Xi’s push against Jack Ma triggers a new threat to China’s technology

Chinese technology companies have done a pretty good job of convincing global investors that they have operated independently of the Communist Party. Now, Jack Ma has become a case study for the biggest skeptics of companies.

Companies from Alibaba Group Holding Ltd. to Tencent Holdings Ltd. have spread billions of acquisitions abroad, while developing applications and technologies that have provoked Western rivals with little or no state interference. But Beijing’s pursuit of Ma and his company Ant Group Co., after criticizing regulators, undoubtedly plays directly into the hands of the biggest Chinese critics in Washington, who have long claimed that no technology giant or Chinese entrepreneur is not beyond the reach of President Xi Jinping.

US authorities are now debating whether to ban investments in Alibaba and Tencent, according to people familiar with the matter, in what would be a dramatic blow to two of the companies whose shares are mostly owned by global investors. As early as January 5, President Donald Trump signed an executive order banning transactions with eight Chinese software applications, including Tencent’s Ant’s Alipay and WeChat Pay, citing concerns that Beijing will have access to data collected by the platforms. “I agree with President Trump’s commitment to protect the privacy and security of Americans against 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 future Joe Biden administration to continue to the detriment of China, although it is unclear how many of Trump’s aggressive policies will continue with the president-elect.

The party’s power over business has become even clearer in the past 12 months, as Xi pushes to consolidate power before next year’s big congress, when he expects to extend his leadership for at least another five years. COVID-19 only served to strengthen its power, fueling a war-type campaign to get the economy back on track and eliminate perceived threats to national security.

“You have to be very careful about who ultimately controls the regulations, who controls the licensing – who is responsible,” said Mark Natkin, general manager of Marbridge Consulting in Beijing. “And if you forget and start being extremely critical or taking too much of a role that normally belongs to the party, then you will be cut a notch or two.”

Beijing has moved to the fundamental overhaul of Ma’s $ 3 billion internet empire since the demolition of Ant’s $ 35 billion public offering in November, a record debut that should have been the entrepreneur’s crowned achievement. . Authorities then forced its online financing titan to limit lending and draw up a plan to give up the most profitable business. The government has also launched 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 recording of an African television program he created has sparked speculation about his place.

“There is a lot of power in the Chinese government’s economic and financial management infrastructure, and if Ant eroded that power, important people would see it as a step too far,” said Graham Webster, editor of the DigiChina project at the Policy Center. Stanford cybernetics. But “the Chinese government also rewards these leading companies as factors of technological independence. The party should perceive significant threats to bring them down. “

The action against Ma is the latest signal that Beijing is encouraged to risk international consequences from measures to address domestic challenges. Xi has previously defied threats of US sanctions to impose comprehensive national security legislation on the former British colony in Hong Kong. The crushing of the IPO Ant risked alienating a lot of strong global financiers from Singapore’s sovereign wealth fund to Carlyle.

The U.S. also mentioned concerns about the Chinese government’s influence on private industry to justify its efforts to force ByteDance Ltd. to sell the U.S. side of its TikTok social network and the global campaign to persuade allies to swear by equipment produced by Huawei Technologies Co. supporters among such actions he often cites Chinese policies, such as a 2017 law requiring companies to “support, assist and cooperate” with intelligence agencies.

Like Huawei, Ant also asserted its independence from the Chinese government, saying in a 2017 lawsuit against the U.S. securities regulator that it is “a private sector company and while a hand of state-owned funds or Chinese subsidiaries hold an uncontrolled minority. stakes, does not participate in the management of the company. “

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

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

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

But recent efforts to exert government influence over companies and intervene in the business landscape have reached new levels. This has fueled Chinese falcons in Washington, who say the party has too much influence over Chinese companies.

Xi needs business executives to achieve strategic goals, such as a “dual-circulation” economic plan focused on 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, its recovery is showing signs of growth even as global growth remains slow and ties with the United States remain close.

In a rare direct complaint to the business sector in July, Xi called on directives, including those in the technology industry, to be more patriotic and help the post-pandemic economic recovery. “Outstanding entrepreneurs must have a strong sense of mission and responsibility for the nation and align the development of their business with the prosperity of the nation and the happiness of the people,” he said.

Weeks later, the party unveiled plans to strengthen control over the private sector by expanding its United Front network operations into the business community. The policy will “strengthen ideological guidance” and “create a central group of private sector leaders that can be relied on at critical times,” according to guidelines published at the time.

“Under President Xi, the CCP has strengthened its control over technology companies and doubled its technical-nationalist initiatives,” researcher Alex Capri wrote in a recent report for the Hinrich Foundation. “In addition to placing party officials in prominent companies, it continues to neutralize high-profile corporate executives, where there is a perception that they were operating independently of party directives or becoming too influential.”