Signage at the offices of Chinese e-commerce heavyweight Alibaba Group in Beijing. Company … [+]
China-traded U.S. stocks closed sharply lower today on concerns about the growth of the world’s No. 2 economy, fierce competition in the e-commerce world and ongoing geopolitical tensions between the U.S. and China following this week’s high-level meeting between the two sides in Beijing left many sources of conflict unresolved.
Billions of dollars worth of market cap in Chinese stocks wiped out today. Among today’s losers, WuXi Biologics fell nearly 18%, social media Bilibili lost 8.6%, e-commerce sites PDD and JD.com each fell nearly 7%, Alibaba fell 4.5% and EV maker Li Auto decreased by 1.5%.
Chinese stocks underperformed broader US indices, which were weighed down by interest rate concerns ahead of Federal Reserve Chairman Jerome Powell’s testimony this week. Lower rates could benefit global economic growth. The Nasdaq fell 0.16% and the Dow lost 0.72%.
Chinese investors have been hoping for a strong rebound in consumer spending since the end of last year following the end of Covid-related lockdowns that weighed on the economy. However, weak private and foreign investment, high youth unemployment and ongoing tensions in relations with Western countries have led to caution; meanwhile, a government stimulus package expected by some has yet to materialize. A new anti-intelligence law due to take effect on July 1 has left US companies concerned about continued security raids on foreign companies following recent raids on Bain and Mintz, though more positives have been heard during visits to the country in the past month by Elon Musk. Bill Gates and Jamie Dimon, all doing business in China.
However, investors hoping for positive news on US-China relations following this week’s meeting between US Secretary of State Antony Blinken and Chinese President Xi Jinping in Beijing did not get it today. The Wall Street Journal ran a front-page article headlined, “China Seeks Location in Cuba for Joint Training,” a move that the paper said “caused alarm” in Washington and raised the possibility of People’s Liberation Army troops 100 miles away. from the Florida coast. That came alongside other reports after the Xi-Blinken meeting that focused on a continued lack of military-to-military communication at a time when China’s territorial claims have led to security tensions in East Asia, particularly over Taiwan.
Alibaba took center stage today following the surprise announcement yesterday that Daniel Zhang would step down as CEO in September to focus on the company’s cloud business. Billionaire Vice Chairman Joe Tsai, co-founder of Alibaba’s founding in 1999, becomes chairman as part of leadership reform. Tsai is better known today as the principal owner of the NBA’s Brooklyn Nets. Eddie Yongming Wu, another co-founder, will become CEO.
Alibaba’s charismatic chief founder Jack Ma. (Photo by Chesnot/Getty Images)
Alibaba’s problems extend beyond slower-than-expected Chinese growth. The company has struggled with low-cost e-commerce competition from the likes of PDD at home and abroad. Privately owned, clothing-focused Shein has also exploded in popularity overseas in recent years, as has ByteDance, the owner of the highly popular social media platform TikTok.
The limited presence of Alibaba’s main founder, the charismatic billionaire Jack Ma, in recent years has not helped. Ma fell out with Communist Party authorities after criticizing officials in 2020; hoarse media reports of his overseas travels to Japan and elsewhere have served only to contrast his warm global welcome with his unremarkable home, though that has reversed somewhat this year.
In addition to its core e-commerce business, Alibaba spin-offs and investments ranging from EV maker XPeng to filmmaker Alibaba Pictures and Alibaba Health Information have faced challenges recently. Alibaba-invested brokerage firm E-House has defaulted on debt, linking the internet giant to the quagmire of China’s real estate sector. Wider government crackdown on big tech companies has hurt the industry’s greatest successes more broadly.
Shares in Alibaba-invested Chinese EV maker XPeng have lost more than 60% of their value in the past … [+]
To bolster growth, Alibaba announced steps in March to split itself into six parts. Surprisingly, Zhang’s exit plan as CEO was announced just months later.
Zhang isn’t the only chairman or CEO of recent times to have given up a leadership job at one of China’s web heavyweights. PDD’s chief founder, billionaire Colin Huang, stepped down from the chairmanship and success at the company followed. This week’s plan at Alibaba to take Tsai and Wu to the next level may not reassure Alibaba’s investors until the company shows it can execute a recovery plan in the current difficult environment.
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@rflannerychina