Alibaba breaks itself up in six

On March 28th Alibaba announced that it would be creating six independent business units. (Photo: Reuters)
On March 28th Alibaba announced that it would be creating six independent business units. (Photo: Reuters)

Summary

  • Investors cheer the move as signalling the end of China’s tech crackdown

Rumours of an impending break-up of Alibaba have been swirling for a while. Chinese regulators had long been leery of its market power over the online economy, where its interests spanned e-commerce, digital payments, cloud-computing, entertainment and much else besides. The Communist authorities dislike the idea of anything, let alone a large private business, outshining the party. And the country’s leaders bristled at the high profile of Alibaba’s founder, Jack Ma, an icon of Chinese enterprise who every now and again dared question their decisions.

All these concerns led to a two-year crackdown on Alibaba and its fellow digital titans that at its worst cost Mr Ma’s company 80% of its market value, or nearly $700bn, and nobbled its once-high-flying financial-services affiliate, Ant Group. A forced disaggregation of the empire, some market-watchers whispered, was only a matter of time.

Now a split is happening, though not at the behest of Beijing—at least not directly. On March 28th Alibaba announced that it would be creating six independent business units. Executives say this will yield a more agile overall business, by speeding up decision-making across smaller and more focused operations. The main unspoken goal may be to decentralise decision-making, not least by disassociating Alibaba further from its founder, who stepped away from day-to-day management in 2015 but has remained involved in strategic decisions.

After the overhaul, e-commerce will remain by far the company’s largest unit. Taobao, Tmall and other online marketplaces will be held in a group that accounts for nearly 70% of revenues. The company’s artificial-intelligence and cloud-computing operations will form a separate unit, led by Daniel Zhang, the current group chief executive. Mr Zhang will also remain at the head of a holding company that owns the new business groups.

An international unit will hoover up the company’s foreign ventures. These include Lazada, the Singapore-based e-commerce firm, and Trendyol, a similar business in Turkey. Cainiao, a large logistics firm, will form its own division. So will a “local services" group that controls Ele.me, a Chinese food-delivery app. The smallest of Alibaba’s six daughter firms, with 3% of revenues, will house media assets. Each unit may in future raise capital separately through initial public offerings.

One way to interpret Alibaba’s plan is as a pre-emptive effort to placate regulators still hell-bent on putting China’s digital darlings in their place. Alternatively, the fact that Alibaba at last felt confident enough to make public a reorganisation that must have been months in the making may hint that the company has concluded the worst of the tech crackdown is over.

Investors’ reaction certainly points to the second interpretation. After the announcement Alibaba’s share price jumped by 14% in New York, where the company is listed in addition to Hong Kong. Those of other Chinese internet companies, such as Tencent and Meituan, also rallied, perhaps in part on the assumption that, if push came to shove, they, too, would find clever ways of rubbing along with regulators. Mr Ma, for his part, also looks ready to accept that the authorities are no longer out to get his company—or him. On March 27th he was spotted in Hangzhou, Alibaba’s home town. It was his first appearance in China after reportedly spending a year in self-imposed exile.

© 2023, The Economist Newspaper Limited. All rights reserved. From The Economist, published under licence. The original content can be found on www.economist.com

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