“We are in a paradigm shift, and geopolitics is going through a historic transformation right now,” said Alex Capri, research fellow at the Hinrich Foundation and senior fellow and lecturer at the National University of Singapore. Washington officials are making “more accusations” against Chinese tech companies, an “indication that the administration is really looking to decouple” the tech industry, he added.
But the company is on the minds of US officials. Secretary of State Mike Pompeo name-checked Alibaba last week when he urged American companies to remove “untrusted” Chinese-owned technology from their digital networks.
Multinational companies are “being picked as national champions for strategic assets and are being leveraged … whether they like it or not,” Capri said.
Companies like Alibaba were “nurtured in a fully protected environment in China, that was closed to foreign competitors [and] they captured market share without having to compete with foreign companies,” Capri said. “Now that they’re venturing out and they want to compete in open markets, they’re facing a backlash.”
A wide net
Alibaba, which did not respond to requests for comment for this story, operates widely popular e-commerce platforms, mostly available in China and other Southeast Asian markets. It also started Alipay, one of the most dominant payment apps in China alongside Tencent’s WeChat Pay.
Any action by Washington would likely not affect the company’s e-commerce and retail business in China, which accounts for nearly 80% of Alibaba’s 509.7 billion yuan ($73.5 billion) in annual revenue. International retail and wholesale revenue accounts for 7% of the company’s total haul. And even sanctions on Alibaba’s US cloud business would be minimal. Cloud services, which Alibaba does not break out by region, accounts for less than 10% of total revenue.
But the broadly worded executive order issued against WeChat last week indicates that Washington may be preparing to cast a wider net.
The WeChat order, for example, could prevent all US persons and US companies from working with anything related to the messaging app, according to Dan Wang, a Beijing-based technology analyst with research firm Gavekal Dragonomics. He said that could cut WeChat off from all US technologies — a move that would bar Tencent from the software and semiconductors it needs to keep WeChat operating.
“If they do something like that with Alibaba, that would also be a pretty big blow,” he said. Alibaba has very large cloud operations in China and “requires US semiconductors and software in order to continue these operations,” he said.
How US firms could feel the pain
US firms could also suffer from the fresh restrictions imposed on Chinese tech companies.
WeChat is deemed a daily necessity for hundreds of millions of Chinese who use it to hail rides, pay for goods, message friends and family, post photos, order food and more.
“If Apple takes off WeChat from its App Store, then that’s something else,” said Chingxiao Shao, founder of Red Gate Asset Management, an independent investment manager focused on China’s equity markets.
If that happens, “the damage on Apple is going to be much stronger than the damage on Tencent,” she said.
Last year, Apple sold $44 billion worth of goods and services in greater China, an area that includes Taiwan and Hong Kong, accounting for about 17% of the company’s total sales.