Alibaba ADRs tumbled 4.4 % in premarket trade on Tuesday, following a major newswire story that the Biden administration is looking into Alibaba's Cloud business for posing a national security concern.
According to the newswire, the investigation is focused on how the company stores U.S. clients' data, including personal information and intellectual property, and if the Chinese government could acquire access to it. The possibility of Beijing interfering with U.S. users' access to information kept on Alibaba Cloud is also a concern, according to the article.
Alibaba's U.S. Cloud business revenue is estimated to be less than $50 million by Gartner, but the operation has drawn increased attention from the Chinese internet behemoth due to its potential. Alibaba's Cloud division generated $9.2 billion in sales in 2020, accounting for only 8% of total revenue but rising at 50%. It competes in the Cloud-hosting industry in the United States with Amazon, Microsoft, Alphabet, and others.
Alibaba raised worries about its U.S. operations in its annual report for 2021. It warned that "U.S. entities and individuals with whom we have existing contractual or other relationships may be prohibited from continuing to do business with us, including performing their obligations under agreements involving our supply chain, logistics, software development, Cloud services, and other products and services."
For several years, relations between the world's two greatest economies have been strained. China, on the other hand, has intensified its own scrutiny of data handling procedures of its internet giants, wary of the restrictions that its listed businesses must follow to comply with the SEC and other US regulators.