Online sales resilient E-commerce giant Alibaba Group is reviewing its next moves after China’s regulators halted the public listing of affiliate Ant Group this week, a setback that cast a shadow on the company’s strong financial results in the quarter ended September 30, wrote Jane Zhang and Minghe Hu. “As Ant Group’s major shareholder, Alibaba is actively evaluating the impact on our business and our response to the recent proposed change in the fintech regulatory environment,” said Daniel Zhang Yong, chairman and chief executive of Alibaba. Hangzhou-based Ant Group, operator of Alipay, was projected to raise up to US$39.7 billion in the world’s largest IPO in Shanghai and Hong Kong, which was scheduled on Thursday. A meeting earlier this week between Ant Group’s senior executives and China’s top financial regulators led to a “significant change” to the company’s business environment, which may result in the firm not fulfilling the listing requirements or disclosure rules, according to its statement to the two bourses. Alibaba reported revenue of 155.1 billion yuan (US$22.8 billion) in its financial second quarter, up from 119 billion yuan a year ago, which was slightly ahead of the 154.8 billion yuan consensus from a Bloomberg survey of analysts’ estimates. What’s next for Ant Group after regulators put its IPO on ice? The revenue gain was made on the back of strong growth from Alibaba’s core commerce operations, led by Tmall and Taobao Marketplace, as well its cloud computing business. Net income was down 60 per cent to 28.8 billion yuan in the same quarter, from 72.5 billion yuan a year ago, when Alibaba booked a significant one-time gain upon receipt of a 33 per cent equity interest in Ant Group. Its net income was ahead of analysts’ consensus estimate of 25 billion yuan. As China’s largest e-commerce company, Alibaba’s financial results are seen as a bellwether of consumer spending in the world’s most populous country and an important barometer of its economic health. The growth in consumer spending augurs well for the company during the world’s largest shopping festival in China. Alibaba, parent company of the SCMP, has extended the campaign period for its annual Singles’ Day shopping festival. A new sales window was added from November 1 to 3, ahead of the main event on November 11, to provide more opportunity for new brands and small businesses, according to Alibaba. 5G struggling In a two-part series this week, reporters Iris Deng, Celia Chen and Che Pan looked at how China’s 5G push is outpacing reality for both consumers and industrial users. A survey by iiMedia Research showed that three in four non-5G users in China did not feel a need to buy a 5G phone. Zeng Ke, a financial professional in Shenzhen, said he refused to pay extra to upgrade to a 5G data plan. “I feel like the carriers are transferring the high cost of building out 5G to average users like me,” said 36-old Zeng, who said he had faced an aggressive sales pitch from his carrier. This consumer lethargy comes after China has sought to lead in the new network technology, seeing it as a key pillar in its efforts to battle the US for economic leadership, along with other emerging technologies like AI. But the problem right now is not the technology per se – it is that the country needs to achieve greater network coverage to enable consumers to reap the full benefits of 5G. China has already achieved its goal for 2020 of building 500,000 new 5G base stations three months ahead of schedule, according to the Ministry of Industry and Information Technology (MIIT) last month. By mid-October, China had 160 million devices connected to 5G networks, according to MIIT. An impressive achievement but this is still only a fraction compared with China’s huge base of 1.2 billion 4G users. Fixing this is going to take billions more yuan of investment by carriers, and there will not be any killer apps and must-have consumer services until the coverage issue is improved. Given this level of upfront investment, it is no wonder carriers are on the front foot with sales, but that has not made a good impression with many loyal customers. Some local operators have even forced their users to upgrade by cancelling existing 4G packages, leading to complaints. It’s a similar story with industrial-facing applications for 5G. “Currently, there just aren’t that many use cases in industries,” said EY consultant Paul Cheung, although he believes 5G could be a promising technology for industries in the future. Allen Wu, co-founder of AR glasses company HiAR, said: “We don’t want to rush into mass production of new 5G products because the ecosystem remains immature. Large-scale 5G adoption in control of manufacturing equipment has yet to become a reality.” Tighter tech controls Tighter US export controls on emerging technologies will prove a new barrier to China’s goal of catching up to the west in advanced chip making and a Biden Administration would be unlikely to roll them back, according to analysts interviewed by Coco Feng and Masha Borak . In October the US Department of Commerce designated six emerging technologies as controlled export items deemed “essential to US national security.” They include two key technologies in chip making: computational lithography software used in EUV applications and 5-nanometre wafer production. The move extends controls over dual-use products and technologies under the Wassenaar Arrangement, a multilateral export control regime involving 42 countries. If elected, a Biden Administration would be unlikely to immediately lift Trump’s export controls because Democrats broadly supported the augmentation of the measures two years ago, said Jonathan Wood, analyst at risk consultancy Control Risks. Although the Wassenaar Arrangement is voluntary, participating countries “have the opportunity to implement those controls on a local basis,” said Melissa Duffy, a Washington-based partner at law firm Dechert. The latest US move does not target China specifically but it could further hamper China’s efforts to catch up in semiconductor manufacturing. The new items include “computational lithography software designed for the fabrication of extreme ultraviolet (EUV) masks”, a technology critical to achieve the advanced 7-nanometre node in chip making. “China’s self-developed lithography software can only support process nodes of 80 or 90 nm,” according to Taiwan-based semiconductor industry research firm Isaiah Research. China’s most advanced foundry, SMIC, can produce chips at the 14nm node using equipment from US suppliers but the company’s expectation of achieving 10nm this year may not be realised, according to Isaiah. “We don’t think China is capable of crossing the hurdles in a short term,” the research firm said.