Ant and Alibaba plan less intertwined future after China crackdown

BEIJING/SINGAPORE, June 22 (Reuters) – Ant Group and Alibaba are disentangling their operations from each other and independently seeking new business as the companies founded by Jack Ma navigate China’s devastating regulatory crackdown, said four sources familiar with the matter.

E-commerce giant Alibaba Group Holding (9988.HK) created what would become payment and financial services provider Ant and spun it off in 2011, although it still retains a 33% stake and that the two societies overlap.

However, the duo have begun to unravel some of their collaboration deals as they try to recover from a sweeping tech industry crackdown that has reduced their value by hundreds of billions of dollars, slashed their revenue and resulted in a record fine. $2.8 billion for Alibaba.

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In moves that would have been inconceivable two years ago, affiliates have begun restricting access to each other’s services, competing for customers and even forging alliances with rivals, the four sources said. , who spoke on condition of anonymity because they were not authorized to speak to the media.

Ant touted the companies’ close ties as a major selling point in preparations to launch a record $37 billion initial public offering (IPO), before Beijing unexpectedly halted the float in late 2020. .

It is now emphasizing its independence from Alibaba, especially as it expands overseas, according to two of the sources, while Alibaba is building a cross-border transaction tool that could compete Ant.

Ant declined to comment. Alibaba did not respond to a request for comment.

Alibaba has approximately 1.3 billion annual users across its marketplaces which generated more than $1.3 trillion in gross merchandise value (GMV) for the year to March 2022. It also has a suite of other activities ranging from cloud services to video streaming to travel bookings.

Ant operates China’s ubiquitous mobile payment app, Alipay, which has over 1 billion users.

With Alibaba’s markets registering more than double the GMV of its American counterpart Amazon (AMZN.O) for fiscal 2021, the group was once the pride of Chinese innovation, portraying corporate power on the global stage. Ma even boasted that the group could become as big as the world’s fifth largest economy.

Ant and Alibaba’s moves toward operational separation underscore the new reality of China’s business landscape, as President Xi Jinping’s government frowns on the concentration of power in the hands of private sector conglomerates.

Authorities are wary of once freewheeling “platform economy” companies crowding out smaller rivals and the risks they pose, although there are now signs the crackdown is gradually easing.

“Having sprawling companies in both finance and technology can be seen as too powerful in China, hence ‘politically incorrect,'” said a Beijing-based fintech executive, who declined to be named due to the sensitivity of the issue.

Ant, which is in the midst of a regulatory transformation, appears to be making progress in its attempt to revive its IPO. Reuters reported last week, citing sources, that China’s central bank had accepted Ant’s request to set up a financial holding company, a key step to complete its overhaul. Read more

The central bank, which is driving Ant’s reorganization, did not respond to a Reuters request for comment. The State Administration for Market Regulation, which oversees antitrust matters, also did not respond to a request for comment.

Ant said on June 9 that there are no plans to relaunch the IPO and is currently focused on “rectification” work. Read more

HINDING ONLINE DISCUSSIONS, JOBS

The separation of operations began at the organizational level late last year and quickly grew to encompass significant strategic moves, according to two of the sources.

The two companies had for years shared an internal online forum where staff actively discussed company issues and interacted with key bosses, who also used the space to make internal announcements.

Ant staff were informed in November that the company was setting up its own forum which Alibaba employees would not be able to access, the two sources said, adding that the company had not given a specific reason. for this decision.

The Alibaba forum will be banned from Ant staff in the coming months, they said.

Ant employees had also in the past been able to apply for jobs at Alibaba as internal candidates, but were told earlier this year that this would no longer be possible and that they would be treated as external hires. added the two sources.

A third person who had direct knowledge of the companies’ technology infrastructure arrangements said that last year Ant blocked many services on its flagship payment app Alipay from using Alibaba’s computer servers.

Ant’s global cross-border payment service Alipay+ earlier this year announced a tie-up with fast-fashion e-commerce company Shein, a big rival to some of Alibaba’s overseas units.

“Ant does not want to be viewed solely as an Alibaba subsidiary by existing or potential partners,” one of the sources said.

Alibaba, for its part, is courting overseas payment opportunities and in April launched Alibaba.com Pay, a cross-border transaction service for small businesses.

Parting with Alibaba, without dealing a death blow to Ant, will take away some of Ant’s uniqueness, said Alexander Sirakov, managing partner at Aquariusx, a Shanghai-based investment advisory firm.

“Ant and Alibaba will both end up in forced divorce not because of internal friction, but mostly because of what others think and say their relationship should embody.”

Reuters was unable to establish whether Ant and Alibaba made the operational changes at the request of regulators, but industry executives said the overhaul fits a trend to move financial business away from internet operations in China. .

Chinese social media giant Tencent Holdings (0700.HK) plans to form a financial holding company into which it plans to consolidate its finance-related businesses, which may require organizational changes, Tencent Chairman Martin Lau said. , during a call with analysts in March.

U-TURN ON ‘ALIBABA ECONOMY’

It was a different world in 2017 when Ma described his vision of an “Alibaba economy”, predicting it could become as big as the world’s fifth largest economy.

Two years later, faced with increasing competition from Meituan (3690.HK) and Pinduoduo (PDD.O), Alibaba and Ant formed a committee to assess how to build on Ma’s vision by building stronger alliances between Ant, Alibaba and its units such as delivery arm Ele.me and video streaming platform Youku.

Sources said the committee was led by Alibaba CEO Daniel Zhang, with Ant chairman Eric Jing as deputy, and hundreds of executives from various subsidiaries participating at its peak. This was never publicly announced or acknowledged by Alibaba or Ant.

However, shortly after Ant’s IPO was derailed and regulators cracked down on the tech giants, Alibaba’s human resources staff told some employees in internal messages not to do so. reference to Alibaba’s economy, two sources said.

“We absolutely cannot use the term ‘Alibaba Economy’ any longer,” a source told the posts. “‘Economy’ is a term used by the state. We are not an economy.”

Certainly, Ant and Alibaba remain close at the highest decision-making levels. (For a Factbox on the extent of the ties between the two companies, click read more)

Nine of Alibaba’s 38 “partners,” a group of founders and senior executives who shape Alibaba’s strategy, are Ant executives, including Jing, Ant’s CEO.

Two Alibaba executives, co-founder Joe Tsai and chief technology officer Cheng Li, sit on Ant’s board. Ant is currently controlled by Ma.

And Ant made inroads overseas, showing it was fine without Alibaba.

Alipay+, which connects global merchants to various international online payment methods, has grown to enable more than 1 billion consumers, primarily in Asia, to make cross-border payments since its launch in 2020. It has recently revealed partnerships with digital payment providers such as Kakao Pay in South Korea and Klarna in Europe.

Ant also launched its digital wholesale bank ANEXT in Singapore this month and bought control of city-state fintech startup 2C2P in April, which will help Alipay+ connect with 2C2P merchant users. .

“Alibaba is no longer a big tree for Ant to cling to, especially for overseas markets,” an Ant insider told Reuters, declining to be named because the person was not authorized to speak to foreign markets. media.

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Reporting by Yingzhi Yang in Beijing, Fanny Potkin in Singapore; Editing by Brenda Goh and Muralikumar Anantharaman

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