As Chinese internet giants face a wave of anti-monopoly action they’re about to learn that there’s one monopoly that shall always be protected. And it’s one that Beijing holds itself.
Alibaba Group Holding Ltd. could be compelled to offload at least some of its growing portfolio of media and internet assets, the Wall Street Journal reported Monday, citing people familiar with the government’s thinking. The reason for this forced sale isn’t the same as other actions taken recently — those involving growing fintech affiliates that challenge state-owned enterprises and, in the eyes of the government, put the entire banking system at risk.
What irks Beijing even more than the specter of a bank run or bad loans is Alibaba’s perceived power in a market of supreme importance, which is influence. The company’s expansion into media and information services poses a serious challenge to the Chinese Communist party and its own propaganda machinery, the Journal wrote. In a society where open internet is lacking and free speech a myth, only the CCP has the right to sway public opinion and direct discourse.
Once a mere online purveyor of goods, Jack Ma’s empire has swollen to encompass payments, physical stores, movie studios, and even a newspaper. Perhaps its most crucial stake — in the government’s perspective — may be in real-time social media service Weibo.
A critical infraction seems to have come when posts about a scandal involving an Alibaba executive started disappearing from social media, including Weibo — a Twitter-like platform that’s one of the nation’s most popular. This incident raised alarm bells in Beijing, Bloomberg News reported in February and may have solidified the government’s determination to wrest control over public opinion away from private enterprise.
Alibaba’s bottom line probably won’t suffer too much should a mandatory divestiture be enforced. Despite all this diversification, almost all operating income comes from core commerce, which makes up for losses in other divisions. But it would face an incredible dilemma: what to do with all its spare cash.
It’s sitting on $48 billion and throws off $30 billion in cash from operations annually. Share buybacks are an option, but they don’t boost the top line which has been a key reason for the company’s many investments over the years. Sure it could go deeper into physical retail or logistics, but doing so risks setting off other anti-trust tripwires.
One would think that dividends could be the way to go, but it’s hard to imagine Beijing being too pleased about seeing any portion of Alibaba’s $26 billion in estimated annual net income heading overseas and straight into the hands of foreigners who own much its US-listed ADRs. Besides, the company’s murky variable-interest entity structure makes dividends a complicated proposition.
One would think having too much money is a nice problem to have. It probably is, except in a place where the supply of something far more valuable — free speech — is in the hands of a single monopolist.
Bloomberg
