2023-11-17 13:17:41
In San Francisco, Xi Jinping and Joe Biden approached each other cautiously; China’s president tried to win the US business elite back over to the People’s Republic. But while there was a thaw on the American West Coast after months of escalation, the computer chip conflict between the superpowers found its next victim in Hangzhou. And destroyed around $20 billion in market value.
Gustav Theile
Business correspondent for China based in Shanghai.
The Alibaba Group, one of the largest tech giants in China and around the world, called off the spin-off of its cloud arm on Thursday evening. This calls into question the entire division of the empire, which with its apps is omnipresent in everyday Chinese life, into six parts. CEO Eddie Wu, who has only been in office for a few months, blamed the slide on geopolitics: Due to the increasingly strict US rules for chip deliveries to China, the plans had to be questioned. He spoke of a strategic restart. The export rules, which were tightened in October, would have a significant negative impact on the cloud division, it said in a statement. A spin-off would therefore no longer increase the stock market value as desired.
After the announcement, there could be no talk of an increase in the stock market value. Instead, investors who had warmly welcomed the demerger plans in the spring ran away. The share price was down more than 9 percent and the market value fell by around $20 billion. The fact that co-founder Jack Ma parted with shares worth almost $900 million further dampened the mood. If the company had not announced an annual dividend of $2.5 billion for the first time, the slump would have been even greater.
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Alicloud, the second largest division after trading and valued by analysts at more than $40 billion, was considered the “crown jewel” of the restructuring. Because the IPO of the supermarket chain Freshippo, known in China as Hema, has also been paused, only the logistics arm Cainiao remains, which is still on the trading floor.
What will become of the company, which has become a symbol of the Chinese tech industry and its difficult relationship with politics, is therefore completely open. Alibaba hasn’t been able to get into calm waters for years. It all started with the spectacular dismissal of Jack Ma, the face of the company. What followed was a years-long campaign by Beijing against the tech giants. Four-fifths of Alibaba’s market value melted away.
Finally peace again domestically?
This year, after the abrupt end of the zero-Covid policy, things went haywire. Hopes for a quick economic recovery, which saw share prices almost double, were soon dashed. In the spring, management announced the company would be split up, which many observers saw as a result of political pressure.
The departure of long-time CEO Daniel Zhang followed in the summer. At first it was said that he should take the cloud division public, but a few weeks later he withdrew completely. Instead, two Alibaba veterans from the very beginning and close confidants of Jack Ma, Eddie Wu and Chairman of the Supervisory Board Joe Tsai, moved back to the top. For some, this was seen as a sign that corporate management and politics could have reconciled.
Growth of the cloud division is in question
The political environment has changed significantly. The bullying has decreased. Instead, Beijing, which is struggling with a weak economy, is again relying on the tech industry for growth and is courting it in the race with the USA for semiconductors and artificial intelligence. The cloud unit must now invest more in this, said Tsai.
But in addition to the complicated relationship with Beijing and the effects of geopolitics – Alibaba spoke of “fluid circumstances” – observers also cited more business reasons for the sudden change in strategy. The new management team may have realized what importance the cloud has for the infrastructure of the entire group, said an analyst at financial services provider Nomura.
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Others said it was also about the strength of Alicloud itself. The division grew only 2 percent between July and September. According to Statista, the market share in China has shrunk from just under half four years ago to just over a third, while Huawei in particular made up ground. Overall, Alicloud accounted for around an eleventh of group sales last year. In order to increase the measly margin of 2 percent, the division is currently phasing out less profitable projects. Overall, the group achieved sales of the equivalent of almost 29 billion euros in the three months from July to September, an increase of 9 percent. The adjusted margin rose by one percentage point to 22 percent. CEO Wu spoke of a “solid quarter” despite all the turbulence.
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