The Chinese government’s newly launched antitrust probe into Alibaba is probably warranted. The e-commerce giant undoubtedly has a dominant market share and engages in monopolistic practices, such as forcing merchants ^[1] to make the company their exclusive online distributor or be delisted from its platforms. But other Chinese e-commerce companies have the same rule, and there are worse monopolists in China than Alibaba. So, why is Alibaba being targeted?

One of Alibaba’s apparent offences is the expansion of financial services offered by its affiliate, financial-technology giant Ant Group, which owns Alipay. Beyond being the world’s most popular payment app, with 730 million monthly users ^[2], Alipay allows consumers to invest, purchase insurance and secure loans on its platform.

In October, Ant Group was poised to launch a record-setting US$34 billion initial public offering. But the Chinese authorities abruptly halted ^[3] it, in what was portrayed as a prudent attempt to limit the company’s exorbitant market power. The decision to block the IPO reportedly came directly from President Xi Jinping.

Now it appears that Xi’s government wants Ant Group to abandon financial services altogether and to confine itself to payment processing. Chinese regulators have provided a litany of justifications for this decision. But the real reason didn’t make the list. Payment processing is a low-margin business; no state-owned bank bothers with it. Financial services, by contrast, are highly lucrative—and the territory ^[4] of state-owned incumbents.

If the Chinese Communist Party were genuinely committed to breaking up monopolies and oligopolies that are stifling market competition, it would put those incumbents in its sights. After all, state-owned enterprises like China Mobile, China National Petroleum Corporation, the State Grid Corporation of China, and the Industrial and Commercial Bank of China (the world’s largest bank ^[5] by assets) dominate China’s economic landscape to a far greater extent than Alibaba does.

Yet, far from launching anti-monopoly investigations into state-owned enterprises, China’s government has recently been pursuing ^[6] SOE ‘mega-mergers ^[7]’ that boost their market power even further. The reason is simple: when SOEs succeed, the CCP benefits, both economically and politically. As Xi made clear ^[8] last April, the SOEs are ‘important material and political foundations’ for so-called socialism with Chinese characteristics, and he plans to make them ‘stronger, better and bigger’.

Allowing private firms to erode SOEs’ market share would undermine this objective, not only by naturally weakening the regime’s control over critical economic sectors, but also by opening the way for successful private companies to challenge the CCP. And Alibaba—co-founded by Jack Ma, who is one of China’s wealthiest people and hasn’t been seen ^[9] since just before the Ant listing was blocked—is one of the most successful (and innovative) of all. In Xi’s eyes, it thus represents a threat to the CCP’s political monopoly and the regime that represents it.

To be sure, China’s tycoons have made extraordinary efforts to curry favour with or demonstrate their loyalty to the Xi regime. Ma, for one, is a member of the CCP. In 2013, he called ^[10] the 1989 massacre of peaceful demonstrators in Tiananmen Square the ‘correct decision’. But, as the antitrust investigation into Alibaba shows, China’s private-sector elites will never be genuine regime insiders. For the CCP, they are merely temporary custodians of wealth that rightfully belongs to the party.

Ma’s critics might regard the unfolding investigation as comeuppance for his past statements or business practices. But Chinese regulators are unlikely to stop at Alibaba; China’s entire private sector has a target on its back. This has serious implications for China’s future economic prosperity—and for the CCP itself.

For all their flaws, private firms are the most dynamic players in the Chinese economy. If the CCP cracks down on them, while leaving SOEs alone, private-sector confidence will dwindle and the economy will become less productive, innovative and efficient. GDP growth will falter. And the legitimacy of the one-party regime—which has long rested on the promise of prosperity—will deteriorate.

Xi and his colleagues are probably right that, by strengthening the regime’s grip on the economy, reining in the private sector will bolster the CCP’s political security in the short term. But, in the longer term, the biggest casualty of China’s ‘antitrust’ crackdown may well be the one monopoly it is meant to protect: the CCP’s lock on political power.