Alibaba’s Strategic Pause Amidst the US-China Chip War

Leah Cooper on November 27, 2023

In a surprising twist of events, Alibaba, the tech giant founded by billionaire Jack Ma, has decided to halt its plans to spin off its cloud computing arm. This strategic decision is rooted in the recent tightening of US controls on chip exports to China, introducing uncertainties that cast shadows on the future of Alibaba’s Cloud Intelligence Group.

US Controls Cast Shadows on Alibaba’s Cloud Prospects:

Alibaba’s official statement released on Thursday highlights the potential material and adverse effects of the new US restrictions on the Cloud Intelligence Group. These restrictions not only jeopardize the division’s ability to operate profitably but also raise doubts about the value of a separate listing for shareholders. The market’s response was swift, resulting in a nearly 10% drop in Alibaba’s US-listed shares.

Focus on Sustainable Growth Model Amid Fluid Circumstances:

In response to the challenges posed by the escalating chip war, Alibaba expresses a steadfast commitment to developing a sustainable growth model for the Cloud Intelligence Group under the fluid circumstances. The company acknowledges that these restrictions may have broader implications, limiting their ability to upgrade technological capabilities across their various businesses.

The Escalating Chip War Between the US and China:

Alibaba’s strategic rethink is a consequence of the ongoing chip war between the United States and China. This year-long feud revolves around China’s access to advanced semiconductors, crucial materials, and equipment necessary for various products, from smartphones to electric vehicles. The evolving dynamics of this geopolitical tension have forced Alibaba to reconsider its earlier commitment to spinning off its cloud unit.

Impact of US-China Relations on Export Controls:

Last month, the US government intensified export controls, effectively reducing the range of semiconductors that American companies can sell to China. These measures, described by Chinese President Xi Jinping as “technological containment,” were addressed during talks with US President Joe Biden. The two leaders aimed to put their often rocky relationship on steadier ground, and this development directly influences Alibaba’s strategic decision-making.

Friendlier Relations Amidst Economic Challenges:

While facing economic challenges such as a property crisis and weak consumer spending, China and the US displayed friendlier relations during recent talks. President Xi emphasized the need to build bridges for people-to-people exchanges, fostering collaboration instead of engaging in a zero-sum game. This context adds a layer of complexity to Alibaba’s strategic considerations, as geopolitical dynamics intertwine with economic uncertainties.

Alibaba’s Ongoing Overhaul and IPO Plans:

Beyond the cloud spin-off, Alibaba is currently undergoing a historic overhaul. The initial plan aimed to create six separate units, each overseen by its own CEO and board. Besides pausing the spin-off of its cloud unit, Alibaba is also evaluating market conditions for listing its supermarket chain, Freshippo. However, plans for an IPO of its logistics arm, Cainiao, in Hong Kong remain on track, with no specified date provided.

Financial Snapshot:

Alibaba’s financial results for the June-to-September quarter showcase resilience, with revenues climbing 9% year-on-year to 224.8 billion renminbi ($31 billion). The net profit reached 26.7 billion renminbi ($3.7 billion), a significant turnaround from a previous net loss, driven by the increased value of the group’s equity investments.

Takeaway:

Alibaba’s decision to reevaluate its cloud spin-off amidst the complex landscape of the US-China chip war reflects the uncertainties and challenges faced by global tech giants. Navigating these complexities while pursuing a sustainable growth model remains a priority for the company, requiring a delicate balance between global geopolitics, economic considerations, and strategic foresight.

Minimum wage to go from $7 to $15 this year

Claire Peterson on January 2, 2023

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Minimum wage: News of an increase in the minimum wage for workers was announced at the start of the year.

Because the federal minimum wage has stood at $7.25 an hour since 2009, workers in more than half of the states have advocated higher pay.

Several states and cities already have set their own minimum wage rates, but most plan to implement them in 2023.

The news

Higher minimum salaries for this year have been declared in 26 states.

The US payroll specialists at Wolters Kluwer Legal & Regulatory said that one more state would join the update in July.

According to the Economics Policy Institute, 23 states, including Washington, DC, began implementing the higher compensation on January 1.

As a result, eight million workers will be impacted.

There will be wage increases ranging from 23 cents to $1.50.

States implementing the minimum wage increase

Delaware: $10.50 – $11.75
Illinois: $12 – $13
Maryland: $12.50 – $13.25
Massachusetts: $14.25 – $15
Michigan: $9.87 – $10.10
Missouri: $11.15 – $12
Nebraska: $9 – $10.50
New Jersey: $13 – $14.13 (includes inflation adjustment)
New York: $13.20 – $15 (in and around the city), $14.20 (upstate New York)
Rhode Island: $12.25 – $13
Virginia: $11 – $12

States that will implement the increase later this year

Connecticut: $14 – $15 (July 1 implementation)
Florida: $11 – $12 (September)
Nevada: $9.50 – $10.25 (firms with benefits), $10.50 – $11.25 (firms without benefits)
Oregon: $13.50 (July 1 implementation)

Catalysts

Inflation hit a 40-year high, and people were having difficulty keeping up with rising costs, so last summer, a critical choice was made.

Sebastian Martinez Hickey of EPI said:

“The fact that there’s high inflation really just underscores how necessary these minimum wage increases are for workers.”

“Even before the pandemic, there was no country in the United States where you could affordably live as a single adult at $15 an hour.”

The pandemic and the economic recovery made the wealth divide in America painfully clear.

Over the past two years, significant employers’ initiatives to raise the minimum wage have been sparked by poor working conditions and low salaries.

Additionally, the pandemic contributed to a prolonged gap between the supply and demand for labor.

Labor

Due to a personnel shortage that affected employers during the majority of the year, the average annual hourly salary increased.

Even when workers in competitive industries learned their new pay was higher than inflation, skyrocketing inflation exceeded most compensation.

Californian economics professor Michael Reich said:

“The story is different because wages have been increasing at the low-end, much faster than inflation and much faster than in middle- or high-wage jobs.”

“And that means that many workers, even in the $7.25 states, are already getting paid above the minimum wage.”

“Even though the minimum wage might go up by 7% in many states and cities, labor costs aren’t going to go up anywhere as much as they have in the past,” Reich added.

“Because they have already gone up. That also means that prices aren’t going to go up at [places like] restaurants.”

Impact

Joe Biden, the US president, launched initiatives to boost the federal minimum wage to $15 per hour.

In 2022, he signed an executive order raising the salaries of contractors and employees of the federal government to that amount.

However, Congress would need to approve any significant changes before they could occur in the country.

Although a fee increase was suggested, it wasn’t included in the legislation for the 2021 Covid-19 relief.

Kevin Werner of the Urban Institute, contends:

“As the gap between that and the federal minimum wage increases, it will be interesting to see if that can kind of spur more momentum for more states to increase their wages or try to get more momentum on the federal level.”

According to a September report from the Urban Institute, the $15 per hour pay adjustment would have an inﬂuence on 56 million workers.

As a result of the new minimum wage, the study simulated two scenarios in which no jobs were lost and two scenarios in which job losses were more remarkable.

“Even in our highest job loss scenario, we still found that on average, the average worker was better off, and that poverty declined overall,” said Werner.

“Even though some individual people who lost their jobs may have been worse off, the net effect was still positive.”

Workers

According to Kevin Werner, the bulk of laborers who would be impacted by the $15 minimum wage are older than 25.

The likelihood of relying on the minimum wage is higher for people of color and those living in poverty.

Werner made the point that raising the federal minimum wage would help those in need.

The CEO of Business for a Fair Minimum Wage, Holly Sklar, maintains that raising the minimum wage can also increase consumer demand.

As a result, the local economy will be able to recover.

“Putting needed raises in minimum wage workers’ pockets [is] really the most efficient way you can boost the economy,” said Sklar.

“Those are the people who have to go right back around and spend it.”

References:

These states are raising their minimum wages in 2023. Chart shows where workers can expect higher pay

New Year’s pay boost: these states are raising their minimum wage

Student loan blocked by Republicans

Leah Cooper on November 28, 2022

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Student loan debt is a problem many American citizens face, but President Joe Biden has offered a policy of forgiveness.

However, a group of Republican-led states argued on Wednesday that the policy should be put on hold while related lawsuits unfold.

Additionally, they noted that the Biden administration had extended the pause in student loan repayments.

The argument

Republican states received an appeals court order blocking the implementation of the program.

They said the extension showed the court order in place would do no harm.

In a new filing, Republicans wrote:

“The Department [of Education] can point to no emergency or imminent harm because, just yesterday, the agency extended the payment pause on student loans until the summer of 2023.”

Payments pause

Federal student loan payments were due to resume in January after a year-long pandemic hiatus.

On Tuesday, however, the Biden administration said the hiatus would extend to 60 days.

The extension will take place when the pending litigation of the forgiveness program is resolved.

If the program is not implemented and the dispute is not resolved by June 30, payments will resume after 60 days.

The filing

Wednesday’s filing comes in response to a request from the Biden administration asking the Supreme Court to lift the hold on the student loan forgiveness program.

The program would cancel up to $20,000 of credit to individual borrowers who earned less than $125,000 in 2020 and 2021.

Republican states also blamed the government’s reliance on the pandemic as an excuse to obscure Biden’s goal of fulfilling his campaign promise to pay off student loan debt.

Biden’s student loan policy was going to go in effect this fall.

However, the United States Court of Appeals for the 8th Circuit blocked it in a lawsuit raised by the following:

Nebraska
Missouri
Arkansas
Iowa
Kansas
South Carolina

Ruling

The Circuit alleges that Miguel Cardona, Secretary of the Department of Education, overstepped his authority.

Cardona canceled individual debts while implementing the program.

They also allege that the department violated administrative law by launching the policy.

Additionally, the states point to a Texas federal judge’s ruling in a separate case that overturned student loan policies.

The administration, in turn, filed an appeal with the US 5th Circuit Court of Appeals.

According to Wednesday’s filing, the ruling will remain even if the Supreme Court decides to lift the suspension.

Meanwhile, the Biden administration suggests bringing the case to the Supreme Court if the 5th Circuit allows the verdict to be overturned.

The student loan program

US Solicitor General Elizabeth Prelogar argued in the Supreme Court petition that suspending the program would leave millions of economically vulnerable borrowers in limbo.

Additionally, people won’t know how much they owe and may be unable to make financial decisions without knowing their future repayment obligations.

Prelogar also explained that the program is a legal effort to ensure borrowers affected by a national emergency are not worse off with their student loans.

Reference:

GOP-led states press Supreme Court to keep Biden student debt forgiveness on hold