China's tech giants will have to keep on giving

Richard Liu, CEO and founder of China's e-commerce company JD.com, rides an electric tricycle as he leaves a delivery station to deliver goods for customers to celebrate the anniversary of the founding of the company, in Beijing, June 16, 2014. Picture taken June 16, 2014. REUTERS/Jason Lee

HONG KONG, Nov 23 (Reuters Breakingviews) - Investors must be hoping that a looming fine for fintech player Ant and e-retailer JD.com’s (9618.HK) decision to boost benefits for lower-paid workers at the expense of executives are one-offs. After all, the former might suggest that Beijing is reaching the end of its two-year-long crackdown on the “disorderly expansion of capital”, while the latter comes on the heels of strong quarterly earnings. But Beijing’s fiscal woes and its common prosperity push make such firms handy ATMs.

China’s technology sector has taken a pounding since watchdogs cancelled Ant’s $37 billion stock market debut at the last minute in 2020. The Hang Seng Tech index (.HSTECH), which includes social media giant Tencent (0700.HK) and JD, has fallen another 38% this year. Covid-19 played a role, of course, but it must be tempting to hope the $1 billion fine the People's Bank of China is readying for Jack Ma’s Ant, according to a Reuters exclusive on Tuesday, will provide some relief for the industry.

It may well be wishful thinking. China's powerful market regulator proposed amendments on Tuesday to a law on unfair competition. It wants to formalise provisions for fines ranging as high as 5% of a firm's annual revenue to punish misbehaviour involving algorithms, data and the like.

The agency is just one of many stakeholders in China’s bureaucracy, and all are likely to keep flexing their muscles and setting their own agendas; any fines they levy also provide revenue for depleted government coffers.

Internet companies have also been on edge about President Xi Jinping’s wealth redistribution effort. JD Chair Richard Liu is taking no chances. After the company’s impressive adjusted net profit of 10 billion yuan last quarter, he announced on Tuesday that JD would slash the salary of some 2,000 executives by up to a fifth to aid lower-paid workers.

The e-commerce giant intends, in addition, to allocate at least 10 billion yuan to offer employees interest-free loans to buy a house. Liu himself is donating 100 million yuan of his own money to a fund to help children of employees should anything happen to their parents.

It’s laudable, but details are scant – and it’s a contrast to last year when JD raised all employees’ pay. The point, though, is probably to curry favour with Beijing. Throw in that Chinese government fiscal revenue is under pressure – it fell 4.5% in the 10 months to October from a year earlier – and it’s likely deep-pocketed firms will have to keep doling out the cash one way or another.

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(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

CONTEXT NEWS

The People’s Bank of China is set to fine Ant more than $1 billion as soon as the second quarter next year, according to a Reuters exclusive on Nov. 22, part of a two-year-long regulatory overhaul.

China's JD.com said on Nov. 22 that it will cut the salaries of more than 2,000 senior managers by 10% to 20% to help pay for improved benefits for “front-line” staff such as delivery workers, according to an email to staff from founder and Chair Richard Liu. The new policies will take effect on Jan. 1, 2023.

The benefits include plans to allocate 10 billion yuan ($1.40 billion) to a fund to assist employees of JD and recently acquired courier firm Deppon Logistics with buying homes.

Liu also plans to personally donate 100 million yuan to a fund to help children of JD employees should their parents die or lose the ability to work.

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

Editing by Antony Currie and Thomas Shum

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Beijing, crunching economic data, interviewing high-level officials, and travelling to far-flung provinces to visit factory floors and talk to local shopkeepers. Before that, she spent nearly three years in Santiago, Chile, where she built a trade news website reporting on the produce industry – and developed Spanish as a third language alongside Mandarin Chinese and English.