Is there a political factor in Jack Ma's decision to step down?

September 13, 2018 13:05
Jack Ma announced his decision to step down next year after the legislature passed China's first e-commerce law. Photo: Bloomberg

Alibaba Group chairman Jack Ma has announced that he is stepping down next year, but many people are not convinced that he is retiring because he wants to focus on philanthropy and education as has been reported.

Ma has won applause from the public for his decision. Part of the credit should go to the group's public relations department as the announcement was handled in a very smart, professional way.

Ma's plan to retire was first leaked to key western media outlets rather than to the local media, which picked up the rumor and the group finally made an official announcement.

Such an arrangement allowed the public to digest and discuss the matter before the official announcement, and helped in giving Ma and the company a generally positive image.

However, although Alibaba seeks to ensure a smooth transition in the company's management and operation, its shares plunged to a one-year low, indicating that institutional investors were uncomfortable with Ma's decision.

Ma's announcement came amid China's crackdown on online gaming. The government wants to limit the time schoolchildren spend playing digital games and the number of online games approved for commercial operation. Beijing says such steps are being taken in response to the rampant gaming addiction among Chinese youth, and also to protect the eyesight of kids as many of them have become nearsighted as a result of their addiction to online games.

But political observers believe that Beijing's policy on online games is aimed at market leader Tencent Holdings (00700.HK), whose business is growing because of its dominance of the online gaming and social media sectors.

Tencent's influence on the youth is becoming stronger as more and more young people spend more and more time on the internet. That being the case, its influence could post a threat to the authorities.

Official mouthpieces have started to criticize Tencent for its role in the growing addiction to online games among the youth while the government has tightened its control of the online gaming industry.

Amid the government's crackdown on online games, Tencent has seen HK$650 billion wiped out from its market capitalization this year, while its share price has dropped more than 34 percent from its historical high of HK$471.2 on Jan. 25.

Until recently, Tencent has been seen as one of the most bullish stocks in the Hong Kong share market, mainly because of the robust growth of the online gaming business. But now, investors are starting to consider the stock's political risk.

Market watchers think that what is happening to Tencent may also happen to Alibaba. Last month, the National People's Congress passed the nation’s first e-commerce law to “protect the legal rights of all parties” and “maintain market order”, with a focus on consumer rights.

While online sellers need to bear the responsibility if they are found to be breaching the law such as selling fake products, the law now puts more emphasis on the obligations and responsibilities of e-commerce platforms such Alibaba’s Tmall and Taobao.

Days before the legislature passed the bill, Ma went to Beijing to speak to a group of legislators on his views about the proposal. Ma said it was not the right time for Beijing to pass a law regulating the e-commerce market. He also said the law should have a global perspective and be forward-looking.

The new law aims to bring the entire e-commerce sector in China, which has seen rapid growth for several years, under legal regulation. It is believed that the new law, which will come into effect next year, will slow the growth of the sector as it will require all online sellers to register with the government. Before, anyone can sell anything that is legal without registration.

Such a requirement may affect the number of sellers on Taobao, a consumer-to-consumer e-commerce platform. Around 10 percent of store owners on Taobao are currently not registered with the government. That could reduce the number of transactions and traffic on Taobao and, as a result, affect Alibaba's profitability.

Could this be a factor to Ma's decision to step down? That's a question that is nagging a lot of Alibaba investors, and one that is likely to remain unanswered for a long time.

-- Contact us at [email protected]


EJ Insight writer