Alibaba's restructuring and Jack Ma's homecoming are all part of China's plan

Hong Kong CNN

Alibaba's historic restructuring sent its shares soaring to New York and Hong Kong as investors betted on the return of support from regulators for China's private sector and tech industry after two years of brutal crackdown.

The nature of the revamp, which will see the internet conglomerate split into six units, shows that Beijing's anti-Big Tech campaign has not fundamentally changed. The regulators still want to limit the power of tech giants, while also reducing their monopolistic nature.

News of the restructuring broke shortly after Jack Ma, co-founder of Alibaba, returned to mainland China. Ma has been traveling overseas and keeping a low-profile since the Chinese government started a crackdown on tech in late 2020.

Brock Silvers is the chief investment officer at Kaiyuan Capital. He said: 'It seems that Beijing orchestrated Alibaba's split.

This idea is reinforced by Jack Ma’s sudden reappearance. It now appears to be a planned event designed to boost the market sentiment at this critical time.

It worked. Alibaba (BABA), with a $260 billion market cap, saw its shares soar 13% on Wednesday in Hong Kong, after a 14% rise on Wall Street the night before. This was the biggest gain in Asia Pacific for the tech sector.

Ma is a symbol for China's tech sector and a barometer to measure the Chinese government's commitment to private enterprise. Ma's presence is seen as a sign of the Chinese government's support for private business at a time when China desperately needs growth.

In October 2020 the former high-profile entrepreneur criticised the country's financial regulation system as being too rigid and unfriendly for small businesses. The authorities halted the planned $35 billion IPO of Ant Group at the last moment.

The Chinese government then launched a massive crackdown on Big Tech, affecting the most powerful private companies in China.

Back in vogue

The dynamics has changed in the last three years.

China is facing major economic challenges. The Chinese government is eager to boost growth and reinvigorate the confidence in the technology sector after three years of strict Covid-19 control.

Hong Hao is the chief economist at Grow Investment Group. She said that Alibaba's restructuring was a part of Beijing's strategy to boost confidence in private companies.

Xi Jinping, the Chinese leader, recently changed his policy and urged the government and entrepreneurs to work together to boost growth and innovation in tech. This will help China better combat what he calls 'containment and suppression' by the West, led by the United States.

Premier Li Qiang - a trusted ally to Xi, who was confirmed this month as the No. 2 official in the country - then launched a series measures aimed at repairing the ties between government and private sector.

Premier Li stated at his first press conference in early this month that there had been some incorrect comments and discussions made by some entrepreneurs.

Breaking up Monopolies

Analysts say that China needs Alibaba, but it is not as powerful as before.

Silvers stated that the breakup seems to have 'curbed the influence of tech giants'. It would be a reminder of Beijing’s uneasy relationship with the private sectors, despite recent assurances.

Beijing is concerned that tech companies have grown too powerful and large. The government has been attempting to curb the monopolistic nature many tech firms have acquired over the years. It has imposed heavy fines on them, banned their apps from the stores, and demanded that they completely revamp their business.

Hong stated that '[Alibaba’s restructuring plan] provides a way to reduce monopoly and platform power'.

This could be a good model for future Chinese tech giants.

Hong stated that Tencent was the obvious next step. The social media and gaming company has already begun to reduce its stakes in portfolio companies including the food delivery service Meituan.

Unlocking value

Analysts and investors have praised Alibaba's restructuring.

It said that the move marked the biggest overhaul in the 24-year history of the company and would 'unlock' the value of its diverse businesses.

Alibaba will split its business into six divisions: domestic ecommerce, international online commerce, cloud computing and local services, as well as logistics and media and entertainment.

Taobao, the domestic ecommerce group that includes Taobao, and which contributes to most of the company's revenue, will continue to be a fully-owned division. The five other units will each have their own CEOs, and they can also pursue public listings separately.

Alibaba CEO Daniel Zhang wrote in an email sent to employees that the market was the best test. Each business group or company could pursue their own fundraising efforts and IPOs as soon as they were ready.

Analysts welcomed the move and believed it would lead investors to reassess Alibaba's valuation.