More than 1,300 chief executives left the companies they ran last year, according to recruitment firm Challenger, Gray & Christmas. There were another 195 departures in the first two months of 2021. Probably the most high-profile exit is that of Jeff Bezos, who announced last month that he would be stepping down as CEO of Amazon, the e-commerce heavyweight he founded nearly three decades ago. The departure comes amid continuing antitrust pressure for big tech firms in the United States.
Over in China, tycoons have been taking more of a backseat in the business empires they have created too. Antitrust is again a key driver, with more news this month casting a shadow over Alibaba and Tencent. Also making headlines last week was the retirement of Colin Huang, the founder of Pinduoduo.
Another boss with more than two decades of tenure – Baidu’s Robin Li – shows fewer signs of leaving his post, however. He even made a ‘homecoming’ of sorts this week, with a listing of his company on the Hong Kong stock exchange.
The coverage of his leadership of Baidu also contrasts with the lower profiles being adopted by a number of Li’s rivals, according to some China-watchers. Perhaps it points to better days ahead for Baidu as well, as it bets on new revenue streams in artificial intelligence and autonomous driving.
Why is Huang stepping back at Pinduoduo?
Jack Ma and Pony Ma, the founders of China’s most powerful internet duo Alibaba and Tencent, have both taken less active roles in their business empires. In September 2019 Jack Ma retired as Alibaba’s executive chairman and around the same time his archrival stepped down as legal representative at Tencent Credit, the tech behemoth’s fast-growing fintech unit.
Even with these precedents, many investors were shocked when Pinduoduo announced on March 17 that its founder Huang had left his post as company chairman with immediate effect. The 41 year-old will be succeeded by good friend and company CEO Chen Lei, Pinduoduo said. Huang has pledged not to sell his Pinduoduo stake – about 30% of the company – for at least three years, although his departure means that he will lose access to his “super voting rights”, which will be transferred to Chen.
Pinduoduo has adopted one of the most aggressive growth strategies of the internet majors, although its founder seems to prefer to be associated with a less domineering approach. After steering Pinduoduo to become (at the time) the youngest Chinese start-up to go public in New York in 2018, Huang had already surprised investors last year when he said he was stepping down from his position as CEO.
Coinciding with the announcement was a major milestone: Huang had just surpassed Jack Ma in Forbes’ Real Time Billionaire Index. And while Huang was still sitting just behind Pony Ma of Tencent in the ranking, we reported in WiC503 how he seemed reluctant to go a step further to take the title of China’s wealthiest man.
His latest resignation as Pinduoduo’s chairman came just a few hours too after the company said it had unseated Alibaba as China’s biggest e-commerce platform with 788 million active annual users, surpassing its more established rival’s 779 million.
“Apparently Huang is trying desperately to escape from the position of being ‘China’s richest man’ and what has happened to Jack Ma offers good reasons why,” China Venture, a magazine, claimed, referring to recent efforts from regulators to curb Alibaba’s influence, as well as Ma’s disappearance from the public eye.
Huang offered other reasons for forgoing executive duties, primarily that he would be undertaking research into life sciences and food science, initiatives encouraged by Chinese policymakers as a way of improving the livelihoods of the rural population.
With his new title at Pinduoduo yet to be clarified, Huang hinted at plans to broaden Pinduoduo’s future as “China’s biggest agriculture platform” – a move that he believes will maintain the company’s growth rate over the next 10 years.
Huang added that while Pinduoduo has helped to boost incomes for Chinese farmers – and savings for consumers – by improving efficiencies in the supply chain, its business model “does not fundamentally add value to agricultural products” nor improve the general health of the wider population.
“What can we do if we were to take a step further and go beyond efficiency improvements?” he asked. “As the founder of this company, I am probably the most suitable person to take on this task by stepping out of the business and the comfort zone to embark on a journey of exploration.”
Has Huang learned something from Alibaba?
The decision to step away from the spotlight could be a pragmatic one. The focus on a part of the economy where policymakers want to see a wider transformation might be strategic as well – and Huang would certainly be wise to steer clear of more contentious industries and sectors.
Jack Ma’s speech at a financial summit in Shanghai last October, when he accused the state banks of operating with a “pawnshop mentality”, is said to have enraged senior government leaders, triggering the chain of events that culminated in the suspension of the IPO of Alibaba’s fintech unit, Ant Group .
Apart from 50-seconds of pre-recorded video footage published online in January, the flamboyant tycoon has disappeared almost completely from sight. In the meantime, the Chinese authorities have detailed new rules aimed at curbing financial risk and antitrust behaviour at large “internet platforms”. Ant’s business model has been blasted for encouraging excessive borrowing by younger consumers. The credit risks stemming from this new form of lending (aka shadow banking) rattled the government to such an extent that it now wants Ant to come under the direct supervision of banking regulators, treating it more like a conventional financial institution than a free-wheeling internet firm.
A revamp of Ant’s business model now looks inevitable. That became clearer after the resignation of company CEO Hu Xiaoming, a key executive who was closely involved in the development of Alipay, the popular payment gateway around which Ant built its fintech empire. Hu will now be put in charge of Ant’s “ecological and social welfare-related projects”, with no decision on who will take over as the next chief executive (company chairman Jing Xiandong is taking up the post temporarily).
Alibaba is getting a lesson in power politics?
China’s media outlets have refrained from commenting directly on the tensions between the authorities and the Alibaba group. But if reports in the Western media are accurate, the central government is already addressing what it perceives as the main risks embedded in the Alibaba empire.
The majority of the focus is on cutting Ant down to size in the fintech sector. The Financial Times reported earlier in March that Ant has been defying pressure from the central bank to share the credit data of about the 500 million customers who have taken out microloans through its platform. This looks like being a losing battle, although the newspaper says that Ant is trying to fall back on the country’s new data privacy laws in declining to share the full information.
Another area of governmental concern getting mention is Alibaba’s potential sway over public opinion. The company owns substantial stakes in Chinese media firms such as Yicai, 36Kr, Huxiu, Sina Weibo, Youku, Bilibili, Mango TV and Enlight Media, as well as Hong Kong’s English-language South China Morning Post. The listed assets in the portfolio are worth at least $8 billion and represent a major source of influence. None of this has gone unnoticed at senior political level, with the Wall Street Journal reporting last week that officials are “appalled at how expansive Alibaba’s media interests have become” and that they asked it to come up with a plan to “substantially curtail its media holdings”.
Is Tencent next in the line for closer scrutiny?
The antitrust crackdown on the internet sector is more than a response to Ant’s fintech ambitions and a rash choice of words from Jack Ma, the Alibaba founder. Investors are increasingly concerned that the longer-term objective is to curtail the reach of the largest internet firms across China’s economy, with other internet titans likely to face similar levels of scrutiny.
News broke this week that Pony Ma, chairman and CEO of Tencent, China’s most valuable internet firm, has also had meetings with antitrust regulators this month. Citing unidentified insiders, Reuters reported that Tencent’s WeChat messaging app and Tencent Pay – the other half of China’s mobile payments duopoly alongside Alipay – could be next in line for stricter oversight.
Tencent has just reported a 175% rise in net profit to Rmb59.3 billion ($9.1 billion) for the quarter ended in December, much of it driven by fair-value gains in other companies in which it has made investments. This is another area where the authorities may want to focus: as we reported earlier this month, Tencent and Alibaba are two of the biggest investors in the Chinese internet and tech sector, owning stakes in a wide range of unicorns (see WiC530). That might also have spooked antitrust bosses.
In a separate report this week, Reuters said Tencent is preparing to make concessions to keep regulators onside with the merger of two popular eSports streaming companies. The combination of Huya and Douyu – both under Tencent’s control – will create an entity with 80% market share (see WiC507) but an “elongated process” of antitrust review has the deal hanging in the balance, the news agency reported . Tencent is now “willing to settle for approval subject to conditions.”
Bloomberg has gone further, reporting that Tencent might also be forced to overhaul its fintech division, which is estimated to be worth at least $100 billion. Here the authorities are pushing Tencent to reconstitute its operations in a “financial holding firm” under the oversight of the central bank – in much the same way they are demanding of Alibaba’s Ant Group.
These unconfirmed reports became the focus of media attention at Tencent’s earnings presentation this week. Pony Ma chose not to address the questions directly, although company president Martin Lau said the meeting with regulators this month was “voluntary”.
“We, Tencent, conduct meetings with regulators on a regular basis and this is one of the regular meetings that we have,” Lau explained. “During the meeting, we had a discussion about a broad range of topics, and the main focus was actually on creating a healthy environment for innovation.”
Indeed, Tencent has not exited dealmaking, as its recent moves to up its stake in games developer Century Huatong illustrates (see page 15).
The return of Baidu…
Investors are worried that Tencent and Alibaba have simply been too successful, creating a situation in which there is now a political ceiling on their profitability. That sentiment is reflected in their recent share prices. Alibaba’s market value has dropped a quarter to about $620 billion since last November. After reaching an all-time high in January, Tencent’s market capitalisation has slipped nearly a fifth to about $760 billion.
All of this makes Baidu’s return to a bourse on Chinese soil all the more interesting. The internet search giant has slipped out of the top five tech firms in valuation terms and ranks far behind the likes of Pinduoduo ($152 billion) and Meituan ($220 billion). Its market capitalisation is now only $83 billion, despite rising nearly 150% over the past 12 months.
Yet as a number of domestic newspapers have pointed out, Baidu’s more recent commercial priorities may align better with China’s policymaking agenda. Going through Baidu’s annual reports, the news portal 36Kr calculates that it has already invested more than Rmb100 billion in AI, for instance, with spending on R&D accounting for more than a fifth of its income last year. (Baidu is also promoting an autonomous driving system called Apollo which can be sold to carmakers: see WiC531).
Priorities like these will also help it skirt recurring criticism of other internet titans in sectors like social media, ride-hailing, food delivery and internet financing that they rely too much on innovations in their business models that monetise China’s huge consumer base, rather than achieving the kind of technological breakthroughs that the government wants to underpin China’s rise as a tech power.
Simply put, Baidu’s pursuit of AI and autonomous driving may tick more of the checklist in Beijing’s policy agenda. That may make it less vulnerable to antitrust reviews and other policy risks versus its peers.
Indeed, Li even speculated this week that Baidu could benefit from changes in how the internet sector is regulated because the shake-up may force other key tech players (guess who) to share more of the data from their own ecosystems.
So has the political weather turned in Baidu’s favour?
Domestic media coverage of Robin Li’s firm has generally improved in recent months, with mentions of the long road Baidu is taking to make breakthroughs in leading-edge technology.
Tellingly, in an interview he gave to the China Daily this month Li noted: “Baidu is the first enterprise in China to fully invest in an AI strategy. We have maintained high investment in technology for a long time. Baidu’s R&D investment intensity is at the forefront of China’s large-scale internet technology companies.”
He also noted that “Basic research is the source of technological innovation,” hitting another note likely to segue with policymakers’ goals.
Yet investors may still need more convincing, it seems, after shares in the $3.1 billion secondary listing were flat on their trading debut in Hong Kong this week.
Li made sure to play the political game, however.
“When Baidu got listed on Nasdaq… I said Nasdaq was only one of our stops. Baidu would come back to China eventually, because China is our root. Today, Baidu finally came back home,” he told a ceremony held in Beijing.
© ChinTell Ltd. All rights reserved.
Sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.