What the eclipse of Tencent by a liquor company says about Xi’s China

What would it say about US innovation and President Joe Biden’s stewardship of the economy if America’s largest beer company, Anheuser-Busch InBev, had a bigger market capitalisation than Apple? Nothing good, probably, and indeed the very thought is a ridiculous one. Apple’s $2.2tn market cap is almost 28 times larger than AB InBev’s $80bn.

But that is exactly what happened recently in China, where Xi Jinping is about to embark on a third term as Communist party leader, military commander-in-chief and state president. Late last month China’s most famous liquor maker, Kweichow Moutai, overtook Tencent as the country’s most valuable company.

How can this be? Tencent is one of the most innovative and successful technology companies in the world’s second-largest economy. It developed the country’s most popular instant messaging and social media app, WeChat, and its WePay online payments platform is second only to Alibaba’s Alipay. Kweichow Moutai, which brews a strong-smelling, 76 to 106-proof grain liquor, sells hangovers.

Politics is how, or at least Chinese Communist party politics as transformed by Xi over the past decade. Xi’s third term will officially begin on Sunday, October 23, almost two years from the day on which an impolitic speech by Alibaba’s founder, Jack Ma, triggered Beijing’s ongoing regulatory crackdown on the technology sector.

Speaking on October 24, 2020, Jack Ma castigated China’s state-owned banking sector for its conservatism and sloth at a financial forum in Shanghai. Ma was correct in his criticism of the banking sector’s traditional neglect of the small and medium-sized enterprises.

“Jack always understood that in markets dominated by large corporations and state-owned enterprises, technology could be the great equaliser for SMEs,” Brian Wong, a former senior Alibaba executive, writes in a forthcoming book on the company. “His real mission was spreading opportunity beyond traditional elite circles . . . [by] developing a platform for neglected entrepreneurs to thrive, compete and spread prosperity on a far more equitable basis than China had experienced before.”

Unfortunately for his shareholders, Ma was not preaching to the converted. Other forum VIPs included vice-president Wang Qishan, the architect of Xi’s anti-corruption campaign and a former state bank boss, as well as a number of senior financial regulators. Ma appeared to forget that Xi and Wang do not appreciate lesser mortals speaking truth to power. Within a fortnight the initial public offering of Ma’s online finance group, Ant, was cancelled by Chinese regulators.

Ant’s $37bn IPO would have been the world’s largest. Since the speech, the price of Alibaba’s Hong Kong-traded shares has fallen more than 75 per cent. While Tencent’s HK$2.37tn ($301bn) market cap is at least neck-and-neck with Kweichow Moutai’s HK$2.38tn, Alibaba’s — HK$1.56tn — is nowhere close.

In his book, Wong documents his former boss’s passion — and talent — for disruption. Revealing anecdotes include the time in 2011 that Alibaba broke China’s postal system. He writes that, on its famous November 11 or “Singles’ Day” sales festival that year, “it took [China Post] months to finish delivering all the packages ordered that day”.

When the same thing happened a year later, Ma decided he would have to develop an in-house delivery arm. The result was Cai Niao, which means “rookie” in Chinese, and a revolution in China’s logistics industry.

A factory in coastal Guangdong province, Wong writes, can now ship a mobile phone to a customer 1,500 miles inland in three days for just Rmb15 ($2.08). He adds that “a similar package shipped using the UPS three-day service from Boston to Reno, covering roughly the same distance, will cost more than 10 times that amount”.

On October 16, Xi told the party congress that “we will encourage entrepreneurship, move faster to help Chinese companies become world-class outfits and support the development of micro, small and medium-sized enterprises”.

“Been there, was doing just that” Tencent and Alibaba executives might reply. As for Kweichow Moutai, it too might soon discover that its fortunes ultimately hinge on one man’s whims. Since overtaking Tencent as China’s most valuable company, the price of its Shanghai-traded shares has fallen around 8 per cent — partly on rumours that Xi might ban alcohol at party and government functions.

tom.mitchell@ft.com