ArrowArtboardCreated with Sketch.Title ChevronTitle ChevronIcon FacebookIcon LinkedinIcon Mail ContactPath LayerIcon MailPositive ArrowIcon PrintIcon Twitter
China tech

Alibaba calls China crackdown a 'challenge,' but no news on Ant IPO

E-commerce giant vows to shoulder more social responsibility amid probe

Alibaba Group's Beijing office: China's changing regulatory landscape "presents near-term challenges" to the group.   © Reuters

HONG KONG -- The chairman and CEO of Alibaba Group Holding expects the company to be challenged by China's tightening rules on internet platforms, as the e-commerce conglomerate reported better-than-expected quarterly earnings on Tuesday.

For the September-December period, Alibaba revenue jumped 37% to 221.08 billion yuan ($34.2 billion), and net income rose 27% to 59.2 billion yuan, the company said, with both figures beating analysts' estimates.

However, Daniel Zhang warned in an earnings call that the changing regulatory landscape, which saw Chinese authorities announce a series of guidelines and rules regulating online finance and internet companies, "presents near-term challenges" to the group.

On one of the most visible effects of the crackdown, the halting of the Ant Group initial public offering, Zhang had little to say other than that the fintech company was in the process of developing a rectification plan and going through relevant regulatory procedures.

"Therefore, Ant Group's business prospects and IPO plans are subject to substantial uncertainties," he said. "Currently, we are unable to make a complete and fair assessment of the impact that these changes and uncertainties will have on Alibaba Group."

Former Alibaba Chairman Jack Ma has stayed out of the public eye since an October speech that riled authorities and only resurfaced last month in a video call with rural teachers.   © Reuters

The earnings figures were reported on a non-generally accepted accounting principles basis.

"Thanks to the rapid recovery of China's economy, Alibaba had another very healthy quarter," Zhang told the earnings call, as Chinese consumers keep buying goods and services online. The group's cloud business achieved positive adjusted earnings before interest, taxes and amortization, or EBITA, and that logistics unit Cainiao Smart Logistics Network also recorded positive cash flow during the quarter.

China's crackdown on tech platform companies means a more competitive market for e-commerce, where Alibaba has been a dominant leader for over a decade.  But Zhang said the changing rules are also an opportunity to reassess and improve business practices.

In November, the same month the Ant IPO was squashed, the State Administration for Market Regulation, China's market regulator, unveiled a new set of guidelines targeting the anti-competitive practices of internet platforms. The rules will prevent platforms from imposing exclusive sales arrangements with merchants. The regulator fined Alibaba for failing to report a previous acquisition and launched an official antimonopoly investigation into the company.

While Alibaba does have exclusive flagship store arrangements with a small number of brands, Zhang said, selling products through multiple platforms "has become a common practice" for merchants. But Alibaba is still the main sales channel for most brands because of the range of services the group provides for merchants, he said.

The conglomerate has been under the spotlight since October, when its outspoken founder Jack Ma made a speech that likened traditional banks to pawnshops and labeled the existing financial regulatory framework as an "old people's club."

Days later, regulators abruptly suspended Ant from going public, which was expected to raise up to $39.6 billion in a dual listing in Shanghai and Hong Kong, and would have been the world's biggest IPO.

In response to the antimonopoly probe, Alibaba said it had established a special task force with leaders from relevant business units to conduct an internal review. "We approach this antimonopoly investigation with a cooperative, receptive and open mindset," Zhang said in the call.

He also assured investors that the recent regulations on the customer loans provided by internet companies will not have a significant impact, as only very small number of purchases on its platforms were funded by such loans.

While Alibaba and Ant are the first big targets of Chinese authorities' campaign to rein in the growing power of major technology companies, the regulatory tightening appears to be across the board.

Tencent Holdings also was fined for past acquisitions alongside Alibaba. At least 10 companies, including Didi Chuxing, Meituan and have removed internet deposit products to comply with updated online finance regulations.

"The biggest uncertainty for Alibaba is that we don't know what will happen in terms of regulations," said Robin Zhu, China internet analyst at AB Bernstein in Hong Kong.

Beyond the regulatory hurdles, Zhu believes Alibaba will face more challenges in its core commerce business from livestreaming companies and community group-buying operators.

Livestreaming has become a popular way for merchants to sell to consumers during the pandemic. Both ByteDance-owned Douyin, the Chinese version of TikTok, and Kuaishou Technology, which is seeking a $5.4 billion IPO in Hong Kong, are expanding their e-commerce businesses aggressively.

Meanwhile, the rise of community group-buying, in which neighbors purchase groceries and fresh produce in bulk at discounted prices through a leader recruited via internet platforms, also has the potential to undercut Alibaba's market share in fresh produce in the country's largest cities, Zhu said.

Many market observers believe that community group-buying will be the next growth engine for internet conglomerates. Tencent and major e-commerce groups such as Meituan, Pinduoduo and, as well as ride-hailing company Didi Chuxing, all have launched such services or invested in startups in that segment.

During the call, Zhang also vowed that the group will shoulder more responsibilities in creating jobs and serving small businesses.

"Beyond complying with regulatory requirements, we will continue to do our best to fulfill our responsibilities to society and contribute to causes such as consumer protection, digitalization of retail, and industrial upgrading," he said.

Sponsored Content

About Sponsored Content This content was commissioned by Nikkei's Global Business Bureau.

Nikkei Asian Review, now known as Nikkei Asia, will be the voice of the Asian Century.

Celebrate our next chapter
Free access for everyone - Sep. 30

Find out more