Hong Kong – Chinese e-commerce giant Alibaba saw its Hong Kong-listed shares drop by 10% on Monday after the company announced it has shelved plans for a multibillion-dollar cloud infrastructure spinoff, citing restrictions on advanced US semiconductor chips.
Alibaba was planning to transfer some of its cloud computing assets into a separate entity called Alibaba Cloud Technologies, and list the shares on the stock exchange in Shanghai. However, the company said in a statement that it will no longer pursue the spinoff due to the “ongoing compliance efforts with applicable laws and regulations”.
This comes amidst tightening US export controls that have severely restricted Chinese companies from obtaining advanced semiconductors designed or produced using US technology. The restrictions are part of the US government’s efforts to limit China’s ability to advance its technology and military capabilities.
Analysts say Alibaba’s cloud business relies heavily on US-origin chips to run its data centers and servers. Without continued access to these advanced components, the growth and competitiveness of Alibaba Cloud would be negatively impacted.
The canceled initial public offering (IPO) highlights the challenges facing Chinese technology firms as geopolitical tensions between the US and China continue to rise. Alibaba’s Hong Kong-listed shares plunged over 10% on Monday following the announcement, wiping out billions of dollars in market value.
Alibaba Cloud is one of the major players in China’s booming cloud infrastructure market, competing with rivals like Tencent Cloud and Huawei Cloud. The company has invested heavily in its cloud division, which it hoped would become a major new source of growth beyond its core e-commerce business.
But with the key IPO now shelved indefinitely, uncertainty remains around the future prospects of Alibaba Cloud in the face of tightening US export controls. Analysts say Chinese firms will need to find ways to reduce their reliance on US technology if they want to maintain strong growth in strategic sectors like cloud computing.
