The founder of China's second-biggest e-commerce site, JD.com (JD) and HK:9618, is handing over the day-to-day running of the company. He joins an exodus of high-profile entrepreneur billionaires who have come under pressure as Chinese President Xi Jinping pushes "common prosperity."
Richard Liu is resigning as CEO at JD.com, a move the company says is effective immediately, and handing the reins to Lei Xu, who has spent a decade at the company heading marketing and various subsidiaries, including its largest operating unit, JD Retail, which covers e-commerce and physical sales.
Founder Liu will remain as chairman of the company but will focus on long-term strategy and mentoring in management. In an increasingly common nod to the social programs that for-profit listed Chinese companies are expected to support in China, the company says Liu will also be "contributing to the revitalization of rural areas."
He joins the figureheads of e-commerce top dog Alibaba Group Holding (BABA) and HK:9988, TikTok owner ByteDance, group-buying site Pinduoduo (PDD) , and short-video app Kuaishou Technology (KSHTY) and HK:1024 in stepping down or back from their companies.
JD.com shares were down as much as 3.9% during trade today in Hong Kong, although they rallied right before the close to finish down 2.1%. The Hang Seng Tech Index fell 1.2%. Investors are responding both to the leadership news and to the hit to the economy from a widening lockdown in China.
Shanghai, the largest city, has extended a stay-at-home order to cover all 26 million residents, who are growing increasingly vocal about their anger over the situation. Nomura estimates 23 cities covering 22.0% of China's GDP are in partial or full lockdown, "but these figures could significantly underestimate the full impact, as many other cities have been mass testing, and mobility has been significantly restricted in most parts of China."
Liu started JD's precursor, Jingdong Century Trading, in 1998 to sell magnetic recording tape out of a tiny shopfront in Beijing. It morphed into a chain of electronics stores, then started selling online in 2004, partly in response to the SARS outbreak in China.
Whereas Chinese Big Tech billionaires used to appear on magazine covers and meet with world leaders, they're now keeping quiet profiles. That's after Chinese President Xi Jinping promised, as I explained last August, to "adjust excessive incomes," redistribute wealth, and "encourage high-income groups and enterprises to return more to society."
JD.com was one of 13 Chinese Big Tech companies summoned for showdown talks a year ago with Chinese regulators, as I outlined in April 2021, who told tech names to cut out monopolistic behavior and rein in the amount of credit they issue to consumers. The pressure from Shanghai and Beijing has caused a deep descent in Big Tech shares.
JD.com was the first major Chinese e-commerce company to list in the United States when it went public on Nasdaq in May 2014. Liu took the honors, and rang the opening bell. It has gone on to list its warehouse-and-delivery business JD Logistics HK:2618 as well as its online health clinic and drug delivery spinoff JD Health International HK:6618, both in Hong Kong.
Chief rival Alibaba joined JD.com on Wall Street in September 2014, with an IPO that at US$21.8 billion remains the biggest-ever in the United States. Just as Alibaba figurehead, co-founder and lightning rod Jack Ma has stepped down from the executive management team at Alibaba, Liu will now depart the daily operations of JD.com.
Xu, the company's new CEO, is also joining the board as an executive director. Liu, however, still controls the company through its unequal voting rights for its shares. He controlled 76.9% of the voting power at JD.com as of the April 2021 annual report, despite holding just 13.9% of the shares.
It is hard to imagine JD.com now boasting, as this profile does, that Richard Liu "has amassed meteoric wealth and success," and indicating he is "often characterized with the same prominence of Amazon's enigmatic founder and billionaire, Jeff Bezos." Liu is currently worth US$10.5 billion, according to Forbes.
Liu, whose original name is Liu Qiangdong, began reducing his public engagements in 2018 after he was arrested and accused of rape by a Chinese student at the University of Minnesota. Prosecutors dropped the case, and said they had not found enough evidence to charge Liu, who denied the accusation.
At JD.com, Liu began preparing for this week's move last September, when he said he would start focusing on long-term strategy, and named Xu to a newly created position of president.
He steps back from an established giant. Tencent (TCTZF) , an early backer of JD.com, said in December that it will distribute the vast majority (86.4%, to be exact) of its holding in JD to its shareholders, selling the shares and paying them a special cash dividend. That stake was worth US$16.4 billion when Tencent made that call.
As I outlined, Tencent said its initial intention was to invest in companies when they were in their early development, a point that has clearly passed with JD.com. Equally, though, one focus of Beijing's ire has been the practice among companies such as Tencent and Alibaba of forming corporate "stables" of companies with cross-ownership stakes that reduce their incentive to compete.
The initial response to the Wuhan outbreak of Covid-19 was very good news for Chinese e-commerce companies, which benefitted from a rush to stock up online. But with China currently facing far higher levels of infection in multiple locations, warehouses have had to temporarily shut down, and last-mile delivery has been very hard to complete.
China is reporting 24,224 new Covid cases today, a figure that began escalating dramatically in mid-March, and has even tripled since the start of April. It's been three consecutive days of 20,000+ new infections in China, where the authorities track asymptomatic positive Covid cases but only count people with Covid symptoms as "confirmed."
After peaking in February 2021, Chinese tech stocks have had a terrible time. Beijing's assault on the sector compounded existing U.S.-China tensions, mounting pressure over accounting for Chinese stocks listed on Wall Street, and the stop-start recovery due to China's "zero-Covid" stance.
JD.com shares, at US$57.10 as of Thursday's close, are just over half their February 2021 peak of US$108. A lot of that pessimism stemmed from calls that Chinese shares were "uninvestable" for U.S. investors.
Those fears are easing thanks to concessions Chinese regulators say they're willing to make, as I outlined on Monday. Allowing access to Chinese audits would allow Chinese shares to continue listing on U.S. markets. As a result, after plumbing a depth of US$41.56 in mid-March, JD.com has rallied sharply, albeit to its levels of 2020.
JD.com is not alone in those movements. Alibaba shares are down 52.4% over the course of the last year, and Pinduoduo has surrendered 69.8%, with a focus on serving smaller Chinese cities now at risk of lockdown. JD Logistics is off 58.2% since listing, and JD Health is down 53.0% in the last year.
All have rallied since Chinese regulators indicated they are stepping in to support not only the economy but also equity markets. A noteworthy speech from Vice-Premier Liu He caused the mid-March surge, explicitly saying Chinese regulators are very concerned about recent selloffs. But implicitly, the speech suggests that the most Maoist tendencies of Xi's social campaigns are being tempered by bureaucrats and economists. They may wrest control of the levers of the economy while Xi focuses on politics, and campaigning to get re-elected for a third five-year term at a key meeting this fall.
While China handled the Wuhan outbreak comprehensively through a citywide shutdown, and life had returned to normal across most of China in 2021, the arrival of the Omicron variant is testing China's disease response once again. The increased transmissibility coupled with lower rates of hospitalization and death have encouraged many countries to accept "living with Covid."
That's a step Chinese Communist Party officials have so far refused to take. Having declared victory over the virus, admitting now that harsh lockdowns are not effective would undermine the story widely sold that the Chinese response to Covid-19 has been necessary, and superior to the initial chaotic health-care response in the West.
