Jack Ma’s big test: Can he please Chinese regulators by helping Alibaba's delivery workers?

Just months after publicly shaking hands with Chinese President Xi Jinping, heralding the revival of ‘animal spirits’ among China’s technology firms that has boosted the stock market, Ma has returned to Alibaba’s office and is more directly involved than he’s been in years, Bloomberg News reported.

Though without an official title, the iconic businessman’s reappearance has nevertheless fired up morale.

Once one of China’s most outspoken founders, Ma vanished from public view shortly after making sharply critical remarks in October 2020 about China’s financial regulators and its state-owned banks.

That 20-minute speech was surely the most expensive in corporate history, eventually costing Alibaba and its affiliate Ant Group—which was on the cusp of going public in Shanghai—about $877 billion in lost market value. It also resulted in a nearly $1 billion fine for Ant and an unprecedented crackdown on other tech companies and the broader private sector.

Ma’s rehabilitation symbolically closes that dark chapter. But he is returning to a company that is facing a very different set of challenges than in September 2019, when he resigned as executive chairman in a planned leadership transition.

Around that time, there was still talk of China surpassing the US as the world’s biggest economy. It was before the country’s property crisis exploded into full view. The concept of involution or ‘neijuan’ hadn’t yet fully emerged, much less become a priority for Beijing to tackle.

Investors have applauded Alibaba’s aggressive expansion into AI development. However, China’s e-commerce industry, still the firm’s largest money spinner, has significantly cooled, with growth in its online shopping user base slowing to just 1% in 2024 from the year before. The days when Alibaba held an 85% market share have long faded.

In fact, since e-commerce rival JD.com launched food delivery services in February, challenging the previous duopoly of Meituan and Alibaba-owned Ele.me, the $80 billion sector has been embroiled in a fierce price war. In response, analysts have collectively cut their share price targets for all three firms.

Morgan Stanley analysts led by Gary Yu wrote last month that they expect the food delivery industry’s long-term gross transaction value margin to shrink from the current 3.2% to 2.0%. Since May, China’s top market regulator has summoned key players twice, urging them to engage in fair competition. They were also told to protect the interests of restaurants, which are seeing empty tables, and of delivery riders, who complain of reduced earnings as a result of greater competition.

Though the trio promised last month to dial down the price war, nobody expects it to end. The companies are trapped in a classic ‘Prisoner’s Dilemma’ due to fear of losing market share, even though all would be better off if they collectively stopped, wrote the Morgan Stanley team.

It’s not up to any one party to end price-based competition. But it is here that Ma, older and wiser having previously faced the full wrath of regulators, could move strategically to avoid a direct future confrontation with Chinese authorities. They’ve made clear their priorities are to boost employment and tackle deflation against the backdrop of a slowing economy.

One way of doing this would be to carve out a share of the 50 billion yuan ($7 billion) subsidy announced in August, currently earmarked for shoppers and retailers, to raise the incomes of Ele.me’s four million delivery drivers. Since the covid pandemic closed Chinese factories and China’s property sector began to cool in 2019, delivery work—even if it’s tough, often dangerous and mostly freelance—has absorbed up to 12 million job seekers.

Another way for Ele.me to lean into national priorities would be to expand the benefits scheme unveiled late last month to cover 100% of pension and medical insurance for all drivers who consistently deliver on their targets, instead of the partial subsidy that was actually announced. Offering extended benefits may achieve the additional goal of improving loyalty and make it easier to recruit more riders. With access to a fleet of 7.3 million, Meituan has nearly double the number of drivers.

After years in the wilderness, Jack Ma is no doubt better now at reading the room. Improving the pay and benefits of delivery workers would not just help bolster what’s clearly a strategic priority at Alibaba, but also keep those all-important Chinese regulators happy. ©Bloomberg

The author is a columnist for Bloomberg Opinion’s Asia team, covering corporate strategy and management in the region.