Tencent And Baidu Challenge Alibaba In Retail And Financial Services

Shares of Alibaba (NYSE:BABA) gained more than 2.5% in morning trading Wednesday, despite news that the company will face fresh competition from its Chinese rivals in two key businesses: retail and financial services.

The first headline to emerge this week concerned Tencent’s (OTC:TCEHY) plans to expand its brick-and-mortar shopping operations through a stake in Carrefour’s China unit. Along with local retailer Yonghui Superstores, Tencent recently signed a term sheet for an undisclosed stake in Carrefour (PA:CARR) China, the French retailer revealed on Tuesday.

Carrefour currently operates about 200 of its so-called “hypermarkets”—large retail facilities with both grocery and department store features—in China, but its share of the market has slipped as shoppers continue to move online.

Tencent’s partnership with Yonghui would allow the social media and mobile gaming giant to pair its technology with the domestic retailer’s shopping expertise in order to improve Carrefour’s mobile payments and data analysis. Tencent previously signaled its intention to enter the Chinese retail market with its $638 million investment in Yonghui.

For Alibaba, Tencent’s investments in the brick-and-mortar industry mean tougher competition in a market that it is still fighting to control. Last year, the e-commerce behemoth partnered up with both Sun Art Retail Group and Auchan Retail in an effort to stake its claim on what is a $4 trillion sector in China.

Alibaba has also launched HeMa, its own chain of grocery stores that focus on fresh food and double as fulfillment centers.

“The e-commerce penetration ratio in China is quite high, but the offline retail market is much larger and they want to capture that,” Cantor Fitzgerald analyst Naoshi Nema said, via Bloomberg. “They also want to connect traditional commerce with technology.”

Both Alibaba and Tencent view brick-and-mortar retail not only as a large potential new revenue stream, but also as a means to spread their other projects. Tencent wants more retailers to implement its WeChat-branded mobile payments system, while Alibaba could benefit from learning more about the shopping tendencies of its core customer base.

And as if new competition on the retail front was not enough for Alibaba, Jack Ma’s company is also gearing up to take on a fresh foe on the financial services side of things.

According to a new report from CNBC, sources with knowledge of the company say that Chinese internet search giant Baidu (NASDAQ:BIDU) is in the process of recruiting investors for its wholly-owned finance unit. The firm apparently wants investors to either buy some of its existing shares in Baidu Financial Services Group (FSG), or buy new stakes in the unit—which is currently valued at about $2.8 billion.

Baidu FSG operates Baidu Wallet, a digital wealth management platform and online credit service. An expansion of this unit would be a direct blow to Alibaba affiliate Ant Financial, which operates the Alipay mobile payments service and offers wealth management and insurance products. Ant Financial is currently sporting a $60 billion valuation.

Baidu FSG reportedly plans to use its new cash to invest in Chinese financial institutions, including some trust firms. The funding round comes amid a large strategic shift that has seen Baidu focus on several projects outside of its traditional search engine business.

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