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Alibaba CEO Daniel Zhang says China’s ‘common prosperity’ will boost his bottom line

October 19, 2021, 12:10 PM UTC

Grady McGregor here filling in for Clay Chandler, who is co-chairing the Fortune Global 500 Summit in Hangzhou today.

As part of the summit, Clay interviewed Daniel Zhang, the CEO of the Hangzhou-based Alibaba Group, on the heels of what has been a challenging year for one of China’s largest tech companies.

In Hong Kong, Alibaba’s stock price is down over 50% from one year ago, which was right before Chinese regulators suspended the planned blockbuster IPO of Alibaba’s fintech affiliate Ant Group. The suspension of the Ant Group IPO kickstarted a year of intense regulatory scrutiny, as China issued new antitrust rules that challenge the power firms like Alibaba and social media giant Tencent wield over China’s Internet.

Chinese President Xi Jinping also launched a new ‘common prosperity’ drive earlier this year to address inequality and spread wealth more evenly across its economy—and Alibaba was quick to chip in. The company announced on Sept. 3 that it would spend $15.5 billion to support the common prosperity campaign, a sum that will fund new investments in initiatives like improving digital infrastructure in rural areas.

Zhang told Clay that he believes Alibaba’s donation and the common prosperity push will benefit both China and the company because a more financially equal China and a growing middle class will create more customers for Alibaba to serve.

“If people have more consumption capabilities, if people have more business opportunities…then we will get our opportunities,” Zhang said. “We have to work with all the stakeholders to create a better life, a better economy.” 

Yale economist Stephen Roach, meanwhile, was more pessimistic about the long-term implications of Beijing’s sweeping effort to rein in private firms.

Firms like Alibaba and Tencent have powered China’s economic rise in recent decades. Now, Roach said in a separate interview, Beijing’s heavy-handed regulatory moves threaten to disrupt the relatively free-wheeling environment that helped the companies—and China—prosper.

“In looking at the broad thrust of what has really driven China over the last 40 years, especially over the last 20 years, [China’s recent regulatory] actions go right at the heart of that dynamism,” Roach said.

The opposing views of Zhang and Roach were just some of the fascinating perspectives speakers shared in Hangzhou on Tuesday. The summit convened global CEOs and prominent industry leaders to discuss ‘The Great Reset’ and the strategies that Fortune Global 500 firms are deploying to emerge from the pandemic more innovative and sustainable than they were before. More coverage from the conference below!

Grady McGregor
grady.mcgregor@fortune.com

This edition of Eastworld was curated and produced by Grady McGregor. Reach him at grady.mcgregor@fortune.com

News from the Fortune Global 500 Summit

A vaccinated world

Global vaccine makers will produce enough vaccines by the end of 2022 to fully vaccinate every person in the world, Johnson & Johnson CEO Alex Gorsky told the Fortune Global 500 audience. But delivering the vaccines will prove challenging, and he expects logistical hurdles and other delays to extend the timeline for global vaccination into 2023. Johnson & Johnson has sent tens of millions of doses of its single dose vaccine to low-income countries, but its plans to ramp up production and supply more shots to Asian countries via a partner in India have faced delays. Fortune

Cropped and edited

China has a wide lead in gene editing crops, Erik Fyrwald, CEO of Swiss agricultural giant Syngenta, said at the Fortune Global 500 Summit. China now accounts for 75% of global patents related to agricultural gene editing. Critics say that gene-edited crops pose risks to the environment such as outcompeting natural species. But Fyrwald says that gene-edited crops are only slightly altered and are proving transformational in helping Chinese farmers boost yields in a country with limited arable land. Fortune

The other decoupling

Political pundits have argued for years about the potential of the great “decoupling” between the U.S. and China amid rising tensions between the two powers. But the European Union, too, is beginning to isolate itself from the U.S. with tough digital rules, Accenture CEO Julie Sweet said at the Fortune Global 500 Summit. Sweet says that the EU’s focus on data sovereignty regulations is increasingly at odds with the U.S.’s relatively free-wheeling approach to how U.S. tech firms collect and use consumer data and could make it harder for U.S. firms to operate in European markets. Fortune

'Just in time' delays 

Global shipping is becoming increasingly gridlocked, with 77% of the world’s ports facing abnormally long wait times as holiday season approaches. COVID-19-related port closures and rising global demand from a world recovering from the pandemic are partially to blame for supply chain disruptions. But modern supply chains were not built to withstand such shocks, especially with companies keeping the bare minimum of stock on-hand to cut costs. “What we’re seeing right now is, to a certain extent, a consequence of a single-minded focus we’ve had in the industry up to now of focusing on efficiency and just in time delivery,” Jens Eskelund, managing director of Maersk China, said at the Fortune Global 500 Summit. Fortune

 

Markets and movers

Alibaba – The Chinese tech giant and third-largest cloud computing provider in the world unveiled a new custom chip on Tuesday that it developed to power servers in its cloud data centers. The chip, called the Yitian 710, will be used exclusively by Alibaba and will be one of the most advanced chips produced in China as part of the country’s quest for self-suffiency in chipmaking.

Hypersonic missile – In August, China tested a new nuclear-capable hypersonic missile that circled the earth before nearly hitting its target. The test took American officials by surprise, and raised questions about why the U.S. underestimates China’s military capabilities. China’s government denied that the test was a missile and said it was instead a spacecraft.

Tsinghua Unigroup – The Chinese chipmaking firm is in talks with seven investors including Alibaba about a potential takeover to rescue the struggling firm. Unigroup owes $15.5 billion in debt to hundreds of creditors and has struggled to turn a profit after a series of acquisitions and investments in the semiconductor industry.

HNA Group – Chinese creditors are objecting to China’s plans to contain fallout related to the collapse of Chinese conglomerate HNA Group. HNA collapsed after amassing $90 billion in debts owed to tens of thousands of Chinese creditors. This week, creditors will vote on a new proposal that would split HNA Group into four groups, handing control of its aviation, airport, financial, and commercial units to state and private shareholders. 

Singapore – On Tuesday, the city-state launched vaccinated travel lanes with eight countries including the U.S. and Spain in the country’s most significant step towards re-opening its borders since the beginning of the pandemic.

Final figure

4.9%

China’s GDP grew 4.9% in the third quarter compared to one year ago, missing analyst expectations of 5.2% growth and below China’s 7.9% growth in the second quarter. China’s slowing growth can be attributed to a number of factors including supply chain disruptions, an energy crunch, and COVID-19 related lockdowns. But a major reason for China’s slowing recovery is fallout from the downfall of property giant Evergrande. China’s real-estate industry shrank by 1.6% in the third quarter compared to last year, marking the sector’s first constriction since the beginning of the pandemic.

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