Alibaba halves startup investment as China steps up scrutiny

REUTERS/Aly Song

Alibaba Group Holding’s investments in startups have halved in the four months since its fintech affiliate Ant Group was forced to postpone its stock market listing in November, compared with the same period of a year ago.

The rapid slowdown is a reaction to stricter scrutiny by Chinese President Xi Jinping’s government, which has accused Alibaba of antitrust violations and monopolizing the financial market. Some suggest that the “Alibaba economic bloc,” which has dominated China’s online sphere by absorbing promising startups, may have reached a watershed.

Alibaba’s startup investments from the beginning of November to the end of February are estimated to have totaled about $2.7 billion, down from some $6 billion in roughly the same period a year ago, based on data from information company ITjuzi. The figure for the period from last December, when ongoing projects ran their course, fell nearly 70% year on year.

The figures take into account Alibaba’s and Ant’s acquisitions, as well as investments in listed companies.

Since the autumn of 2020, the Xi administration has taken steps to increase scrutiny of Alibaba. It proposed guidelines to restrict monopolistic behavior and the collection of personal information by internet companies. It also proposed a policy to control “smartphone loans” offered by Ant.

After the Ant listing was aborted, the government imposed fines on Alibaba in December, citing violation of antitrust and pricing laws. It has also subjected Alibaba and Ant officials to investigation and interrogation on multiple occasions.

Yunfeng Capital, an investment fund in which Alibaba Group founder Jack Ma Yun has about a 40% stake, has been keeping a low profile since the listing fiasco. A senior executive said the fund will try to remain “inconspicuous” as it makes an investment in a self-driving technology startup. The downbeat comment marked a sea change from the aggressively acquisitive stance the fund used to take.

Ma has rarely appeared in public since late last year. And although the investment project is going ahead, there has been little fanfare in local media about the deal. There has been speculation that a Yunfeng Capital partner and several younger employees had recently resigned.

The overall environment for startups has also changed. Pent-up liquidity has started flowing into markets again as the pandemic comes under some control, with startups benefiting. According to data from 36Kr, a Chinese tech news portal, startups in 2020 raised 40% more money than a year earlier. With more opportunities available now, some startups are thought to be shunning Alibaba.

That has opened up doors for its archrival, Tencent Holdings.

The company’s investments totaled over $12 billion last year, exceeding Alibaba’s — which fell below $10 billion — for the first time since 2013. While Alibaba has made less than 10 investment deals since the beginning of this year, Tencent has done more than 70.

Although it is not possible to make an accurate comparison as information on many of the two companies’ investment deals are not publicly disclosed, Alibaba’s pace of acquisitions has definitely slowed.

The government also wants Alibaba to step back from micromanaging its startups if they are not part of the group’s core business. If Alibaba reins in control of these startups, in which it has spent over $100 billion over the past 15 years, it will slow down Chinese innovation in information technology. It would also be hard for Alibaba and Ant to sow the seeds of medium- to long-term growth.

This article was first published on Nikkei Asian Review. 

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.