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Beijing crackdown derails Alibaba’s bid for Amazon-size profit

Bloomberg
Bloomberg 4/28/2022 03:02 PM GMT+08  • 7 min read
Beijing crackdown derails Alibaba’s bid for Amazon-size profit
Alibaba’s relationship with the Chinese government soured after co-founder Jack Ma criticised regulators in a 2020 speech in Shanghai / Bloomberg
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For years, Alibaba Group Holding had a legitimate shot at becoming the Amazon.com of China, an e-commerce juggernaut that would use its customer relationships and technological prowess to dominate wide swaths of the internet landscape. Its market valuation soared to more than US$850 billion in 2020 as it expanded into new businesses and closed the gap with its US rival.

Beijing’s crackdown on the private sector has laid waste to that strategy. Alibaba’s core e-commerce operation is under siege from regulators, and its finance arm has been forced to pull back from some of its most lucrative initiatives. But nothing may illustrate its changing fortunes more than the recent troubles of its cloud computing operation, Aliyun, which is often referred to as AliCloud. (The English translation of yun is cloud.)

Cloud computing is a vital part of Amazon’s formula, with its Amazon Web Services (AWS) throwing off so much cash it can subsidise the e-commerce business and fund new initiatives that may not pay off for years. In fourth quarter 2021, AWS accounted for more than 100% of the company’s operating profit. Alibaba envisioned its cloud business serving much the same function, identifying it as one of the company’s “strategic pillars”. CEO Daniel Zhang once said the business could eventually become the “main business of Alibaba”. He told analysts during an earnings call in February that China’s cloud market would grow into a “trillion-RMB opportunity” ($210 billion) by 2025.

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