In season two of the epic fantasy Game of Thrones, Cersei Lannister, queen of the Seven Kingdoms, approaches Petyr ‘Littlefinger’ Baelish for some crucial information. Littlefinger, the wily and scheming courtier, proceeds to taunt her, hinting he knows about her incestuous relationship with her brother, and condescendingly quips, “Knowledge is power”.
Cersei instantly takes stock of the situation and orders her guards to seize Littlefinger and cut his throat. Just as an armoured guard is about to do it, she shrugs and says, “Oh wait, I’ve changed my mind…. let him go.”
As a shaken Littlefinger looks at her aghast, Cersei imperiously makes her point, “POWER is power!”
Jack Ma might just be feeling Littlefinger-like right now. As the imperial might of the statist China’s old guard looks to rein in his young and brazen internet success story, it holds valuable lessons not just for global business and Big Tech, but also for India’s startup ecosystem.
Jack Ma’s Alibaba is the world’s largest retailer and e-commerce company, despite operating primarily in mainland China. Alibaba fintech affiliate Ant is into everything from venture capital funding and lending to digital payment. Ma’s success over the past two decades had earned him sobriquets like ‘China’s Steve Jobs’ and was seen as an example of excellence in entrepreneurship that could be a role model to aspirants.
All that came crashing down recently. Chinese regulators suspended the proposed $34.5 billion IPO of Ant, which was supposed to be the crowning glory in Ma’s trailblazing saga. It sent shockwaves across global business circles. The crackdown did not stop at that. People’s Bank of China, the country’s central bank, summoned Ant Group officials for regulatory talks, laying out a five-point compliance agenda. Investigations are already on into the company’s anti-competition practices and whether it misused the ‘network effect’ of market domination. Rumours are rife whether the company will be split-up or taken over by the state.
“It is a power game,” said Partha Ray, professor of economics at IIM Calcutta. “In China, there is effectively an uncomfortable coexistence of a totalitarian government with private property, wealth and entrepreneurship. Conflict between a billionaire entrepreneur like Jack Ma and the state machinery is an inevitable outcome of that connection between business and politics.”
Ma disappeared from public following the IPO suspension in October, and popped up mysteriously at a rural teacher’s meet on January 20, where he awkwardly spoke about spending the rest of his life focusing on charity work. While his company confirmed the authenticity of the video, the fact that it was published by state-affiliated media has not helped to quell rumours.
The crackdown on Ma’s empire stems from the inordinately widespread sway and influence internet companies in general, and Alibaba and Ant in particular, have on Chinese society. Alibaba has a stranglehold on the Chinese marketplace, accounting for 20 per cent of its total retail sales. Statistics indicate that half of China’s population now shop online, which means primarily on Alibaba. Even more crucially, the company expanded into fintech. Its Yu’e Bao is the world’s largest money market fund and its digital payment wallet Alipay is a market leader. Alipay and its main rival Tencent’s all-in-one messaging app WeChat (which processes payments, too) together control 94 per cent of China’s digital payments market.
Not surprisingly, the establishment has been getting apprehensive. President Xi Jinping himself had voiced that “financial risk” was one of the three toughest battles his government would have to face. Some reports suggest that Xi personally ordered the crackdown on Alibaba.
“One of the most critical factors compelling Chinese regulators to clip Alibaba’s wings has been to reclaim the fintech space,” said noted China expert G. Venkat Raman in a recent essay. “The party-state is more than keen to take back the space dominated by the private players.”
The Chinese government’s concerns can be put in perspective with the anti-trust cases in the US against Google and Facebook, as well as the constant worries voiced in India and the rest of the world over storage and misuse of data and the seemingly unbridled power that Big Tech is wielding. In China, of course, the concerns are all the more heightened considering the impression that the party-state was losing its grip. Xi and the Chinese Communist Party had to act, and Ma was the scapegoat.
The bigger question now, as far as rest of the world is concerned, is the impact this would have on technology and business, coming as it does on the heels of the security concerns over the telecom giant Huawei. Now that Xi has demonstrated his intent to control even China’s private tech enterprises, will it have a detrimental effect on Chinese technology and their adoption in other countries, particularly India? “In this post-Covid situation when China is the only major economy that has registered a positive growth, it indeed has a greater leeway to get away with actions such as this,” said Ray.
One of the last executive orders signed by Donald Trump as US President was to ban transactions with eight Chinese software applications, including Alipay and WeChat Pay. “I stand (committed) to protecting the privacy and security of Americans from threats posed by the Chinese Communist Party,” said Trump’s commerce secretary Wilbur Ross, commenting on the order. One proposal doing the rounds is to ban inflow of Chinese funds and investments, but it will depend on the route map the Joe Biden administration will adopt to deal with the dragon.
For India, the issue is of grave concern, and goes beyond the tokenism of banning Chinese apps. Ant and Tencent have been among the biggest investors in Indian startups. Alibaba and Ant have played a major role in the success of Paytm, Zomato, SnapDeal and BigBasket. Tencent has invested in the likes of Dream11, Byju’s and Swiggy. There is now a question mark on these investments.
In one way, the heightened tension on the border between India and China had already set the compass for India way before the Chinese government’s crackdown on its tech biggies. Indian startups have been turning to other sources for funds. Since summer, Indian startups have raised nearly Rs50,000 crore from non-Chinese sources.