An article in The New York Times has drawn unwanted attention to the Alibaba Group and the “deep political connections” of some of its Chinese investors, shortly before the giant e-commerce goes public in the United States. The company filed for an IPO on 6 May, disclosing the owners of approximately 70 percent of its shares, among them Yahoo and Alibaba’s chairman, Jack Ma.
But less is known about other shareholders, whose sway may be significant even if their stakes are not. The situation raises questions about the transparency and operations of Alibaba, which is set to go public in the United States in the coming months.
The Times revealed that a handful of investment firms that hold shares in Alibaba are closely linked to high-level government officials, and several companies that invested in 2012 are State-owned.
Such connections matter. They help secure deals, potentially giving companies an advantage in a highly competitive business environment.
But how much do these connections really matter? Shortly after the article was published, ChinaFile invited some of its contributors to discuss the issue, and published the conversation. Below are excerpts from contributors’ responses.
The scions of China’s Party elite, (the guan er dai) and the children of China’s wealthiest citizens (the fu er dai) are collectively both envied and reviled in China. If members of those circles are among those who profit most from Alibaba’s IPO, it will appear to an increasingly jaded Chinese public that the company has relied on its connections to a far greater degree than it acknowledges (…)
But does it matter? Even if the worst happens—even if Wall Street and the Chinese people believe that Alibaba succeeded because of its connections—the juggernaut is unlikely to be slowed. Taobao and Alipay have market positions akin to public utilities in China, key parts of the life infrastructure of two generations of Chinese people. Investors, rather than be deterred by the prospect of strong government support, will be encouraged by it. The only thing that could impede Alibaba now would be for the Xi administration to cast its anti-corruption beacon on the company and its investors.
Duncan Clark responds:
The article spends a lot of time looking at the “quid” but in my opinion fails to make a case of any “pro quo.”
First the “quid”: the September 2012 transaction that saw existing significant shareholder Yahoo sell down half of its (then) $7.6 billion stake in Alibaba Group to purchasers including what the Times highlights as “notably China’s sovereign wealth fund and three prominent Chinese investment firms.”
The Times faults Alibaba for not detailing “the deep political connections of the investment firms.” Yet the “princeling” credentials of the firms were widely known at the time, and the firms’ names detailed in the press release.
So much for the “quid”: three politically connected companies joined an investment round in Alibaba in 2012 led by China’s sovereign wealth fund CIC. They each hold small stakes, ranging from 0.47% to 1.1% of the common equity of Alibaba Group as detailed by the company in a Weibo post last week. They and other investors in that round are poised to reap large returns in the coming IPO.
What about the “pro quo”? The Times article asserts that for these shareholders their “sway may be significant even if their stakes are not.” So is Alibaba benefiting in turn, other than from their support of the September 2012 financing, from allowing these firms to join the ranks of their shareholders? Here the article fails to connect the dots.
Perhaps David Wolf hit the nail on the head:
It is, after all, far more comforting to ascribe the extraordinary success of others to special privilege than it is to think that they were faster, smarter, and better than we.