The report followed an incident in April on China's Twitter-like platform Weibo. Speculation that an Alibaba executive was having an affair had sparked a torrent of posts, but in less than an hour some users started complaining their posts were being deleted -- a practice common for politically sensitive posts but unusual for celebrity gossip.

The internet watchdog said Alibaba had directed the actions of Weibo, in which Alibaba holds about 30% stake, and that it had been told to stop influencing the media, according to the people who saw the report.

The incident further riled authorities and rivals who believe Alibaba is using its stakes in social-media and media firms and its public-relations department to lobby against government policies that affect its business. The Cyberspace Administration of China didn't respond to requests for comment.

Softer Approach

Despite the government's anger at Alibaba's tactics, Beijing doesn't want to cripple the company, according to people familiar with regulators' thinking. With more than 110,000 employees, Alibaba features a fast-expanding artificial-intelligence business and is a leading Chinese provider of cloud storage -- sectors seen as key to China's future.

When regulators opened their antimonopoly probe of Alibaba, investigators told the company to ensure that the business kept running while the investigation was going on, according to people familiar with the instructions, because any break in service could affect Alibaba users around the world.

One sign of a measure of leniency toward Alibaba came earlier this year, before the company's sale of $5 billion worth of bonds. Investors were worried that Mr. Ma had disappeared from public view after his October speech criticizing government regulatory efforts. Beijing wanted to reassure international investors that he was safe and sound, according to some officials.

In late January, Mr. Ma resurfaced in a video published online by Tianmu News, a subsidiary of the Zhejiang provincial government's newspaper. He was shown speaking to rural teachers as part of a philanthropy event.

Alibaba successfully sold its bonds in early February. Part of the proceeds, the company said, would be used for projects involving "green buildings, Covid-19 crisis response, renewable energy" -- all government priorities.

It also helps that Mr. Ma has gradually reduced his stakes in Alibaba, holding less than 5% as of July. He retired as Alibaba's chairman in 2019, though he has maintained significant sway over the firm. He remains the controlling shareholder in Ant.

Alibaba still faces challenges. A data-security law could force it to feed consumer data to the central government. Tighter reins on Ant's lending business would hurt Alibaba, too, as many customers make purchases with loans from Ant.

Alibaba has lobbied legislators in an effort to avoid divestitures, according to people with direct knowledge of the matter. Sales of noncore businesses would be easier to absorb for the company than anything in its core e-commerce operations.

On March 1, Study Times, a newspaper published by the elite Central Party School, published an interview with a former senior Zhejiang official, who attributed Alibaba's success partly to Mr. Xi, who promoted information technology when he ran Zhejiang from 2002 to 2007, during Alibaba's early days.

It is rare that a publication so close to the party's center mentions a private-sector company at all, and to do so in direct connection to Mr. Xi suggested the company still matters to the leadership. There was no mention of Mr. Ma in the article.

Alibaba recently received a government certificate recognizing it as a "model" for Mr. Xi's initiative to root out poverty, which Alibaba swiftly posted on its social-media account. Meanwhile, Mr. Ma was left off a list of business leaders compiled by government-controlled Shanghai Securities News.

The message was clear: Follow the party, not the man who founded the company.

Write to Keith Zhai at keith.zhai@wsj.com and Lingling Wei at lingling.wei@wsj.com

(END) Dow Jones Newswires

03-11-21 1027ET