Here's How China Ruined Alibaba's Ambitions Of Becoming China's Amazon

China's regulatory crackdown on Alibaba Group Holding Ltd BABA shattered its ambitions of becoming Amazon.com Inc AMZN of China, Bloomberg reports. 

Alibaba's core e-commerce operation is under siege by regulators. The regulators also forced its finance arm to pull back from some of its most lucrative initiatives.

The recent troubles of its cloud computing operation, Aliyun or AliCloud, added the last nail to the coffin. Cloud computing is a vital part of Amazon's formula. Amazon Web Services accounted for more than 100% of the company's operating profit in Q4 of 2021 after years of investment that did not pay off initially.

Alibaba CEO Daniel Zhang saw China's cloud market growing into a trillion RMB opportunity by 2025. However, China has increasingly focused on the use and security of data, making its defense a priority for the government. Therefore, many Chinese institutions, including China Construction Bank and local municipalities, moved closer to state-backed cloud platforms instead of those by private firms like Alibaba, Bloomberg notes.

Aliyun has been under particular pressure due to its parent's strained relationship with the Chinese government. Alibaba co-founder Jack Ma's criticism of the regulators followed the scrapping of its fintech affiliate's ambitious IPO and a massive penalty for Alibaba.

Alibaba has since clashed with regulators over cybersecurity, raising the possibility of its cloud business becoming a soft target. Due to business and political obstacles, Alibaba ditched the idea of spinning off the cloud business in 2021.

In cloud infrastructure services, Aliyun's market share decreased to 37% in 2021 from 46% in 2019, although it continues to lead the market. Contrastingly fresher cloud providers like Huawei Technologies Co, with better friendly ties with the government, doubled their market share over the same period.

The state-backed cloud providers are likely to benefit most from the Chinese government's push for the domestic development of cloud services which will likely serve as a massive boost for the cloud providers, Bloomberg wrote.

In December, China suspended cooperation with Aliyun on a cybersecurity information-sharing platform for six months after it failed to report a software flaw in time.

Price Action: BABA shares are trading lower by 1.49% at $94.07 premarket on the last check Monday.

Photo by Fooksou Lamimo via Wikimedia