After TikTok, Donald Trump says he could put pressure on other Chinese companies such as Alibaba. Analysts believe he could attack its cloud...
After TikTok, Donald Trump says he could put pressure on other Chinese companies such as Alibaba. Analysts believe he could attack its cloud computing business
US President Donald Trump said on Saturday that he could put pressure on more Chinese companies such as technology giant Alibaba after he decided to ban TikTok's operations in the United States via an executive order that will take effect in about 30 days if the company has still not sold them to a US company. The president had raised concerns about the processing of personal data that the company could share with the Chinese government.
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When asked at a press conference if there were other companies, particularly Chinese-owned ones, that he was considering banning like Alibaba, Trump replied "Yes, we are looking into other things", true to his erratic statements.
In early August, U.S. Secretary of State Mike Pompeo launched a major offensive against China's technology giants, dubbed the "Clean Network," literally "cleaning up the networks. Also in Washington's sights are the search engine Baidu, China Mobile and China Telecom, and Tencent, a sprawling holding company active in Internet and mobile services as well as online advertising.
Secretary of State Mike Pompeo alluded to Alibaba's name when he urged U.S. companies to remove "unreliable" Chinese technology from their digital networks. Washington wants to protect "America's most sensitive personal information and the most valuable intellectual property of our companies, including Covid vaccine research, from access to cloud-based systems run by companies" such as Alibaba and Tencent, among others, he said.
In 12 months Alibaba is trading online more than $1 trillion, three times more than its American rival Amazon, which has become widely diversified. Of course almost all of its transactions are carried out in China, Alibaba is therefore largely dominated by Amazon internationally.
"We're in the midst of a paradigm shift, and geopolitics is undergoing a historic transformation," says Alex Capri, a researcher at the Hinrich Foundation and lecturer at the National University of Singapore. Washington officials are making "more accusations" against Chinese technology companies, which "indicates that the administration is really trying to decouple" the technology industry, he added.
Unlike ByteDance or Huawei, whose global expansion was curbed after Washington cut it off from U.S. technology and which are seeking solutions such as selling their international branches, Alibaba has not had much success in expanding into Western markets. But the fact that it is a national technology champion in China may be reason enough for Washington to target it, according to Capri.
According to Chinese analysts, Trump could target the cloud computing and chipset segment
Chinese analysts believe that this is another initiative driven by U.S. domestic policy that will deal a short-term blow to Chinese companies but will have a limited impact in the long term. Indeed, experts note that the company based in Hangzhou, Zhejiang in eastern China, generates the vast majority of its revenues from the burgeoning domestic e-commerce sector, while its presence in the United States is relatively small.
While Trump did not give any direction to his action against Alibaba, Chinese experts believe that Trump's statement is politically motivated. In line with the U.S. long-term strategy to contain China's technological boom, they say Trump could take action in two areas where Alibaba is making rapid progress: cloud computing and chips.
"For Trump, nothing matters more than [his re-election], so he will do whatever he thinks is right for his campaign ... so I think it's possible [that he's targeting Alibaba]," Liu Gang, director of the Nankai Institute of Economics and chief economist of the China Institute of Next-Generation Artificial Intelligence Development Strategies, told the Global Times.
Regarding specific measures the United States could take against Alibaba, Liu Gang said Trump could target the company's cloud services and chip research and development by imposing restrictions on normal trade and cooperation between the company and its U.S. counterparts.
"The United States will not be able to touch [Alibaba's] main business operation ... its biggest asset is to slow down the pace of Chinese chip innovation," Liu Gang said, adding that even if some impact would be felt in these areas, "taking policy measures to stop innovation will not work.
The cloud, which is today the preserve of Americans like Amazon and Microsoft, is a highly strategic market. Last spring, Alibaba announced that it would invest $28 billion in the cloud over the next three years. In his press release, Jeff Zhang, President of Alibaba Cloud Intelligence and Chief Technology Officer of the Alibaba Group, said:
"By increasing our investment in cloud infrastructure and core technologies, we hope to continue to provide reliable, world-class IT resources to help businesses accelerate the recovery process and deliver intelligent cloud-based solutions to support their digital transformation in the post-pandemic world. The company also announced plans to recruit 5,000 employees worldwide for its cloud division over the next 10 months.
Although Alibaba is seeking to expand its presence in the United States through its online shopping platforms and cloud services, its main revenues come from the Chinese market. In FY2020, its e-commerce operations in China, including online retail, are expected to account for 65% of Alibaba's total revenues, according to Forbes.
Scrutiny that could impact U.S. entities
It is estimated that international e-commerce revenues, including those from the United States, account for only 8% of the total. While Alibaba has invested heavily in cloud services and has taken a relatively large share of the US market, total revenues from its cloud business are only expected to account for about 8%, according to Forbes.
"Because it is political in nature, there will be some impact, but the impact will not be too great because Alibaba has very limited operations in the US," said Fang Xingdong, founder of the Beijing-based technology think tank ChinaLabs.
Fang said the US may decide to prevent US technology companies from doing business with Alibaba (such as the announced measures against ByteDance's TikTok and Tencent's WeChat) and prevent some research and development (R&D) personnel from working for Alibaba.
In addition to cloud computing technology, Alibaba has also invested heavily in chip R&D through its DAMO Academy, which, according to experts, is making significant inroads.
Any potential crackdown on Alibaba could also harm US interests more than the company itself, as many US companies seek to sell their products and services on Alibaba's online shopping platforms and many US investors hold the company's shares on the New York Stock Exchange.
Despite growing tensions, US brands such as Apple and Nike performed well at Alibaba's Singles' Day shopping festival. Apple's sales on the platform in 10 minutes surpassed seven times its sales of a full day at the 2018 Single's Day, while Nike's sales reached 100 million yuan (12.16 million euros) in one hour, according to media reports.
In the context of the COVID-19 pandemic, Alibaba announced in June that it would provide new financing and delivery services for small and medium-sized businesses in the United States and launch virtual "salons" for U.S.-based manufacturers and wholesalers to help them sell their products on its platform.
"Our study shows that Alibaba and [another Chinese e-commerce company JD.com Inc] have offered many services to foreign companies and helped them sell even within China, so cracking down on these companies is not in favor of U.S. interests and will do more harm to the United States," Liu Gang said.
In addition to the sales of U.S. companies on Alibaba, any potential movement by the U.S. could also harm U.S. investors holding Alibaba shares. On Friday, Alibaba's largest institutional shareholder was the US company Blackrock and other major shareholders include many US companies such as Vanguard Group, Price (T.Rowe) Associates and JP Morgan Chase, according to Yahoo Finance.
"Countering China's rise is a long-term strategy of the United States... so many large Chinese technology companies are definitely in the US sights," Liu Dingding said on Sunday. But Dingding added that the damage that the United States could do to these companies would be minor, given their limited presence in the United States and their advanced status in their fields: "There is no need to pay special attention [to US repression]".
Source: Reuters
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