Baba Stock – China tech groups hire ex-regulators to fend off Beijing’s crackdown
A growing number of Chinese tech companies have hired former government officials as part of efforts to navigate President Xi Jinping’s intensifying crackdown on the sector.
While it is not uncommon for officials in the US and Europe to move between the government and private sector, it was largely unheard of in China until recently.
But such “revolving door” career moves have become increasingly common as Xi has strengthened the Communist party’s grip on the world’s second-largest economy.
Alibaba, the ecommerce group founded by billionaire Jack Ma, has been a prominent recruiter of former bureaucrats. Ma, China’s best-known entrepreneur, has largely disappeared from public view after criticising regulators and state-owned banked in October. Authorities scuppered the planned $37bn initial public offering of Ant Group, Alibaba’s financial technology sister company, the following month.
Public records reviewed by the Financial Times showed China’s biggest internet groups, which also include Tencent, ByteDance and Meituan, have hired dozens of former officials ranging from anti-monopoly regulators to court judges. That has raised questions over how far Xi’s administration can go to rein in the companies.
One of the most high-profile bureaucrats poached by the private sector is Cui Shufeng, a former deputy director at the commerce ministry’s anti-monopoly bureau, who has been the head of competition policy research at Alibaba since 2019.
Just days before Chinese competition regulators imposed a record fine on Alibaba, Cui told government officials that they should not be too hard on the company.
Authorities “shouldn’t regulate internet platforms by the same standard [as other industries] since there is a lot of competition in ecommerce”, Cui told a group of senior Chinese lawmakers and government advisers on April 1, according to a copy of his remarks seen by the FT.
Cui’s former regulatory colleagues announced on April 10 they were imposing a record Rmb18.2bn ($2.8bn) on Alibaba for uncompetitive behaviour — a penalty the company said it “sincerely accepted”.
The fine could have been much higher. It was set at 4 per cent of Alibaba’s 2019 domestic revenues, compared with a potential maximum of 10 per cent of total revenues that year, or Rmb51bn. When Qualcomm was fined a then-record $975m for anti-competitive behaviour in 2015, the amount was equivalent to 8 per cent of the US chipmaker’s China revenues.
“The penalty is good news for Alibaba because the investigation ended earlier than expected and the fine was smaller than expected,” Chen Long and Guo Shan at Plenum, a Beijing-based consultancy, wrote in a research note.
There is no evidence that Cui’s speech influenced regulators’ decision.
Alibaba’s shares rose 6.5 per cent in Hong Kong and 10 per cent in New York on the first day of trading after the deal was announced. Neither Alibaba nor Cui responded to a request for comment.
Even if Alibaba, Ant and Ma himself face further regulatory scrutiny, deep-pocketed private groups are certain to remain a popular destination for low-paid Chinese officials.
“This phenomenon is very popular across China’s business community,” said Zeren Li, a doctoral candidate at Duke University specialising in state-business relations in China. According to a study by Li, China’s listed companies had more than 4,800 executives and board directors with government work experience in 2019. That compared with 99 two decades ago.
For Chinese bureaucrats, the rewards for a career change are high. A number of former officials told the FT that their pay increased three to six times after joining private-sector employers.
“When I worked for the government, I couldn’t afford to rent an apartment near the office,” said a tech executive who previously worked at a regulatory agency and asked not to be identified. “Now I have no trouble buying a home near one of the best schools in the country.”
Nie Huihua, an economics professor at Renmin University in Beijing, warned there was little disclosure of exactly what former officials do for private employers. “That could lead to rent-seeking and a loss of trust in the regulatory system,” he said.
A senior lawyer at Shenzhen-based Tencent served as a judge in the southern city’s Nanshan District Court for 14 years. Between 2018 and 2020, Tencent won almost 94 per cent of its cases at the court, according to China Judgements Online, a database. Over the same period, Tencent won about 50 per cent of the cases it fought in Beijing.
“You can’t help thinking if the difference has to do with Tencent’s [hires],” said a lawyer who has worked on cases against the group, though there is no evidence of improper conduct. Tencent declined to comment.
Some analysts said that long delays in the enforcement of many provisions of China’s 2008 anti-monopoly law were due in part to lobbying by former regulators who represented corporate interests.
Beijing has unveiled measures in recent years in a bid to limit the influence of former government employees. These included a requirement for former officials to wait two to three years before joining the private sector if they dealt with it while in government.
But analysts said the regulations are vague and lack adequate transparency requirements.
“The government may have trouble cracking down on monopolies when dominant technology companies are staffed with officials who are friends with, or former colleagues of, regulators,” said Liu Xu, a researcher at Tsinghua University in Beijing.
Additional reporting by Ryan McMorrow, Xinning Liu and Nian Liu in Beijing and Tom Mitchell in Singapore
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