It was a return with a bang. Just one day after company founder Jack Ma reappeared on the Chinese scene for the first time in months, tech company Alibaba announced its split. It will divide itself into six separate subsidiaries, sorted by business area. They will all be allowed to operate independently, attract investors and even go public.
As Finn Mayer Kuckuk analyzes, splitting into a holding structure could offer some advantages. Smaller companies tend to fly more under the radar of regulatory supervisors. They are also more flexible in their decisions. And potential investors get a concrete picture of the business field they are putting their money into.
The Alibaba case shows: China’s companies have grown up. Fittingly, this Wednesday China is celebrating the 30th anniversary of its “socialist market economy”, a unique construct of capitalism and communism. While some fear a receding of the free-market element since Xi Jinping took office, Felix Lee reassures in his analysis: Private companies are growing faster than the ponderous state-owned enterprises, even in the Xi era.
Tomorrow, Thursday, Ursula von der Leyen will elaborate on her China policy in a keynote speech. The EU Commission President will speak out in favor of rebalancing the relationship with Beijing and announce concrete measures, it is said in Brussels. This could involve the announcement of a Commission proposal for investment restrictions in China and other non-EU countries, which has been floating around in the Brussels bubble for some time. This would make investments by European companies in security-relevant sectors in China subject to approval.
EU negotiators already agreed on another tool yesterday: The “anti-coercion” instrument is supposed to better protect EU states from economic blackmail from Beijing. Amelie Richter analyzes the details.
Your Christiane Kühl
Feature
Six smaller Babas instead of one big Alibaba
The internet giant Alibaba will get a holding structure. It will split into six subsidiaries. These are to take care of their finances independently. One of the most important goals here: They are to independently pursue IPOs, as the company announced on Tuesday. With this step, the most important business areas of the 220 billion dollar empire – from e-commerce to media to the cloud – are more flexible than ever before.
Just the day before the announcement, Alibaba founder Jack Ma first appeared in public again in China. Also on Monday, the country’s new premier Li Qiang pledged that China would “unswervingly” stick to its opening-up policy. In this context, the company’s restructuring could signify hope for a better business climate for private companies.
Signal for a dynamic new beginning
The repositioning is seen as a signal that Alibaba wants to tap the stock markets again. During the Chinese government’s tech crackdown, the company’s value plummeted by over 500 billion dollars to currently around 250 billion dollars. The restructuring is now supposed to create confidence and signal a more dynamic new start. Investors seem to welcome the plans: Alibaba shares rose significantly on the New York Stock Exchange.
The shift to a holding structure, however, is rather unusual for large Chinese tech companies. Instead, they prefer to integrate all their activities into one company. Until now, Alibaba had also bundled many of its activities under one roof, from supermarkets to data centers. One exception was the financial division, the Ant Group, which Alibaba had already spun off into a subsidiary in preparation for a possible IPO.
Division managers become CEOs
Chief executive Daniel Zhang will continue to head the cloud intelligence division, according to the statement – a sign that AI will play a major role in the e-commerce market leader’s portfolio in the long term. Zhang took over the cloud division after an image-damaging server failure in Hong Kong. He will also head the parent company, which will continue to be called Alibaba Group.
Long-time executive Trudy Dai – a former student of Jack Ma in his long-gone days as an English teacher – will become head of Chinese online department stores Taobao and Tmall. Jiang Fan remains head of international digital wholesale and retail with Aliexpress, Lazada and Alibaba.com; he will simply bear the title of CEO going forward.
The other three business units are local services such as meal delivery, the Cainiao logistics group and digital media and entertainment.
Integration versus agility
Integration and splitting up are two opposing trends in the business world, which sometimes also switch management styles. In the 1960s, for example, Siemens merged numerous companies with completely different business ideas into one joint-stock company. Then, from 1989 onwards, the divisions were gradually separated again. In 2008, each division was assigned its own boss with the title of CEO. Since 2010, the company has then split into independent subsidiaries. The peak of the trend was reached in 2020 when Siemens Energy was given complete independence.
Both structures have pros and cons. The integrated model gives the company management strong control over the subdivisions. The CEOs of separate companies are more likely to defend the interests of their division. Communication channels are also longer.
But large corporations tend to be slow-moving; moreover, internal disputes are no less frequent than between independent companies. Smaller companies generally act more swiftly. The entire structure is then less susceptible to inefficiency and corruption.
Biggest change since Alibaba’s founding
Alibaba is now specifically hoping for several effects:
Plus points with the regulators: A giant company with an enormous amount of data at its fingertips and revenue in the triple-digit billions arouses more suspicion than a group of smaller companies. Beijing should have less of a reflex to intervene.
More money from investors: Those who invest want to know where they are putting their money. This can be achieved much more selectively with individually defined companies. One example: Even if the international division has been hit by trade restrictions, investors can continue to focus on the domestic business with Chinese end customers. Moreover, more funds can be raised with several IPOs under the trusted Alibaba name than with a single listing.
Better adaptability to changes: The business climate is changing. The trading blocs are at odds. It is unclear, for example, what chances a Chinese provider will have in the European cloud business in the future. Or whether tariff barriers will hinder cross-border e-commerce. The individual divisions are better able to cope with these difficulties.
In the big picture, this is Alibaba’s biggest revamp since its founding 24 years ago. China’s companies are now old enough to be prone to lethargy. Furthermore, they have been professionalizing over the years. The Sturm-und-Drang period of rapid growth that simply swallowed many problems is over. Collaboration: Christiane Kühl
Alibaba
Tech Crackdown
Technology
30 years of ‘socialist market economy’
What is socialist about it? Shanghai’s stock exchange – the epitome of capitalism “with Chinese characteristics”
If you walk along Shanghai’s famous Waitan (外滩, The Bund) waterfront today, you will see luxury boutiques on one side, and the skyline of Shanghai’s Luijiazui financial district in Pudong across the Huangpu River on the other. The atmosphere there does not exactly feel like walking in a communist country. Formally, China, the world’s second-largest economy, still calls itself a “People’s Republic” and is governed by a Communist Party that aspires to true socialism. But in reality, there is hardly any other country where the gap between rich and poor is as wide as in China – not even in the USA. The world has long since become accustomed to this contradiction.
This Wednesday marks the 30th anniversary of the day that gave rise to this contradiction. On 29 March 1993, the nearly 3,000 delegates to the People’s Congress enshrined in the constitution that China was pursuing the goal of a “socialist market economy”. The leadership at the time called this “Socialism with Chinese characteristics”. The core of this approach was to be the “liberation of productive forces”.
China’s launch into the market economy
Nobody knew exactly what they meant by this at the time. The planned economy was to be maintained somehow, but supplemented with “private sector elements”. At the end of the meeting, Li Peng, the premier at the time, merely affirmed that China would not resort to “old methods of a planned economy”, even in the face of problems in economic development.
Western economists, on the other hand, scoffed: Terminologically, this was a contradiction. Either a country has free markets or socialism, not both. And yet, China has since achieved astounding success with this supposed contradiction.
With tech giants like Huawei, Tencent and Baidu or car manufacturers like Geely, Great Wall and BYD, today’s China boasts a successful private sector. At the same time, Beijing is still sticking to powerful state-owned enterprises: The port operator Cosco, which is on a global shopping spree, the steel giant Baosteel, VW’s car partner FAW and the major banks Bank of China, ICBC and China Construction Bank are among them. These companies have long been highly profitable and even belong to the largest in the world.
Deng Xiaoping was not a wise economist
The path China took was by no means the result of a master plan by a wise economist. Because the ruler and architect of this socialist market economy at the time, Deng Xiaoping, was anything but. The reason why he adhered to the concept of socialism: He wanted free-market reforms to help his completely impoverished country achieve prosperity after the catastrophic years of the Cultural Revolution under Mao. But at the same time, the Communist Party remained its power base. A departure from communism would also have spelled his downfall.
What followed economically in the first years after the proclamation of the “socialist market economy” was nevertheless predatory capitalism, like the worst years of the Industrial Revolution in Europe. The export-oriented private sector flourished. Its massive export profits helped Beijing restructure many of the ailing state-owned enterprises and make them competitive. And the powerful state as an economic actor brought another advantage to the country: Whenever the private sector was in crisis, the state stepped in with the construction of motorways, bridges, airports and high-rise residential buildings – and ensured sustained high growth rates. That much centralized economy was allowed.
Return to centralized economy?
Since Xi Jinping rose to power as state and party leader in 2013, centralized economy seems to have regained significant weight. State-owned enterprises are favored, have fewer market hurdles to overcome, and enjoy advantages in public tendering. At the same time, the leadership significantly tightened control over private companies and showered them with regulations. Large successful companies from the digital and internet sector are being put on a short leash – such as Uber competitor DiDi or the financial subsidiary Ant of the world’s largest trading platform Alibaba. Its founder Jack Ma had vanished from the public eye for more than a year and only reappeared recently.
Some private companies already feel reminded of the birdcage theory of the CP veteran Chen Yun, who died in 1995 and was considered a strong opponent of the economic reformers in the first reform years under Deng Xiaoping. Chen compared the free market to a bird, the state as a cage: Only within the cage is the bird allowed to fly as freely as it wants.
Xi’s new and loyal leadership team nevertheless seems compelled to challenge the impression of a more state-run economy. In his first appearance as prime minister a fortnight ago, freshly inaugurated Premier Li Qiang stressed that the government will “keep to the direction of socialist market economic reform”. At the same time, he made an unusually long speech in favor of the private sector. He even admitted that “some incorrect discussions and comments” had “worried” private entrepreneurs in recent years. He now seeks to correct this.
The private sector will be promoted in the same way as the centralized economy, Li said. All enterprises “will be treated equally”. As it should be in a market economy.
The EU institutions have agreed on a new instrument that will allow Europe to respond more effectively to economic coercion attempts from non-EU countries like China. The EU Parliament, the EU Commission and the EU Council of Member States (the so-called trilogue) negotiated a political agreement on early Tuesday morning. The Anti-Coercion Instrument, ACI for short, is designed to allow the European Union to take countermeasures against countries that attempt to use economic dependencies to exert political pressure on one or more EU members. However, the instrument is only to be used as a last resort – when dialogue has failed to yield results.
Not all EU member states were so eager for ACI – some believe it could spark more disputes with Beijing. As a result, the EU Council pulled some teeth out of the instrument during the negotiations. The competence to decide whether a measure of a non-EU country constitutes a case of economic coercion thus lies fully with the member states and has to be decided by a qualified majority. The EU Council also removed an emergency clause.
Fixed procedure of one year
However, in order to prevent stalling tactics, the negotiators have imposed a fixed timeframe on the use of the ACI. The instrument provides for the following procedure:
The EU Commission, the European Parliament or another “credible source” highlights a case of presumed economic blackmail
The EU Commission then has four months to investigate the matter
The EU Council has two months to decide if there is a case of economic coercion
The EU Commission must decide on countermeasures within six months
Countermeasures against the respective country may include, but are not limited to:
Increased tariffs
Import and export restrictions
Restrictions on services or public procurement
in addition, the damage is to be remedied if deemed appropriate.
Use for Lithuania still open
A final trilogue meeting should be a mere formality to finalize the text, according to Bernd Lange, Chairman of the Committee on Trade in the European Parliament, on Tuesday. He wants this to happen soon. After that, the EU Council and the EU Parliament still have to agree before the instrument can enter into force. According to Lange, this is supposed to happen before the summer break. The SPD European politician expressed his satisfaction with the trilogue agreement: “The instrument is not a water pistol, but a real firearm.”
The latest prime example of economic coercion from China had lent even more urgency to the EU process: In late 2021, Beijing imposed a de facto trade embargo on the EU state of Lithuania after the Baltic country allowed Taiwan to open a liaison office called the “Taiwan Office” in the Lithuanian capital Vilnius.
Angered by this, Beijing even purged Lithuania entirely from the customs register for a few days in December 2021. Economic exchange between Lithuania and China has been at a low since then. Beijing’s embargo is moving in a trade policy gray area of tariff restrictions and other bullying against Lithuanian companies.
China denies an official trade ban, which is why Brussels recently took the matter to the World Trade Organization and arranged for an arbitration tribunal to be set up in Geneva. It was set up at the end of January, but according to the WTO, the panel has not yet been composed. WTO arbitration courts take their time – decisions can take up to a year and a half.
Whether the ACI could now help Lithuania more quickly remained open after the trilogue agreement. A Commission spokeswoman said the instrument would only be applied to future cases. Committee chairman Lange, however, said that this remained to be seen. Lange saw a potential application of the instrument in the case of ASML, a Dutch manufacturer of semiconductor machinery.
China’s ambassador to the Netherlands, Tan Jian, has already warned of a deterioration in bilateral relations if the EU countrywere to actually implement the planned export ban on ASML. “This will not be without consequence. I will not speculate on countermeasures, but China will not take this lightly,” Tan said. A possible economic retaliation from Beijing against the Netherlands could theoretically be responded to with the new instrument in the future.
Lithuania
Trade
Sinolytics.Radar
Social credit blacklisting
Dieser Inhalt ist Lizenznehmern unserer Vollversion vorbehalten.
Blacklistings are one of the main tools of China’s Social Credit System (SCS). More than 25 different blacklists have been implemented during the past 10 years, all of them covering different regulatory areas, such as legal obligations, tax and market supervision, but also product quality, labor rights, production safety and many other areas.
Legal obligations, tax and the market supervision blacklist by the State Administration of Market Supervision (SAMR) are blacklists with a comparably high number of affected companies. Other blacklists such as the blacklist for product quality probably affect fewer companies.
The majority of SCS blacklists are targeted at companies, some also cover individuals, mostly, however, in their professional roles.
Industry-specific data from the real estate sector suggests that more than 30% of all companies registered in China might be either blacklisted or have other negative records on China’s Social Credit System databases.
While aggregated statistics on blacklistings are not systematically published by Chinese government authorities, any blacklisting for a legal entity will always be published online and is being made accessible for the general public. Consequently, a company cannot keep the information on a blacklisting secret but all government authorities, potential clients, business partners or suppliers can access the information and take them as a basis for their individual decision making.
Naturally, compliance data collected and published by Chinese government authorities will not cover the full spectrum of relevant requirements for supplier due diligence from a European and German perspective. Still, SCS data provides significant opportunities for foreign-invested companies to assess their suppliers’ performance and to continuously monitor their compliance level.
Sinolytics is a European research-based consultancy entirely focused on China on their strategic orientation and concrete business activities in the People’s Republic.
Company
Industry
News
Trade minister courts ASML
Trade Minister Wang Wentao has assured Dutch chip supplier ASML that Beijing will remain a reliable partner, Bloomberg reported. In a meeting with ASML CEO Peter Wennink on Tuesday, Wang expressed hope that “ASML will maintain its confidence in investing and collaborating with China, and make significant contributions to China/Netherlands economic cooperation.”
The background to this is the growing pressure from the United States on the Netherlands to further restrict exports of ASML equipment to China. Washington wants to cut China off as much as possible from Western chip high technology. So far, only the export of the latest ASML lithography machines for the production of semiconductors to the People’s Republic has been banned. Now The Hague is to order its local world market leader ASML to blacklist older technologies, as well.
China’s ambassador to the Netherlands, Tan Jian, has already warned of damage to bilateral relations if The Hague goes through with this measure. Wang is now apparently trying to get ASML on China’s side and possibly lobby for it. Beijing has launched a charm offensive on foreign companies. Officials hosted several international corporate leaders at the China Development Forum on Monday, including Apple CEO Tim Cook and Samsung chief Jay Y. Lee, to assure them that Beijing remains committed to international cooperation despite its strained relations with Washington. ck
ASML
Geopolitics
Technology
Oppo rumored to withdraw from Germany
The Chinese cell phone manufacturer Oppo could soon withdraw from the German market. This was reported by the Chinese tech portal 36kr on Monday, citing internal sources. The company could also discontinue its business in the United Kingdom soon, according to the report. Other sources even claim that the company will withdraw from Europe altogether. Oppo has not yet officially commented on the rumors. However, it has been known for quite some time that the company is currently massively restructuring its presence in Germany.
Oppo and its subsidiary brand OnePlus are both owned by the Chinese electronics group BBK Electronics. Due to a patent lawsuit filed by Nokia, both brands are no longer allowed to be sold in Germany since late summer 2022. Nokia accused Oppo of several patent infringements in the mobile phone sector and won in court. Oppo refused to pay corresponding license payments for the patents. It is also not known whether OnePlus will also withdraw or serve the European market alone instead of Oppo.
The patent problems are reportedly also compounded by economic bottlenecks caused by the global recession and the war in Ukraine. For example, Oppo’s investments in Germany allegedly did not pay off recently. According to IDC market researchers, just over 1.2 billion smartphones were sold worldwide last year, down 11 percent on 2021. Oppo was one of the biggest losers, selling almost 23 percent fewer smartphones in 2022 compared to 2021, although Oppo was once one of the most popular cell phone brands in Germany. At one point, the Chinese company was even one of the main sponsors of the Champions League. fpe
Oppo
Smartphone
Technology
Xi praises his mediation success between Iran and Saudi Arabia
President Xi Jinping praised the easing of tensions in the Middle East during a phone call with Saudi Arabia’s Crown Prince Mohammed bin Salman on Tuesday. The dialogue brokered by China would “play an important role in strengthening regional unity and cooperation,” Xi said, according to state media. With the help of Chinese mediation, Riyadh and Tehran recently resumed rapprochement after years of silence and announced the resumption of diplomatic relations in the presence of foreign policy czar Wang Yi.
This was Xi’s first comment on the surprise agreement. Crown Prince Mohammed expressed “the Kingdom’s appreciation for China’s initiative to support efforts to develop neighborly relations” between the two sides, the official Saudi news agency reported. State oil company Saudi Aramco announced two billion-dollar investments in China just Monday.
Some observers see China’s intervention as a rehearsal for Beijing’s ambitions to mediate in the Ukraine war as well. However, unlike in the Middle East, China is not considered neutral in the conflict due to its close ties to Russia. ck
Geopolitics
Iran
Saudi Arabia
Taiwan’s ex-president wants more cooperation with China
Taiwan’s former President Ma Ying-jeou’s trip to China continues to stir emotions on the island. While visiting a memorial honoring the founder of the republic, Sun Yat-sen, Ma declared that the people on both sides of the Taiwan Strait were Chinese and descended from the same ancestors. Ma used a term that refers to the Chinese people as an ethnicity rather than a nationality. According to surveys, however, most Taiwanese today no longer identify as Chinese.
Ma is the first former or incumbent Taiwanese president to visit the Mainland since 1949. The 73-year-old’s trip is seen as part of efforts by the opposition Kuomintang (KMT) party to ease tensions with Beijing. “We sincerely hope that the two sides will work together to pursue peace, avoid war, and strive to revitalize China,” Ma said, again referring to the Chinese people as an ethnic group rather than a nationality. “This is an unavoidable responsibility of Chinese people on both sides of the Strait, and we must work hard.”
The ruling Democratic Progressive Party (DPP), on the other hand, accuses Ma of “supporting” Beijing’s Taiwan policy with his trip. Dozens of people gathered at Taipei airport to protest the former president’s trip. rtr/fpe
Taiwan
Tsai Ing-wen
FTX founder charged with bribing Chinese officials
US prosecutors have charged the founder of bankrupt crypto exchange FTX, Sam Bankman-Fried, with bribing Chinese government officials. Law enforcement authorities accuse the 31-year-old of conspiring to pay 40 million US dollars in bribes to Chinese officials. By doing so, Bankman-Fried is said to have violated the US Foreign Corrupt Practices Act.
Tuesday’s indictment claims Bankman-Fried ordered the payment of 40 million U.S. dollars in cryptocurrency from the main trading account of his research hedge fund called Alameda to a private wallet account. With this sweetener, he allegedly attempted to convince Chinese authorities to unfreeze Alameda accounts containing more than a billion US dollars in cryptocurrency. The US Embassy in Beijing did not initially comment on the allegations.
It is already the thirteenth charge against Bankman-Fried, who was once hyped as a crypto genius. FTX is a trading platform that has been in bankruptcy proceedings since November 11, 2022, where users could trade cryptocurrencies and other financial products. rtr/ck
Kryptowährungen
Technology
Heads
Joerg Philipp – wine connoisseur with red cap
Jörg Philipp only decided to make wine his profession in his late 30s. His company “Degustar” specializes in finding wineries worldwide for Chinese importers.
On the very day that an excavator cut a telephone line at Frankfurt Airport and brought all flight operations to a standstill, Joerg Philipp and his wife were about to travel to China – that was in mid-February. “But we were lucky, because our flight didn’t depart before night and the check-in had just returned to normal.”
Whenever Philipp travels to China, it is usually for two reasons: First, because his Chinese wife wants to visit her family. And secondly, he has some important wine business to attend to. Philipp’s company Degustar specializes in finding wineries around the world for Chinese importers. In his part-Spanish family, wine is part of everyday life. Even as a child, he was given some wine mixed into his lemonade. “Is it okay to say that?” he asks with a laugh. It doesn’t seem to have done him any harm.
Wine type and market must match
After finishing school, Philipp first studied agricultural sciences in Hohenheim, then switched to business administration and eventually ended up at a software company. “During this time, wine was a hobby and a way to balance things out,” he says. When work in the IT sector began to dominate his life and there was no time left for other things, he put on the brakes. “I had already completed various courses in the wine sector at that time and started working in a wine shop.” After further training, Philipp arrived where he is today: Advising wineries on exports and providing importers with advice and help in selecting their product ranges. “I specialize in assessing whether wines are suitable for certain markets.” China soon became a particular focus for him.
Philipp met his wife, Wsana Woo, a journalist specializing in wine, at a Chinese wine fair in 2011, and he has been there almost every year since. He lived in Nanning (Guangxi) for one year and in Shanghai for four years. In Chinese wine circles, he is known as “Xiao Hong Mao” (小红帽), “Red Riding Hood”. A glance at his photo explains this nickname – because he almost always wears his red cap.
Red wine is in demand
“China only got back into wine a few decades ago,” Philipp tells us. This makes the market particularly interesting. Much is new, he says, and there are hardly any established prejudices; in principle, people in China are open to all types of wine and all tastes. But there is one preference, even if it has less to do with the palate: “Red wine represents the largest part of the wine consumed, often because of the importance of the color red.” In China, red is the color for cheerfulness, warmth and compassion.
On his current travels, Philipp is researching for a book about Chinese wine-growing regions, which is to be published next spring. Together with his wife, he has already traveled to eight wine regions, visited over 120 wineries, and tasted several hundred wines. Now it’s the turn of the remaining three regions in China – and, of course, numerous family visits. Svenja Napp
Society
Executive Moves
Yanqiao Zhao has been Technical Sales Engineer China/Asia at Karl Georg GmbH since February. The medium-sized German company specializes in crane components. The mechanical engineer, who was educated in Siegen and Hebei, will perform his new post from the company’s headquarters in Ingelbach.
Daniel Kleefuss has taken over the post of Head of International Desk China at Commerzbank AG. Kleefuss has worked for the Frankfurt-based bank for more than 20 years. Most recently, he was regional manager and local account manager in Singapore.
Is something changing in your organization? Let us know at heads@table.media!
Dessert
This acrobat performs a breathtaking stunt on the neck of a guitar at the Shandong Grand Theater in the city of Jinan. The eleventh China Acrobatic Exhibition, a gala of balancing acts that spectacularly explore the limits of the human body, ends today in several venues in Shandong province.
It was a return with a bang. Just one day after company founder Jack Ma reappeared on the Chinese scene for the first time in months, tech company Alibaba announced its split. It will divide itself into six separate subsidiaries, sorted by business area. They will all be allowed to operate independently, attract investors and even go public.
As Finn Mayer Kuckuk analyzes, splitting into a holding structure could offer some advantages. Smaller companies tend to fly more under the radar of regulatory supervisors. They are also more flexible in their decisions. And potential investors get a concrete picture of the business field they are putting their money into.
The Alibaba case shows: China’s companies have grown up. Fittingly, this Wednesday China is celebrating the 30th anniversary of its “socialist market economy”, a unique construct of capitalism and communism. While some fear a receding of the free-market element since Xi Jinping took office, Felix Lee reassures in his analysis: Private companies are growing faster than the ponderous state-owned enterprises, even in the Xi era.
Tomorrow, Thursday, Ursula von der Leyen will elaborate on her China policy in a keynote speech. The EU Commission President will speak out in favor of rebalancing the relationship with Beijing and announce concrete measures, it is said in Brussels. This could involve the announcement of a Commission proposal for investment restrictions in China and other non-EU countries, which has been floating around in the Brussels bubble for some time. This would make investments by European companies in security-relevant sectors in China subject to approval.
EU negotiators already agreed on another tool yesterday: The “anti-coercion” instrument is supposed to better protect EU states from economic blackmail from Beijing. Amelie Richter analyzes the details.
Your Christiane Kühl
Feature
Six smaller Babas instead of one big Alibaba
The internet giant Alibaba will get a holding structure. It will split into six subsidiaries. These are to take care of their finances independently. One of the most important goals here: They are to independently pursue IPOs, as the company announced on Tuesday. With this step, the most important business areas of the 220 billion dollar empire – from e-commerce to media to the cloud – are more flexible than ever before.
Just the day before the announcement, Alibaba founder Jack Ma first appeared in public again in China. Also on Monday, the country’s new premier Li Qiang pledged that China would “unswervingly” stick to its opening-up policy. In this context, the company’s restructuring could signify hope for a better business climate for private companies.
Signal for a dynamic new beginning
The repositioning is seen as a signal that Alibaba wants to tap the stock markets again. During the Chinese government’s tech crackdown, the company’s value plummeted by over 500 billion dollars to currently around 250 billion dollars. The restructuring is now supposed to create confidence and signal a more dynamic new start. Investors seem to welcome the plans: Alibaba shares rose significantly on the New York Stock Exchange.
The shift to a holding structure, however, is rather unusual for large Chinese tech companies. Instead, they prefer to integrate all their activities into one company. Until now, Alibaba had also bundled many of its activities under one roof, from supermarkets to data centers. One exception was the financial division, the Ant Group, which Alibaba had already spun off into a subsidiary in preparation for a possible IPO.
Division managers become CEOs
Chief executive Daniel Zhang will continue to head the cloud intelligence division, according to the statement – a sign that AI will play a major role in the e-commerce market leader’s portfolio in the long term. Zhang took over the cloud division after an image-damaging server failure in Hong Kong. He will also head the parent company, which will continue to be called Alibaba Group.
Long-time executive Trudy Dai – a former student of Jack Ma in his long-gone days as an English teacher – will become head of Chinese online department stores Taobao and Tmall. Jiang Fan remains head of international digital wholesale and retail with Aliexpress, Lazada and Alibaba.com; he will simply bear the title of CEO going forward.
The other three business units are local services such as meal delivery, the Cainiao logistics group and digital media and entertainment.
Integration versus agility
Integration and splitting up are two opposing trends in the business world, which sometimes also switch management styles. In the 1960s, for example, Siemens merged numerous companies with completely different business ideas into one joint-stock company. Then, from 1989 onwards, the divisions were gradually separated again. In 2008, each division was assigned its own boss with the title of CEO. Since 2010, the company has then split into independent subsidiaries. The peak of the trend was reached in 2020 when Siemens Energy was given complete independence.
Both structures have pros and cons. The integrated model gives the company management strong control over the subdivisions. The CEOs of separate companies are more likely to defend the interests of their division. Communication channels are also longer.
But large corporations tend to be slow-moving; moreover, internal disputes are no less frequent than between independent companies. Smaller companies generally act more swiftly. The entire structure is then less susceptible to inefficiency and corruption.
Biggest change since Alibaba’s founding
Alibaba is now specifically hoping for several effects:
Plus points with the regulators: A giant company with an enormous amount of data at its fingertips and revenue in the triple-digit billions arouses more suspicion than a group of smaller companies. Beijing should have less of a reflex to intervene.
More money from investors: Those who invest want to know where they are putting their money. This can be achieved much more selectively with individually defined companies. One example: Even if the international division has been hit by trade restrictions, investors can continue to focus on the domestic business with Chinese end customers. Moreover, more funds can be raised with several IPOs under the trusted Alibaba name than with a single listing.
Better adaptability to changes: The business climate is changing. The trading blocs are at odds. It is unclear, for example, what chances a Chinese provider will have in the European cloud business in the future. Or whether tariff barriers will hinder cross-border e-commerce. The individual divisions are better able to cope with these difficulties.
In the big picture, this is Alibaba’s biggest revamp since its founding 24 years ago. China’s companies are now old enough to be prone to lethargy. Furthermore, they have been professionalizing over the years. The Sturm-und-Drang period of rapid growth that simply swallowed many problems is over. Collaboration: Christiane Kühl
Alibaba
Tech Crackdown
Technology
30 years of ‘socialist market economy’
What is socialist about it? Shanghai’s stock exchange – the epitome of capitalism “with Chinese characteristics”
If you walk along Shanghai’s famous Waitan (外滩, The Bund) waterfront today, you will see luxury boutiques on one side, and the skyline of Shanghai’s Luijiazui financial district in Pudong across the Huangpu River on the other. The atmosphere there does not exactly feel like walking in a communist country. Formally, China, the world’s second-largest economy, still calls itself a “People’s Republic” and is governed by a Communist Party that aspires to true socialism. But in reality, there is hardly any other country where the gap between rich and poor is as wide as in China – not even in the USA. The world has long since become accustomed to this contradiction.
This Wednesday marks the 30th anniversary of the day that gave rise to this contradiction. On 29 March 1993, the nearly 3,000 delegates to the People’s Congress enshrined in the constitution that China was pursuing the goal of a “socialist market economy”. The leadership at the time called this “Socialism with Chinese characteristics”. The core of this approach was to be the “liberation of productive forces”.
China’s launch into the market economy
Nobody knew exactly what they meant by this at the time. The planned economy was to be maintained somehow, but supplemented with “private sector elements”. At the end of the meeting, Li Peng, the premier at the time, merely affirmed that China would not resort to “old methods of a planned economy”, even in the face of problems in economic development.
Western economists, on the other hand, scoffed: Terminologically, this was a contradiction. Either a country has free markets or socialism, not both. And yet, China has since achieved astounding success with this supposed contradiction.
With tech giants like Huawei, Tencent and Baidu or car manufacturers like Geely, Great Wall and BYD, today’s China boasts a successful private sector. At the same time, Beijing is still sticking to powerful state-owned enterprises: The port operator Cosco, which is on a global shopping spree, the steel giant Baosteel, VW’s car partner FAW and the major banks Bank of China, ICBC and China Construction Bank are among them. These companies have long been highly profitable and even belong to the largest in the world.
Deng Xiaoping was not a wise economist
The path China took was by no means the result of a master plan by a wise economist. Because the ruler and architect of this socialist market economy at the time, Deng Xiaoping, was anything but. The reason why he adhered to the concept of socialism: He wanted free-market reforms to help his completely impoverished country achieve prosperity after the catastrophic years of the Cultural Revolution under Mao. But at the same time, the Communist Party remained its power base. A departure from communism would also have spelled his downfall.
What followed economically in the first years after the proclamation of the “socialist market economy” was nevertheless predatory capitalism, like the worst years of the Industrial Revolution in Europe. The export-oriented private sector flourished. Its massive export profits helped Beijing restructure many of the ailing state-owned enterprises and make them competitive. And the powerful state as an economic actor brought another advantage to the country: Whenever the private sector was in crisis, the state stepped in with the construction of motorways, bridges, airports and high-rise residential buildings – and ensured sustained high growth rates. That much centralized economy was allowed.
Return to centralized economy?
Since Xi Jinping rose to power as state and party leader in 2013, centralized economy seems to have regained significant weight. State-owned enterprises are favored, have fewer market hurdles to overcome, and enjoy advantages in public tendering. At the same time, the leadership significantly tightened control over private companies and showered them with regulations. Large successful companies from the digital and internet sector are being put on a short leash – such as Uber competitor DiDi or the financial subsidiary Ant of the world’s largest trading platform Alibaba. Its founder Jack Ma had vanished from the public eye for more than a year and only reappeared recently.
Some private companies already feel reminded of the birdcage theory of the CP veteran Chen Yun, who died in 1995 and was considered a strong opponent of the economic reformers in the first reform years under Deng Xiaoping. Chen compared the free market to a bird, the state as a cage: Only within the cage is the bird allowed to fly as freely as it wants.
Xi’s new and loyal leadership team nevertheless seems compelled to challenge the impression of a more state-run economy. In his first appearance as prime minister a fortnight ago, freshly inaugurated Premier Li Qiang stressed that the government will “keep to the direction of socialist market economic reform”. At the same time, he made an unusually long speech in favor of the private sector. He even admitted that “some incorrect discussions and comments” had “worried” private entrepreneurs in recent years. He now seeks to correct this.
The private sector will be promoted in the same way as the centralized economy, Li said. All enterprises “will be treated equally”. As it should be in a market economy.
The EU institutions have agreed on a new instrument that will allow Europe to respond more effectively to economic coercion attempts from non-EU countries like China. The EU Parliament, the EU Commission and the EU Council of Member States (the so-called trilogue) negotiated a political agreement on early Tuesday morning. The Anti-Coercion Instrument, ACI for short, is designed to allow the European Union to take countermeasures against countries that attempt to use economic dependencies to exert political pressure on one or more EU members. However, the instrument is only to be used as a last resort – when dialogue has failed to yield results.
Not all EU member states were so eager for ACI – some believe it could spark more disputes with Beijing. As a result, the EU Council pulled some teeth out of the instrument during the negotiations. The competence to decide whether a measure of a non-EU country constitutes a case of economic coercion thus lies fully with the member states and has to be decided by a qualified majority. The EU Council also removed an emergency clause.
Fixed procedure of one year
However, in order to prevent stalling tactics, the negotiators have imposed a fixed timeframe on the use of the ACI. The instrument provides for the following procedure:
The EU Commission, the European Parliament or another “credible source” highlights a case of presumed economic blackmail
The EU Commission then has four months to investigate the matter
The EU Council has two months to decide if there is a case of economic coercion
The EU Commission must decide on countermeasures within six months
Countermeasures against the respective country may include, but are not limited to:
Increased tariffs
Import and export restrictions
Restrictions on services or public procurement
in addition, the damage is to be remedied if deemed appropriate.
Use for Lithuania still open
A final trilogue meeting should be a mere formality to finalize the text, according to Bernd Lange, Chairman of the Committee on Trade in the European Parliament, on Tuesday. He wants this to happen soon. After that, the EU Council and the EU Parliament still have to agree before the instrument can enter into force. According to Lange, this is supposed to happen before the summer break. The SPD European politician expressed his satisfaction with the trilogue agreement: “The instrument is not a water pistol, but a real firearm.”
The latest prime example of economic coercion from China had lent even more urgency to the EU process: In late 2021, Beijing imposed a de facto trade embargo on the EU state of Lithuania after the Baltic country allowed Taiwan to open a liaison office called the “Taiwan Office” in the Lithuanian capital Vilnius.
Angered by this, Beijing even purged Lithuania entirely from the customs register for a few days in December 2021. Economic exchange between Lithuania and China has been at a low since then. Beijing’s embargo is moving in a trade policy gray area of tariff restrictions and other bullying against Lithuanian companies.
China denies an official trade ban, which is why Brussels recently took the matter to the World Trade Organization and arranged for an arbitration tribunal to be set up in Geneva. It was set up at the end of January, but according to the WTO, the panel has not yet been composed. WTO arbitration courts take their time – decisions can take up to a year and a half.
Whether the ACI could now help Lithuania more quickly remained open after the trilogue agreement. A Commission spokeswoman said the instrument would only be applied to future cases. Committee chairman Lange, however, said that this remained to be seen. Lange saw a potential application of the instrument in the case of ASML, a Dutch manufacturer of semiconductor machinery.
China’s ambassador to the Netherlands, Tan Jian, has already warned of a deterioration in bilateral relations if the EU countrywere to actually implement the planned export ban on ASML. “This will not be without consequence. I will not speculate on countermeasures, but China will not take this lightly,” Tan said. A possible economic retaliation from Beijing against the Netherlands could theoretically be responded to with the new instrument in the future.
Lithuania
Trade
Sinolytics.Radar
Social credit blacklisting
Dieser Inhalt ist Lizenznehmern unserer Vollversion vorbehalten.
Blacklistings are one of the main tools of China’s Social Credit System (SCS). More than 25 different blacklists have been implemented during the past 10 years, all of them covering different regulatory areas, such as legal obligations, tax and market supervision, but also product quality, labor rights, production safety and many other areas.
Legal obligations, tax and the market supervision blacklist by the State Administration of Market Supervision (SAMR) are blacklists with a comparably high number of affected companies. Other blacklists such as the blacklist for product quality probably affect fewer companies.
The majority of SCS blacklists are targeted at companies, some also cover individuals, mostly, however, in their professional roles.
Industry-specific data from the real estate sector suggests that more than 30% of all companies registered in China might be either blacklisted or have other negative records on China’s Social Credit System databases.
While aggregated statistics on blacklistings are not systematically published by Chinese government authorities, any blacklisting for a legal entity will always be published online and is being made accessible for the general public. Consequently, a company cannot keep the information on a blacklisting secret but all government authorities, potential clients, business partners or suppliers can access the information and take them as a basis for their individual decision making.
Naturally, compliance data collected and published by Chinese government authorities will not cover the full spectrum of relevant requirements for supplier due diligence from a European and German perspective. Still, SCS data provides significant opportunities for foreign-invested companies to assess their suppliers’ performance and to continuously monitor their compliance level.
Sinolytics is a European research-based consultancy entirely focused on China on their strategic orientation and concrete business activities in the People’s Republic.
Company
Industry
News
Trade minister courts ASML
Trade Minister Wang Wentao has assured Dutch chip supplier ASML that Beijing will remain a reliable partner, Bloomberg reported. In a meeting with ASML CEO Peter Wennink on Tuesday, Wang expressed hope that “ASML will maintain its confidence in investing and collaborating with China, and make significant contributions to China/Netherlands economic cooperation.”
The background to this is the growing pressure from the United States on the Netherlands to further restrict exports of ASML equipment to China. Washington wants to cut China off as much as possible from Western chip high technology. So far, only the export of the latest ASML lithography machines for the production of semiconductors to the People’s Republic has been banned. Now The Hague is to order its local world market leader ASML to blacklist older technologies, as well.
China’s ambassador to the Netherlands, Tan Jian, has already warned of damage to bilateral relations if The Hague goes through with this measure. Wang is now apparently trying to get ASML on China’s side and possibly lobby for it. Beijing has launched a charm offensive on foreign companies. Officials hosted several international corporate leaders at the China Development Forum on Monday, including Apple CEO Tim Cook and Samsung chief Jay Y. Lee, to assure them that Beijing remains committed to international cooperation despite its strained relations with Washington. ck
ASML
Geopolitics
Technology
Oppo rumored to withdraw from Germany
The Chinese cell phone manufacturer Oppo could soon withdraw from the German market. This was reported by the Chinese tech portal 36kr on Monday, citing internal sources. The company could also discontinue its business in the United Kingdom soon, according to the report. Other sources even claim that the company will withdraw from Europe altogether. Oppo has not yet officially commented on the rumors. However, it has been known for quite some time that the company is currently massively restructuring its presence in Germany.
Oppo and its subsidiary brand OnePlus are both owned by the Chinese electronics group BBK Electronics. Due to a patent lawsuit filed by Nokia, both brands are no longer allowed to be sold in Germany since late summer 2022. Nokia accused Oppo of several patent infringements in the mobile phone sector and won in court. Oppo refused to pay corresponding license payments for the patents. It is also not known whether OnePlus will also withdraw or serve the European market alone instead of Oppo.
The patent problems are reportedly also compounded by economic bottlenecks caused by the global recession and the war in Ukraine. For example, Oppo’s investments in Germany allegedly did not pay off recently. According to IDC market researchers, just over 1.2 billion smartphones were sold worldwide last year, down 11 percent on 2021. Oppo was one of the biggest losers, selling almost 23 percent fewer smartphones in 2022 compared to 2021, although Oppo was once one of the most popular cell phone brands in Germany. At one point, the Chinese company was even one of the main sponsors of the Champions League. fpe
Oppo
Smartphone
Technology
Xi praises his mediation success between Iran and Saudi Arabia
President Xi Jinping praised the easing of tensions in the Middle East during a phone call with Saudi Arabia’s Crown Prince Mohammed bin Salman on Tuesday. The dialogue brokered by China would “play an important role in strengthening regional unity and cooperation,” Xi said, according to state media. With the help of Chinese mediation, Riyadh and Tehran recently resumed rapprochement after years of silence and announced the resumption of diplomatic relations in the presence of foreign policy czar Wang Yi.
This was Xi’s first comment on the surprise agreement. Crown Prince Mohammed expressed “the Kingdom’s appreciation for China’s initiative to support efforts to develop neighborly relations” between the two sides, the official Saudi news agency reported. State oil company Saudi Aramco announced two billion-dollar investments in China just Monday.
Some observers see China’s intervention as a rehearsal for Beijing’s ambitions to mediate in the Ukraine war as well. However, unlike in the Middle East, China is not considered neutral in the conflict due to its close ties to Russia. ck
Geopolitics
Iran
Saudi Arabia
Taiwan’s ex-president wants more cooperation with China
Taiwan’s former President Ma Ying-jeou’s trip to China continues to stir emotions on the island. While visiting a memorial honoring the founder of the republic, Sun Yat-sen, Ma declared that the people on both sides of the Taiwan Strait were Chinese and descended from the same ancestors. Ma used a term that refers to the Chinese people as an ethnicity rather than a nationality. According to surveys, however, most Taiwanese today no longer identify as Chinese.
Ma is the first former or incumbent Taiwanese president to visit the Mainland since 1949. The 73-year-old’s trip is seen as part of efforts by the opposition Kuomintang (KMT) party to ease tensions with Beijing. “We sincerely hope that the two sides will work together to pursue peace, avoid war, and strive to revitalize China,” Ma said, again referring to the Chinese people as an ethnic group rather than a nationality. “This is an unavoidable responsibility of Chinese people on both sides of the Strait, and we must work hard.”
The ruling Democratic Progressive Party (DPP), on the other hand, accuses Ma of “supporting” Beijing’s Taiwan policy with his trip. Dozens of people gathered at Taipei airport to protest the former president’s trip. rtr/fpe
Taiwan
Tsai Ing-wen
FTX founder charged with bribing Chinese officials
US prosecutors have charged the founder of bankrupt crypto exchange FTX, Sam Bankman-Fried, with bribing Chinese government officials. Law enforcement authorities accuse the 31-year-old of conspiring to pay 40 million US dollars in bribes to Chinese officials. By doing so, Bankman-Fried is said to have violated the US Foreign Corrupt Practices Act.
Tuesday’s indictment claims Bankman-Fried ordered the payment of 40 million U.S. dollars in cryptocurrency from the main trading account of his research hedge fund called Alameda to a private wallet account. With this sweetener, he allegedly attempted to convince Chinese authorities to unfreeze Alameda accounts containing more than a billion US dollars in cryptocurrency. The US Embassy in Beijing did not initially comment on the allegations.
It is already the thirteenth charge against Bankman-Fried, who was once hyped as a crypto genius. FTX is a trading platform that has been in bankruptcy proceedings since November 11, 2022, where users could trade cryptocurrencies and other financial products. rtr/ck
Kryptowährungen
Technology
Heads
Joerg Philipp – wine connoisseur with red cap
Jörg Philipp only decided to make wine his profession in his late 30s. His company “Degustar” specializes in finding wineries worldwide for Chinese importers.
On the very day that an excavator cut a telephone line at Frankfurt Airport and brought all flight operations to a standstill, Joerg Philipp and his wife were about to travel to China – that was in mid-February. “But we were lucky, because our flight didn’t depart before night and the check-in had just returned to normal.”
Whenever Philipp travels to China, it is usually for two reasons: First, because his Chinese wife wants to visit her family. And secondly, he has some important wine business to attend to. Philipp’s company Degustar specializes in finding wineries around the world for Chinese importers. In his part-Spanish family, wine is part of everyday life. Even as a child, he was given some wine mixed into his lemonade. “Is it okay to say that?” he asks with a laugh. It doesn’t seem to have done him any harm.
Wine type and market must match
After finishing school, Philipp first studied agricultural sciences in Hohenheim, then switched to business administration and eventually ended up at a software company. “During this time, wine was a hobby and a way to balance things out,” he says. When work in the IT sector began to dominate his life and there was no time left for other things, he put on the brakes. “I had already completed various courses in the wine sector at that time and started working in a wine shop.” After further training, Philipp arrived where he is today: Advising wineries on exports and providing importers with advice and help in selecting their product ranges. “I specialize in assessing whether wines are suitable for certain markets.” China soon became a particular focus for him.
Philipp met his wife, Wsana Woo, a journalist specializing in wine, at a Chinese wine fair in 2011, and he has been there almost every year since. He lived in Nanning (Guangxi) for one year and in Shanghai for four years. In Chinese wine circles, he is known as “Xiao Hong Mao” (小红帽), “Red Riding Hood”. A glance at his photo explains this nickname – because he almost always wears his red cap.
Red wine is in demand
“China only got back into wine a few decades ago,” Philipp tells us. This makes the market particularly interesting. Much is new, he says, and there are hardly any established prejudices; in principle, people in China are open to all types of wine and all tastes. But there is one preference, even if it has less to do with the palate: “Red wine represents the largest part of the wine consumed, often because of the importance of the color red.” In China, red is the color for cheerfulness, warmth and compassion.
On his current travels, Philipp is researching for a book about Chinese wine-growing regions, which is to be published next spring. Together with his wife, he has already traveled to eight wine regions, visited over 120 wineries, and tasted several hundred wines. Now it’s the turn of the remaining three regions in China – and, of course, numerous family visits. Svenja Napp
Society
Executive Moves
Yanqiao Zhao has been Technical Sales Engineer China/Asia at Karl Georg GmbH since February. The medium-sized German company specializes in crane components. The mechanical engineer, who was educated in Siegen and Hebei, will perform his new post from the company’s headquarters in Ingelbach.
Daniel Kleefuss has taken over the post of Head of International Desk China at Commerzbank AG. Kleefuss has worked for the Frankfurt-based bank for more than 20 years. Most recently, he was regional manager and local account manager in Singapore.
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Dessert
This acrobat performs a breathtaking stunt on the neck of a guitar at the Shandong Grand Theater in the city of Jinan. The eleventh China Acrobatic Exhibition, a gala of balancing acts that spectacularly explore the limits of the human body, ends today in several venues in Shandong province.
