China’s romance with free market, Alibaba splits

Alibaba, the Chinese Internet giant, has announced that it will now be divided into six separate entities, and the news has sent its market shares soar. It is seen as a signal from the Chinese government that free market is alive and kicking, and that Chinese authorities realise that they need the private sector to remain the global economic power it is. The announcement coincided with the sighting of Alibaba founder, Jack Ma, who was not seen in public in China for the whole of 2022 after he criticised the regulatory authorities, and Ant Group’s initial public offering and imposing a fine of $2.75 billion for what authorities said were unfair trade practices. And Ma had to cede control of the fin-tech company.

Ant Group had declared that the ownership structure has been adjusted so that “no shareholder, alone or jointly, will have control over Ant Group.” The announcement of the splitting of Alibaba has revived the market spirits as the share prices of Alibaba rose significantly. China-watchers have interpreted this as a change in attitude on the part of authorities towards private sector players, and this signals an end to the hostile relations between the regulatory authorities and the big players in the private sector. The Ant Group has been allowed to raise $1.5 billion for its consumer finance firm.

In China the actions of authorities are rarely administrative. They are seen as reflecting the change in attitude of the top leadership, which is President Xi Jinping and his new team. President Xi had been waging a battle against corruption for the last few years, and most of the time it was the corruption of top party and government officials. But of late, government had adopted a hostile attitude towards the private sector biggies. The argument has been that monopolies should be resisted and that private sector needs to keep in mind the public good. It is an indirect way of telling the private sector to fall in line.

But the decision of Alibaba to split seems both a business decision as well as a response to government’s criticism of monopolies. Alibaba officials have managed to give it a perfect business rationale. They let it be known that the plan for hiving off has been on the cards for a long time now, and that Alibaba has become too big to remain profitable. The fact that the news of splitting Alibaba evoked a positive market response indicates that it is indeed a good business decision. But it also tells a lot about Xi government’s stance, which is partly ideological, and partly pragmatic, towards the private sector. President Xi’s unprecedented third term as the party chief and president of the country is seen as ideological hardening on the part of the Chinese Communist Party and its leadership in the face of general hostility of the United States and its allies towards the market economy. It seemed that the old rules and the old restrictions are being put in place once again, and that the days of free market economy with Chinese characteristics is at an end.

It seem that this is not so, that the Chinese Communist Party’s romance with the free market economy is not over. The splitting of Alibaba into six independent entities, each with its own CEO while remaining part of the mother-group, is similar to what takes place in an advanced economy like that of the United States, where mergers and demergers are the order of the day. China seems to follow the same trend as well. In the case of Alibaba, the decision to break the big company into smaller efficient, profitable little companies seems to have been made by Alibaba business strategists. And it looks like that the Chinese leaders are satisfied that their criticism of monopolies has been taken care of.