Alibaba Group has announced its plan to divide its business into six separate units, with most exploring fundraising or listing opportunities. The move comes as Beijing eases its regulatory clampdown and lends support to private enterprises.
The company's US-listed shares rose by more than 10% following the announcement. Since late 2020, Alibaba's stock has fallen approximately 70% due to regulatory scrutiny.
The most significant restructuring in Alibaba's 24-year history will see the creation of six units: Cloud Intelligence Group, Taobao Tmall Commerce Group, Local Services Group, Cainiao Smart Logistics Group, Global Digital Commerce Group, and Digital Media and Entertainment Group.
This overhaul coincides with founder Jack Ma's return to China after a year abroad and Beijing's push for private sector growth following a two-year regulatory crackdown on high-profile private enterprises.
In a letter to employees, CEO Daniel Zhang stated that the reform aims to make the organization more agile and responsive to market changes. Each business group will have its own CEO and board of directors, with the ability to raise outside capital and pursue an IPO. The sole exception is the Taobao Tmall Commerce Group, responsible for Alibaba's domestic commerce operations, which will remain wholly owned by Alibaba Group.
Investors have welcomed the move, seeing it as a sign of Alibaba regaining growth potential and a resolution of regulatory concerns. "It releases additional value," said Kenny Ng, a strategist at China Everbright Securities in Hong Kong. He added that the restructuring could indicate a new phase of development for the company and alleviate regulatory issue worries.
Ma's Return and the Impact
The announcement of the significant restructuring is one of the most substantial corporate moves by a major Chinese tech company in recent years. The tech industry has been cautious due to tightening regulatory oversight, leading to fewer deals and a reduced eagerness to explore new areas.
However, authorities have softened their stance toward the private sector in recent months, aiming to bolster an economy weakened by three years of COVID-19 restrictions. The change in tone has not yet prompted a significant response from companies, who privately cite a lack of supportive policies and an evolving regulatory framework.
Alibaba's shares got a boost on Monday when Ma was seen returning to China, ending his more than a year-long stay abroad. This return is seen as a reflection of the improving outlook for private businesses in the country.
China's new Premier, Li Qiang, who has championed private sector support, has been requesting Ma's return since late last year, hoping to boost business confidence among entrepreneurs, according to sources familiar with the matter.
Stuart Cole, Head Macro Economist at brokerage Equiti Capital, commented on the timing of Ma's return and the restructuring announcement, saying, "It does seem something of a coincidence that this is happening just as Ma seems comfortable returning. To me, it suggests something that Alibaba has been wanting to do for some time but has been waiting for the opportunity to do so."
Cole added that the restructuring "does inject an element of flexibility and adaptability into the company, which currently is something of a behemoth."
Alibaba's commitment to the restructuring demonstrates the company's desire to adapt to a rapidly changing market and regulatory environment. By dividing into six units, Alibaba aims to streamline decision-making processes, encourage innovation, and promote growth in each of its core business areas.
As the regulatory landscape in China continues to evolve, Alibaba's restructuring serves as a signal to other tech companies in the country that it may be time to adapt and innovate in the face of new challenges and opportunities. The return of Jack Ma to China also highlights the potential for improved relations between private businesses and the government, which could positively impact the country's economic growth and the tech sector's overall outlook.
