“Common prosperity” push will further entrench Alibaba and Tencent

The stated aim of President Xi Jinping’s “common prosperity” drive is to ease China‘s worsening inequality.

But when tech giants including Alibaba Group Holding and Tencent Holdings announced last month that they would pledge hundreds of billions of yuan toward Xi’s initiative, commentators were quick to brand the policy as “Maoist” and “spooking the prosperous.”

Yet a review of how these tech titans plan to invest in common prosperity, and how they have assisted past political goals, suggests that their efforts will actually serve to entrench their existing dominant market positions for decades to come. That will in turn lead to the state strengthening its control over them.

The handsome sums pledged by Alibaba and Tencent – 100 billion yuan ($15.6 billion) from Alibaba and 50 billion yuan from Tencent – is what I call a form of strategic philanthrocapitalism. This is a more self-interested philanthrocapitalism than the model for plowing for-profit business principles into charity practiced by tech billionaires in the U.S. such as Microsoft founder Bill Gates and Facebook’s Mark Zuckerberg.

Even though Chinese tech companies’ efforts do not exactly match the kind of philanthrocapitalism we have seen in the U.S. – questions remain as to whether the companies acted voluntarily and much of their return will be in the form of intangibles such as public goodwill and government amity – there is no question that their money will be spent with return on investment in mind.

Most importantly, their pledged capital will be invested in areas strategically aligned with the companies’ own objectives. For example, Alibaba’s aim to create agricultural product aggregation centers will be implemented in such a way that can tap into the company’s e-commerce platforms Taobao and Tmall.

 

Ali Health can help the effort to establish medical service centers in rural areas; while Alibaba’s travel service Fliggy will bring more visitors to the smart and beautiful villages that Alibaba wants to help develop.

In fact, the common prosperity drive may just be putting old wine in a new bottle. Sure, it represents a paradigm shift in China’s pursuit of more equitable growth in the future, but the way businesses assist Beijing’s political goals will be nothing new.

Alibaba has been down this path before when it supported an earlier political goal to eliminate extreme poverty through the company’s corporate social responsibility drives. That philanthropic effort coincided neatly with Alibaba’s plans to insert its e-commerce network deeper into China’s vast rural areas after growth in urban regions slowed.

From 2014 when Alibaba announced its rural development strategy, the number of Taobao villages and towns, which are a kind of e-commerce service center, had ballooned by over 30 times at the end of 2020. Gross merchandise volume from these centers totaled 1 trillion yuan ($156 billion) last year.

During this process, Alibaba’s financial services, remote healthcare, online travel services and education also expanded to include untapped rural users.

Both Alibaba and Tencent were not shy in saying that their common prosperity activities will and should leverage their existing tech capabilities.

After all, it will be the most efficient and effective way to fulfill Beijing’s admirable goal. What app other than WeChat can do a better job bringing remote healthcare, online education, livestreaming, payments and any other digital services imaginable to users in every corner of the country?

The result is that these tech giants’ apps will be embedded deeper into Chinese life. Much of the common prosperity campaign is about enhancing welfare services including healthcare, education, senior care and social security, as indicated by the first detailed pilot program unveiled by Zhejiang province.

It is likely that Alibaba, headquartered in Zhejiang province, will extend its tentacles even further into fundamental tech infrastructure in order for ordinary citizens to be able to access essential social services. That will reinforce the tech giants’ already dominant market position.

Similarly, Tencent’s announced plans under the common prosperity theme, including reviving the rural economy, improving medical services outside big cities and providing balanced education services, will also further tie the social media giant’s user base to its cannot-live-without apps.

Ultimately, this will lead to a strengthening of state control over the two companies because Alibaba and Tencent will, by virtue of their importance to China’s critical information infrastructure, become the two most important companies in the country

Companies that are defined as being engaged in sectors such as public service under China’s Cybersecurity Law, critical information infrastructure here is subject to tighter data security requirements and a higher level of government oversight. Beijing will want to exert greater control over such platforms.

In the end, the lines between business and philanthropy will be blurred, as will the lines between companies and government. This could be a slippery slope leading to very uncertain prospects.

Author: Nina Xiang