, any of them -- or any billionaire businessman -- runs the risk of incurring Beijing's wrath or envy. Most companies worry about losing out to the competition or being disrupted by a sudden change in technology. But in China, the biggest risk is political. And today, Chinese tech titans Alibaba Group Holding and Tencent Holdings are the focus of an intense debate about the extent to which they are vulnerable to that risk.

To some analysts, the two have an immunity that others can only dream of. "They are the darlings of China," said the head of tech banking for a major international bank in Hong Kong. "They are trophies. They demonstrate the New China."

Some say that it is in Beijing's interest to establish harmonious relations with the pair. "Ali and Tencent are instruments of government policy. The government can use them to manage the entire private sector," said the head of a Beijing-based merchant bank. "Better to control two large companies than hundreds of smaller ones. And the two wittingly hand over all their data to the government."

Others counter that the only thing that matters is how powerful Alibaba and Tencent are -- and because they have enormous power, the government is going to put them under close scrutiny. This is particularly true in sensitive areas such as news, where their soft power exceeds that of any government media outlet.

Tencent acted quickly after a People's Daily editorial criticized its "Honor of Kings" game for being too addictive for kids.   © Reuters

After an editorial in the People's Daily appeared recently attacking Tencent for the amount of time kids spend playing its popular "Honor of Kings" game, Tencent responded with alacrity. It instantly announced that it would limit young players to no more than an hour a day -- a prescription that is easily evaded by savvy gamers, but never mind. The point was to be seen to take the criticism of lack of social responsibility seriously.

Both companies do everything they can to publicly align themselves with Beijing's policies and priorities. When the government launched its latest campaign to attract private corporate capital to state-owned enterprises, both quickly wrote checks to telecommunications company China Unicom in August. Both also give generously to charities -- especially those that support education.

DIFFERENT STRATEGIES The two founders, meanwhile, have adopted contrasting methods to mitigate the political risk they face personally.

Jack Ma Yun of Alibaba loves the limelight and visibly tries to court the leadership. He hosts international gatherings at his Hangzhou, Zhejiang Province, head office, which is lined with photos of important visitors that have made the pilgrimage there. He is on stage everywhere in the world reminding his audiences how many jobs he has created at home and abroad, pointing out that trade is never a zero-sum game. The diminutive leader identifies with "the little man" both literally and figuratively; indeed, his most oft-used line is his support of the small enterprise and small-businessman on both sides of the Pacific.

Yet precisely because of his very visibility and habit of speaking out, Ma has become a risk factor for Alibaba. Remaining in the public eye makes it all too easy to say something that could anger Beijing. In addition, by buying the Hong Kong-based South China Morning Post in 2015, he is held responsible for anything that appears in the paper, which has led him to complain to friends that there has been a downside for him in the purchase, they say.

By contrast, Pony Ma Huateng of Tencent is self-effacing and has virtually no public profile. He would never boast of his connections with the top leaders in Beijing as Jack Ma is wont to do. On the rare occasions that he surfaces in public, as he did recently in Hong Kong to sponsor a government initiative in the Greater Bay Area of Macau, Hong Kong and the Pearl River Delta of southern Guangdong Province, it makes headlines.

Whether his low profile will be enough to keep from appearing threatening in the eyes of the government, though, is anyone's guess. In Xi Jinping's China, where onetime darlings can suddenly find themselves under investigation, immunity can never be a sure thing.

"Ali and Tencent have so much to lose," the banker concluded.

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