Chinese tech giant bets on financial strength and adaptability to navigate a difficult year ahead.
Taipei, Taiwan – The past 14 months have been tough for Alibaba. Since Chinese regulators abruptly halted the anticipated IPO of its fintech arm, Ant Group, the company has been on shaky ground. The regulatory clampdown, a slowing economy, and rising competition have all taken a toll, shrinking Alibaba’s market value from $846 billion in October 2020 to $358 billion.
Looking into 2022, Alibaba — often dubbed China’s Amazon — faces considerable hurdles. Still, analysts believe its vast financial reserves and adaptability across China’s vast consumer market could work in its favor.
The Ant Group listing, planned for both Shanghai and Hong Kong, was expected to raise a record $34 billion — the largest IPO ever. But regulatory reforms derailed the deal indefinitely as Ant scrambles to comply with Beijing’s tighter rules on tech firms. The new rules aim to curtail the dominance of tech giants, enhance consumer protections, and reinforce the Communist Party’s control over the private sector.
Under President Xi Jinping’s leadership — China’s most powerful since Mao Zedong — tech behemoths once deemed untouchable have been reined in. Jack Ma, Alibaba’s outspoken founder, inadvertently drew scrutiny after his sharp criticism of Chinese regulators during a speech in Shanghai in October 2020, where he stressed the importance of innovation over regulation.
“Thanks to its size and wealth, Alibaba became the face of the government’s tech crackdown,” said Daniel Tu, founder of Active Creation Capital in Hong Kong. “These major platforms were starting to challenge state authority.”
Although Alibaba was fined a record $2.8 billion for antitrust violations, the fine was minor for a firm generating over $100 billion in annual revenue. However, the enforced restructuring, particularly of Ant’s profitable lending operations and data practices, will have longer-term effects.
End of an Era for China’s Tech Boom
According to Winston Ma of CloudTree Ventures, these new regulations mark the conclusion of China’s “wild growth” period for internet firms. More oversight and structural reform will now define the industry.
In response, Alibaba announced a strategic overhaul in December, dividing its core e-commerce business into two segments: global and domestic. This move is intended to better meet the unique needs of China’s internal market while also driving international expansion through platforms like Lazada.
Alibaba’s Taobao and Tmall platforms have traditionally dominated Chinese e-commerce. Yet, its domestic market share has dropped from 78% in 2015 to around 51% in 2021, as reported by eMarketer. Much of this loss predates the regulatory push and reflects changing consumer behavior and fierce market competition.
Today’s younger consumers are less interested in search-based shopping and more drawn to live streaming and interactive platforms. Additionally, China’s broader economic slowdown is reshaping consumer behavior. The once exuberant spending culture of the 2000s and early 2010s is fading. Deutsche Bank projects China’s GDP growth will slow to 5% in 2022 from 8.1% the year before.
Southeast Asia Offers Growth Opportunities
The economic forecast for Southeast Asia is more optimistic. Markets like Indonesia, Vietnam, and the Philippines resemble China’s digital landscape circa 2010. Alibaba is capitalizing on this by scaling up Lazada, its Singapore-based platform. Lazada’s user base grew by 80% to 130 million in just 18 months, according to a recent investor update.
Despite these international efforts, Alibaba remains China’s top e-commerce firm and the country’s second-largest tech company after Tencent. Analysts say its strong financial foundation is critical to enduring future challenges.
“The government wants companies to align with new policies, and those with solid financials — like Alibaba — are more likely to succeed in this transformation,” said Herbert Yum of Euromonitor.
Even with regulatory headwinds, Alibaba’s finances remain stable. While profit growth slowed to 4% in the 2021 fiscal year — a sharp drop from 68% the year before — it still netted $20.9 billion, proving its resilience.
China Remains Core to Alibaba’s Strategy
Despite global ambitions, China continues to be Alibaba’s main focus. “It’s still the company’s largest revenue source and offers enormous market potential,” said Yum. GlobalData projects that China’s e-commerce sector will grow 11.6% annually from 2021 to 2025, hitting $3.3 trillion.
Cloud computing represents another promising avenue. Alibaba Cloud brought in $9.18 billion in revenue in 2021, up 50% from the previous year. MIC analyst Yannie Liao noted this segment has grown consistently each quarter since early 2020.
However, this sector isn’t immune to regulatory constraints either. Ahead of China’s new data security laws, Beijing directed state-run enterprises to transfer their data from private platforms like Alibaba Cloud to government-run systems — a move that could significantly impact revenue.
Still, Alibaba may pivot effectively. “Aligning with national goals by investing in core technologies — such as semiconductors, AI, and quantum computing — could be a smart path forward,” said Tu.
