Alibaba will be divided into 6 units as China promises to relax restrictions on the private sector

The redesign was announced one day after Alibaba founder Jack Ma arrived home from a one-year trip abroad.

In a major overhaul, Alibaba Group announced on Tuesday that it intends to split into six units and consider fundraising or public offerings for the majority of them. This announcement comes as China promises to ease a broad regulatory crackdown and support its private enterprises.

The Chinese e-commerce conglomerate’s US-listed shares, which have lost nearly 70% of their value since the curbs were implemented in late 2020, increased by more than 10%.

Alibaba announced that it would be divided into six units: Cloud Intelligence Group, Taobao Tmall Commerce Group, Local Services Group, Cainiao Smart Logistics Group, Global Digital Commerce Group, and Digital Media and Entertainment Group. This restructuring would be the largest in Alibaba’s 24-year history.

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The renovation was completed just one day after Alibaba founder Jack Ma returned from a year-long trip abroad. This action complemented Beijing’s efforts to promote private sector growth following two years of repression.According to analysts, the division may lessen regulatory scrutiny of the tech giant, whose extensive business has been a target of regulators for years.

Chief Executive Daniel Zhang stated in a letter to staff that was seen by Reuters that “the original intention and fundamental purpose of this reform is to make our organisation more agile, shorten decision-making links, and respond faster.”Each business group, he said, had to deal with the market’s rapid changes, and each Alibaba employee had to “return to the mindset of an entrepreneur.”

Zhang will remain chairman and CEO of Alibaba Group, which will be managed in a holding company model, as well as CEO of Cloud Intelligence Group.According to the company, each of the six businesses will have a CEO and a board of directors, as well as the ability to raise outside capital and seek an initial public offering.

The one exception is Taobao Tmall Commerce Group, which manages China-related business operations and will continue to be a fully owned subsidiary of Alibaba Group.Zhang stated that the business would “lighten and thin” its middle and back office operations, but he did not specify job reductions.

Investors claimed that the split signifies the resolution of regulatory concerns and allayed worries that Alibaba’s growth potential had been lost.According to Tara Hariharan of emerging market hedge fund NWI Management, the decision may also be partially the result of US scrutiny of Chinese tech companies, which led to concerns about TikTok and its parent company ByteDance regarding national security.

According to Hariharan, managing director of global macro research, “the Chinese government may be signalling less hostility towards its tech giants by paving the way for Alibaba’s various new units to list as a placatory message to US and international investors.”

Ma’s return

The restructuring is one of the biggest corporate decisions made by a significant Chinese tech company in recent years. Tighter regulatory oversight caused deals to dry up and businesses’ appetite for risk to decline as a result.

As leaders attempt to stabilise an economy that has been battered by three years of strict COVID-19 curbs, authorities have recently begun to change their attitude towards the private sector.

However, businesses have been wary, citing a lack of new supportive policies and the new regulatory framework in private.

Alibaba’s stock rose on Monday after founder Ma returned to China, as the industry saw his absence as a reflection of the cautious attitude of its private businesses.

According to five sources with knowledge of the situation who spoke to Reuters, China’s new premier, Li Qiang, had recognised that Ma’s return to the mainland could boost business confidence among entrepreneurs and had started to ask him to do so as of late last year.

“It does seem like a coincidence that this is happening right around the time Ma appears to be at ease returning. According to Stuart Cole, head macro economist at brokerage Equiti Capital, it suggests something that Alibaba has been wanting to do for some time but has been waiting for the right opportunity.

Although the company is currently somewhat of a behemoth, the restructuring “does inject an element of flexibility and adaptability into the company,”