Jack Ma, billionaire and chairman of Alibaba Group Holding Ltd., speaks during an event at Waseda University in Tokyo, Japan. (Photographer: Tomohiro Ohsumi/Bloomberg)  

Alibaba Pulls Back in U.S. Amid Trump Crackdown on Chinese Investment

(Bloomberg) -- Alibaba Group Holding Ltd. is scaling back its presence in Silicon Valley—a sign that the Trump administration’s crackdown on Chinese investment in U.S. companies is casting a chill. 

After a flurry of deal-making, the Chinese e-commerce giant’s corporate venture arm has announced only one fresh investment in the U.S. this year, leading a $26.4 million funding round in a New York and Tel Aviv data-analysis startup called SQream Technologies. And that’s a tiny deal compared with the hundreds of millions Alibaba lavished on high-profile U.S. companies such as Magic Leap, Jet.com and Snap Inc.

Earlier this year the company lost its top U.S. dealmaker, Michael Zeisser, according to people familiar with the matter. Rather than hiring an outside replacement, Alibaba is promoting Peter Stern, who used to be an investment banker at Credit Suisse, the people said.

Alibaba's pullback coincides with escalating tensions between the U.S. and China. The Trump administration has been cracking down on Chinese investments in U.S. technology, from takeovers to venture capital funding rounds. On Tuesday, administration officials said Trump wants Congress to give expanded powers to the Committee on Foreign Investment in the United States, or CFIUS, which reviews foreign takeovers. Earlier this year, Ant Financial—the payments giant spun out of Alibaba—abandoned plans to buy MoneyGram International after CFIUS blocked the transaction on national-security grounds. 

“Given the current environment it remains to be seen what investments they can make without CFIUS getting against them,” says Hans Tung, managing partner at GGV Capital, an early investor in Alibaba. Going “where they're more welcomed makes more sense.” The shares fell 3.3 percent to $185.02 on Wednesday and are up 7.3 percent so  far this year.

Alibaba declined to comment. 

Alibaba’s priority in the U.S. has long been to persuade businesses there to sell to Chinese consumers via its massive online bazaars, rather than chasing U.S. consumers and competing with the likes of Amazon.com Inc. Alibaba looked for American startups that would help it learn about new technologies and trends as well as businesses that would complement its core e-commerce offerings in Asia.

Alibaba took sizable stakes in sports e-commerce retailer Fanatics, gaming company Kabam, messaging app Tango, ride-hailing startup Lyft, e-commerce company Jet.com and Snap. More recently, Alibaba's investments had shifted toward early-stage companies that would help make Alibaba more efficient, including data-storage firms and startups building location-based technology.

Now Alibaba is once again focusing its dealmaking on Asia. To fulfill billionaire co-founder Jack Ma's vision of bringing Chinese supermarkets and department stores into the 21st century, Alibaba has sunk billions of dollars into traditional retail, from buying existing companies to opening cashierless brick-and-mortar stores. To attract new consumers in the fast-growing economies of Southeast Asia, Alibaba invested $4 billion in Singapore-based e-commerce giant Lazada Group and led a $1.1 billion investment round in Tokopedia, an Indonesian online marketplace.

Alibaba isn’t the only Chinese company avoiding the U.S. these days. In the first five months of the year, Chinese acquisitions and investments fell to the lowest level in seven years, a drop of 92 percent, according to Rhodium Group. 

Though it may become increasingly difficult for Alibaba to make big investments in U.S. companies, it’s finding other ways to innovate. The company has pushed into a huge range of businesses from cloud services to entertainment, a vast laboratory to experiment with such emerging technologies as artificial intelligence and quantum computing. Last year, Alibaba said it would spend $15 billion on research and recruiting scientists from the U.S., China, Russia, Israel and Singapore.

©2018 Bloomberg L.P.

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