Alibaba/Tencent: information insurrection

The more information Alibaba and Tencent surrender to the state, the less justification foreign investors have for regarding them as independent businesses. Photo / Getty Images

Lex COMMENT

"Mustn't pry" is not a phrase much uttered by Chinese officials. They want to add credit histories to their copious data on Chinese citizens. The real surprise is the refusal of Tencent and Alibaba to help.

For investors, it is just another political complication to a previously clean proposition: two enterprising tech companies exploiting the fast growth of the world's largest nation.

The People's Bank of China launched credit scoring agency Baihang last year with grand plans to overtake Tencent's and Alibaba's platforms. Its aim was to rank 460 million Chinese who lack formal credit histories. The games leader and the ecommerce group have declined to share loans data. The bank has little to show for its investment.

The rebellious response is remarkably out of character. Alibaba is helping build an Orwellian social credit system. This uses Big Data to rank how obedient and well-behaved citizens are. The government already has Tencent on the choke chain as represented by Beijing's approvals system for new computer games.

The resistance of Tencent and Alibaba reflects heavy investment in their own credit scoring systems. The PBoC shut these down by revoking their licences last year.

US data barons dream wistfully of the irresistible sales pitches they could make if they could trawl freely through customers' credit scores, transaction records, social media posts and browsing histories. That prize is within the grasp of Alibaba and Tencent in China.

The WeChat app even gives Tencent facial recognition data. Alibaba has strengthened its position with acquisitions, including Berlin-based Data Artisans and a stake in AI company SenseTime.

The battle with the PBoC is not one Alibaba and Tencent can win. Building a US$1 trillion ($1.5t) AI industry is a key front in China's tech war with the west. The value of data are multiplied by aggregation.

The more information Alibaba and Tencent surrender to the state, the less justification foreign investors have for regarding them as independent businesses. This poses two problems.

First, the prospects of the companies outside China would be damaged if the US classes them as a security threat.

Second, owning the shares — directly, or via intermediaries like SoftBank, Prosus or Naspers — will raise ethical objections. The volatile shares trade at over 25 times forward earnings. They are well below all-time highs and risk becoming politicised.

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