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(Bloomberg) -- Questions surrounding Alibaba Group Holding Ltd.’s role in China’s largest known cybersecurity breach may fuel Beijing’s resolve to clamp down on domestic tech giants and accelerate a move away from their private cloud services.
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Researchers studying the leaked data of close to a billion Chinese residents earlier this month have noticed hallmarks of Alibaba’s cloud service, including the domain name of the hosting service. This week, executives of the company’s cloud division, known as Aliyun, were summoned by Shanghai authorities in relation to that data dump, the Wall Street Journal reported, citing sources familiar with the matter.
The embarrassing data breach comes as Chinese President Xi Jinping, months away from potentially an unprecedented third term, has stressed the importance of cybersecurity. It has sent a jolt through the Chinese security community, given not only the massive scale of the leak but also because the data in question was managed by Shanghai’s police, who help to collect data on citizens and enforce the country’s increasingly strict cyber laws.
Officials in Shanghai and from the Cyberspace Administration of China have not publicly commented on the high-profile incident, even two weeks after a hacker sought to sell the vast trove of stolen personal info that includes names, phone numbers, addresses, and criminal records. Alibaba declined to comment.
The company’s shares were down as much as 5.8% in Hong Kong on Friday and led a wide swathe of declines among Chinese tech firms operating in related fields. Investors fear the incident will affect Chinese regulations on cloud services going forward, affecting some of the country’s biggest names from Tencent Holdings Ltd. and Baidu Inc. to Huawei Technologies Co.
Read more: Alibaba Leads Drop in China Tech Shares as Regulatory Fears Grow
“Even though the incident was only related to Alibaba Cloud, its impact will likely spill over into other private cloud providers such as Tencent and Baidu,” said Shen Meng, a director at Beijing-based investment bank Chanson & Co. “If Aliyun is indeed found to have flaws in its system, it would deal a heavy blow to the reputation of non-state cloud providers and could even trigger a massive user migration to state-backed cloud systems.”