Jack Ma, 1. China, 0. That seems to be the score in the unusually public
tussle between the Alibaba billionaire and Beijing. Rarely
does a mainland magnate push back when the Communist Party questions its
business practices and ethics, and certainly not in the glare of the global
news media. But Ma is standing his ground, and the government has dialed back
its criticism of Alibaba selling fake goods on its e-commerce site.
This is not a sign that life is generally improving for private business
in China, however.
Abibaba is unique.
Beijing loves a homegrown success story, and there’s none better than Ma’s
fabled rise from schoolteacher to Asia’s richest man. Since pulling off
history’s biggest IPO, Alibaba has become the standard bearer of
President Xi Jinping’s pledge to embrace capitalism, empower
entrepreneurship and level the corporate playing field. Also, Ma is producing
jobs at thousands of small-to-midsize companies and helping to accelerate Xi’s
shift to an economy led by consumer demand. Many countries obsess over
companies that are too big to fail. For China, Ma is betting Alibaba is too
important to hassle.
Yet there are many
reasons why his juggernaut faces a difficult few years ahead. Here are the two
most immediate challenges.
One, political risk is
rising. True, this confrontation had a happy ending for Alibaba. What no
one knows, however, is whether the company’s troubles are a dispute with one
agency, the State Administration for Industry and Commerce, or a broader quarrel
with the Chinese government. If it’s the latter, Ma and his investors
haven’t heard the last from China’s opaque and
unpredictable regulatory system. Alibaba’s predicament is emblematic of
how, for all Xi’s promises to the contrary, political risk for businesses in
China is increasing.
Alibaba operates at
the pleasure of Xi’s Communist Party, a secretive body that can turn on any
corporate titan for any reason at any moment. Consider the irony of China going
after Microsoft and chipmaker Qualcomm for alleged monopolistic practices,
while enabling Ma to corner virtually every online market. One misstep or
slight toward a Communist Party bigwig and Alibaba could easily face its
own anti-monopoly case.
Ma’s push into online
banking also could put him at odds with party leaders looking to protect the
turf of state-owned banks. Investors won’t know until it’s too late whether
Alibaba’s rival Tencent, which runs the ubiquitous WeChat instant messaging
service, will suddenly have more friends than Ma in Beijing.
The second big risk is
China’s economy. News today that manufacturing contracted for the first
time in more than two years has markets crying out for more stimulus. Even
after the government’s recent $1.1 trillion spending package, investors worry Beijing
isn’t doing enough to keep growth at about 7 percent (it grew 7.4 percent in
2014). The Purchasing Managers’ Index falling below 49.8 in January from 50.1
in December is sure to add to pressure for Xi and China’s central bank to do
more.
The weakest
industrial-output growth since the 2008 global crisis is a clear and present
danger to Alibaba’s performance in its first few years as a public company. If
you think Alibaba’s revenue miss in the third quarter (it came in at
$4.2 billion) disappointed global investors, just wait until growth slows to 6
percent or even less. Alibaba’s promise has always been one-stop shopping for
those looking to ride the emergence of China’s middle class (it has more than
500 million subscribers already). For investors around the globe, it’s a way to
harness the meteoric growth in Chinese industries from retail to banking to
travel to entertainment. But Alibaba’s September IPO came at the top of
China’s economic boom. Around that same time, data on trade, oil and retail
sales began to weaken appreciably.
Aside from weathering
difficult global economics — including deflation in Europe — Xi is trying to
clamp down on excessive investment and credit in ways that will hit Ma’s
profits. China’s economic uncertainty and its unpredictable regulators make it
hard to keep score on where China’s splashiest company is headed.
William Pesek is a
Bloomberg View columnist based in Tokyo and writes on economics, markets and
politics throughout the Asia-Pacific region.
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