tag:theconversation.com,2011:/uk/topics/jack-ma-10294/articlesJack Ma – The Conversation2024-03-26T16:34:29Ztag:theconversation.com,2011:article/2265562024-03-26T16:34:29Z2024-03-26T16:34:29ZChinese acquisitions in the Bordeaux vineyards: have their new owners really been neglecting them?<p>Since 2012, more than 200 acquisitions have been made by Chinese investors in Bordeaux’s prestigious <a href="https://theconversation.com/us/topics/french-wine-73590">vineyards</a>, mainly from the country’s economic, political and artistic elite. A leading example is Alibaba founder <a href="https://theconversation.com/us/topics/jack-ma-10294">Jack Ma</a>, who bought several châteaux, including <a href="https://www.terredevins.com/actualites/le-chateau-de-sours-revoit-les-choses-en-grand">Château de Sours</a> in the Entre-Deux-Mers appellation. Actress <a href="https://www.vitisphere.com/actualite-94717-les-chateaux-de-zhao-wei-fonctionnent-normalement-malgre-sa-disgrace-en-chine.html">Zhao Wei</a> has set her sights on several châteaux in the Saint-Émilion appellation.</p>
<p>These transactions, involving members of China’s elite and prestigious assets in Europe, stand out in the world of mergers and acquisitions. Regarded indiscriminately as “ego deals”, <a href="https://www.investopedia.com/terms/c/conspicuous-consumption.asp">“conspicuous consumption”</a> or “self-interest transactions”, such atypical acquisitions are <a href="https://onlinelibrary.wiley.com/doi/abs/10.1002/tie.21967">widely decried in the academic financial literature</a> because they can produce few or no synergies, and are therefore doomed to failure. There have been instances of Bordeaux châteaux acquired by Chinese investors, which have been <a href="https://www.rts.ch/info/monde/13265418-dans-le-vignoble-bordelais-des-rachats-chinois-au-gout-de-bouchon.html">left to rot</a> by their new owners. Reportedly, <a href="https://www.francetvinfo.fr/france/nouvelle-aquitaine/gironde/bordeaux/vignoble-bordelais-sur-200-domaines-achetes-par-les-chinois-une-cinquantaine-est-a-vendre_5532906.html">around 50 of them</a> have been also put up for sale by their once-enthusiastic owners.</p>
<iframe width="100%" height="315" src="https://www.rts.ch/play/embed?urn=urn:rts:video:13265284&subdivisions=false" allowfullscreen="" allow="geolocation *; autoplay; encrypted-media"></iframe>
<p><em>RTS report, November 2023.</em></p>
<p>However, a closer look shows that Chinese acquisitions in the Bordeaux vineyards are far from uniformly ending up in failures and selloffs. This is reflected by our <a href="https://www.researchgate.net/publication/362930206_In_vino_vanitas_Social_dynamics_and_performance_of_Chinese_chateau_acquisitions_in_the_Bordeaux_vineyards">recent research paper</a> which analyses the post-acquisition performance of 123 Bordeaux châteaux acquired by Chinese investors between 2008 and 2015.</p>
<h2>What motives for such acquisitions?</h2>
<p>Applying a sociological approach to these acquisitions has allowed us to show that some of them did create value, not only economically but also symbolically. With the opportunity to gain social distinction, these properties were acquired for the prestige they confer to their owners.</p>
<p>The new owners perceive their prestigious possessions as an extension of themselves and so take particular care of them. They strongly commit to renovating the property, maintaining the cellars and, above all, enhancing the wine quality. We have many accounts of Chinese-owned châteaux investing in new winemaking techniques, hiring top oenologists such as Michel Rolland and Stéphane Derenoncourt, and replanting part of the vineyards. These acquisitions have often prevented these châteaux from getting bankrupt while improving their wine ranking in the major wine guides. For instance, the <a href="https://www.hachette-vins.com/">Hachette Wine Guide</a>, which covers all French AOC vineyards, shows significant progress for the wines produced by some of these Chinese-owned châteaux.</p>
<p>A case in point is the Andrew and Melody Kuk couple, who in 2013 acquired <a href="https://www.sudouest.fr/vin/investisseurs-chinois-a-pomerol-les-epoux-kuk-reaffirment-leur-attachement-au-terroir-17148857.php">La Commanderie in Pomerol</a>. Having made their fortune in finance and communication in Hong Kong, they renovated the vineyard’s winemaking facilities and refurbished the property’s building. After just a few years, the wine from this château, once described as a “sleeping beauty”, is regularly featured in the rankings of the best Bordeaux wines.</p>
<p>These acquisitions, integrated in a clear strategy aiming to climb up the social ladder, are distinct from the few Bordeaux château acquisitions conducted by Chinese billionaires, which attract most of the media covering. Standing already at the top of the social hierarchy, these distinctive acquirers have little commitment to their wineries and frequently change their conspicuous hobbies as their social position does not depend on the success of their acquired assets. For this specific category of elite acquirers, the post-acquisition outcome is often a deterioration in performance.</p>
<p>Statistically, we reported a significant correlation between upward social mobility strategies and improved wine quality in the rankings.</p>
<h2>In the wine industry and beyond</h2>
<p>More generally, our sociological approach provides keys to understanding the motives behind these “conspicuous acquisitions” that were conducted on an international scale by the economic, sporting and artistic elites. This concept, dating back to the end of the 19th century, has been coined by the American economist and sociologist <a href="https://www.britannica.com/biography/Thorstein-Veblen">Thorstein Veblen</a>, who analysed the lifestyle and purchasing behaviour of the elite class at that time. While some of the purchasing behaviour of this elite class does not seem rational from the point of view of economic science, Veblen provided an alternative rationale, mostly based on strategies of social affirmation.</p>
<p>Concentrated in industries such as sport, luxury hotels, resorts and real estate, these prestigious acquisitions are made by “high net-worth individuals”, whose number is estimated to 22 million worldwide, with combined wealth hovering around <a href="https://www.capgemini.com/insights/research-library/world-wealth-report/">83 trillion dollars</a>. Their continuously growing number results from the macroeconomic implementation of neoliberal policies since the late 1970s, the collapse of the USSR and the rise of emerging economies.</p>
<p>Part of this fortune is spent on <a href="https://www.enograf.com/media/pdf/Profit%20ili%20zadovoljstvo%20-%20kompletan%20izvestaj.pdf">socially motivated acquisitions</a>. Two of the major European football clubs, Paris Saint-Germain and Manchester City, are owned by sovereign wealth funds linked to the ruling Qatari and Emirati families, and until recently Chelsea FC was owned by the Russian oligarch Roman Abramovitch. In the hotel industry, French palace hotels such as the Bristol, the George V and the Meurice are owned by wealthy foreigners (respectively, the German family group Oetker, Saudi Prince Al-Walid Ben Talal Al Saoud and the Sultan of Brunei).</p>
<p>These are all personalities whose wealth does not originate from the target industry and who made the acquisitions to gain access to, or reaffirm their affiliation with, the international elite.</p><img src="https://counter.theconversation.com/content/226556/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Pierre-Xavier Meschi is Chairman of Atlas-AFMI (Association Francophone de Management International).</span></em></p><p class="fine-print"><em><span>Alexandre Bohas ne travaille pas, ne conseille pas, ne possède pas de parts, ne reçoit pas de fonds d'une organisation qui pourrait tirer profit de cet article, et n'a déclaré aucune autre affiliation que son organisme de recherche.</span></em></p>Contrary to popular belief, only a minority of Bordeaux vineyards bought by Chinese investors have had a negative outcome.Alexandre Bohas, Professeur d'Affaires internationales, ESSCA School of ManagementPierre-Xavier Meschi, Professeur des Universités en sciences de gestion, Affillié à Skema Business School, IAE Aix-Marseille Graduate School of Management – Aix-Marseille UniversitéLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2179602023-12-13T13:35:56Z2023-12-13T13:35:56ZGrowth of autocracies will expand Chinese global influence via Belt and Road Initiative as it enters second decade<figure><img src="https://images.theconversation.com/files/564937/original/file-20231211-23-i4omvy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Xi Jinping shakes hands with Chinese construction workers at a Belt and Road Initiative site in Trinidad and Tobago in June 2023.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/chinas-president-xi-jinping-shake-hands-with-chinese-news-photo/169793922">Frederic Dubray/AFP via Getty Images</a></span></figcaption></figure><p>China currently faces <a href="https://www.economist.com/finance-and-economics/2023/10/18/chinas-economy-may-be-growing-faster-but-big-problems-remain">daunting challenges</a> in its domestic economy. But weakness in the real estate market and consumer spending at home is unlikely to stem its rising influence abroad. </p>
<p>In mid-October 2023, China celebrated the 10-year anniversary of its <a href="https://theconversation.com/chinas-belt-and-road-initiative-turns-10-xi-announces-8-new-priorities-continues-push-for-global-influence-216014">Belt and Road Initiative</a>, or BRI. The BRI seeks to connect China with countries around the world via land and maritime networks, with the aim of improving regional integration, increasing trade and stimulating economic growth. Through the expansion of the BRI, China also sought to extend its global influence, especially in developing regions.</p>
<p>During its first decade, the initiative has faced a <a href="https://www.forbes.com/sites/wadeshepard/2020/01/29/how-chinas-belt-and-road-became-a-global-trail-of-trouble/?sh=124d92a5443d">barrage of criticism from the West</a>, mainly for saddling countries with debt, inattention to environmental impact, and corruption. </p>
<p>It has also encountered unexpected challenges – notably the COVID-19 pandemic, which led to massive supply chain issues and restrictions on the movement of Chinese workers overseas. Yet, as the BRI heads into its second decade, global economic trends suggest it will continue to play an important role in spreading Chinese influence.</p>
<p>I’m an associate professor of global studies at the Chinese University of Hong Kong, Shenzhen, where I teach about <a href="https://hss.cuhk.edu.cn/en/teacher/1126">business-government relations</a> in emerging economies. In my new book, “<a href="https://www.cambridge.org/core/books/chinas-chance-to-lead/2C88E7D955049471664120981CDF2DFB">China’s Chance to Lead</a>,” I discuss which countries have already and are now most likely to seek out and benefit from Chinese spending. Understanding this helps explain why China and the Belt and Road Initiative are poised to benefit greatly from the global economy over the next several decades.</p>
<h2>Malaysia’s unlikely prominence</h2>
<p>In October 2013, China President Xi Jinping announced the launch of the maritime portion of the BRI during a <a href="https://www.bbc.com/news/world-asia-24361172">speech in Jakarta</a>. At the time, Indonesia appeared to be an ideal candidate for Chinese infrastructure spending, yet it was Malaysia – surprisingly – that emerged as a far more avid participant. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/564350/original/file-20231207-15-siwmcd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Aerial view of massive housing development in Malaysia" src="https://images.theconversation.com/files/564350/original/file-20231207-15-siwmcd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/564350/original/file-20231207-15-siwmcd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/564350/original/file-20231207-15-siwmcd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/564350/original/file-20231207-15-siwmcd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/564350/original/file-20231207-15-siwmcd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/564350/original/file-20231207-15-siwmcd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/564350/original/file-20231207-15-siwmcd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">A view of Forest City, a condominium project launched under China’s Belt and Road Initiative, in Malaysia’s Johor state.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/this-aerial-photo-taken-on-june-16-2022-shows-a-general-news-photo/1241336726">Mohd Rasfan/AFP via Getty Images</a></span>
</figcaption>
</figure>
<p>In comparison to Malaysia, Indonesia’s economy was <a href="https://www.worlddata.info/country-comparison.php?country1=IDN&country2=MYS">three times larger</a> and its population <a href="https://www.worlddata.info/country-comparison.php?country1=IDN&country2=MYS">nearly nine times bigger</a>, yet its gross domestic product per capita only was <a href="https://www.worlddata.info/country-comparison.php?country1=IDN&country2=MYS">one-third as high</a>. Indonesia also had enormous potential to increase its already substantial <a href="https://oec.world/en/profile/bilateral-country/idn/partner/chn">natural resources exports to China</a>. Taken together, these factors point to Indonesia’s far greater demand for infrastructure that would aid its economic development. </p>
<p>Furthermore, Indonesia’s democratic institutions were more conducive to attracting foreign investment. Its checks and balances enhanced policy stability and reduced political risk. By contrast, Malaysia’s government, which was dominated by a single ruling party coalition, lacked comparable checks and balances.</p>
<p>Despite Indonesia’s numerous advantages, Malaysia attracted a far larger volume of BRI spending during its first several years. Data provided by the <a href="https://www.aei.org/china-global-investment-tracker/">China Global Investment Tracker</a> indicates the value of newly announced infrastructure projects in Malaysia surged from US$3.5 billion in 2012 to over $8.6 billion in 2016. Spending in Indonesia, meanwhile, rose modestly from $3.75 billion to $3.77 billion over the same period.</p>
<p>Malaysia also enthusiastically participated in the <a href="https://www.cfr.org/china-digital-silk-road/">Digital Silk Road</a>, or DSR, launched in 2015. The DSR is the technological dimension of the BRI that aims to improve digital connectivity in Belt and Road countries. Malaysia Prime Minister Najib Razak engaged Jack Ma, the co-founder of Chinese tech giant Alibaba, as an adviser to develop e-commerce in 2016. This led to the creation in 2017 of a <a href="https://www.nst.com.my/business/2017/11/298317/%C2%A0digital-free-trade-zone-goes-live-nov-3">Digital Free Trade Zone</a>, an international e-commerce logistics hub next to the Kuala Lumpur International Airport.</p>
<p>With this foundation in place, Malaysia’s capital went on to become the first city outside China to adopt Alibaba’s <a href="https://www.wired.co.uk/article/alibaba-city-brain-artificial-intelligence-china-kuala-lumpur">City Brain</a> smart city solution in January 2018. City Brain uses the wealth of urban data to effectively allocate public resources, improve social governance and promote sustainable urban development. <a href="https://www.linkedin.com/pulse/pivotal-year-city-brain-other-middle-east-ai-news-carrington-malin-/">Dubai and other cities in the Middle East</a> followed. </p>
<p>Digital Silk Road projects in Indonesia during that period were far fewer, slower and less ambitious. They primarily involved the expansion of <a href="https://www.lse.ac.uk/ideas/Assets/Documents/updates/2022-SU-IndoChina-Updated.pdf">Chinese smartphone and e-commerce firms</a> in Indonesia.</p>
<p>What accounts for these contrasting responses? The short answer: their political regimes. And understanding that could be key to the global spread of Chinese influence in the coming years.</p>
<h2>State-owned business and clientelism</h2>
<p>In the lead-up to the May 2018 election, Malaysia’s ruling party and its allies <a href="https://doi.org/10.1177/186810341803700307">worried they could lose power</a> after six decades of rule. Desperate to bolster support, Najib quickly identified <a href="https://thediplomat.com/2021/10/what-happened-to-chinas-bri-projects-in-malaysia/">numerous infrastructure megaprojects</a> in which Chinese state-owned businesses could partner with Malaysian counterparts.</p>
<p>Indonesia, by contrast, placed far greater emphasis on projects led by private business. For example, the Indonesia Morowali Industrial Park, “<a href="https://www.wired.com/story/workers-are-dying-in-the-ev-industrys-tainted-city/">the world’s epicenter for nickel production</a>,” is one of the largest Chinese investments in Indonesia and a joint venture between private Chinese and Indonesian companies. </p>
<p>As I discuss in <a href="https://www.cambridge.org/core/books/chinas-chance-to-lead/2C88E7D955049471664120981CDF2DFB">my book</a>, when rulers in autocracies with semi-competitive elections, like Malaysia’s, have a weak hold on power, their desire for Chinese spending is amplified. This relates to <a href="https://www.oxfordreference.com/display/10.1093/oi/authority.20110803095617734">clientelism</a>, or the delivery of goods and services in exchange for political support.</p>
<p>A higher level of state control in autocracies grants political leaders greater influence over the allocation of clientelist benefits, which aids leaders’ reelection efforts. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/564351/original/file-20231207-27-yxvnt3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Najib Razak, prime minister of Malaysia, and Jack Ma Yun, founder of Alibaba Group, stand and clap" src="https://images.theconversation.com/files/564351/original/file-20231207-27-yxvnt3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/564351/original/file-20231207-27-yxvnt3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=419&fit=crop&dpr=1 600w, https://images.theconversation.com/files/564351/original/file-20231207-27-yxvnt3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=419&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/564351/original/file-20231207-27-yxvnt3.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=419&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/564351/original/file-20231207-27-yxvnt3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=527&fit=crop&dpr=1 754w, https://images.theconversation.com/files/564351/original/file-20231207-27-yxvnt3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=527&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/564351/original/file-20231207-27-yxvnt3.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=527&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Najib Razak, left, then-prime minister of Malaysia, and Jack Ma, Alibaba Group founder and executive chairman, attend a launch ceremony of the Digital Free Trade Zone in Kuala Lumpur.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/najib-razak-prime-minister-of-malaysia-and-jack-ma-yun-news-photo/1092858894">Thomas Yau/South China Morning Post via Getty Images</a></span>
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<h2>Economic trends that will benefit China</h2>
<p>Even if China’s future growth is lower than the pre-pandemic period, these four features of the global economy are poised to benefit China and the Belt and Road Initiative over the next several decades. </p>
<p><strong>1. Global rise of autocracies</strong> </p>
<p><a href="https://www.v-dem.net/documents/29/V-dem_democracyreport2023_lowres.pdf">Over 60% of developing countries</a> are autocratic, according to data provided by the <a href="https://www.v-dem.net/">Varieties of Democracy Project</a>. This represented 72% of the global population in 2022, up from 46% in 2012. </p>
<p>For decades, the World Bank and affiliated regional development banks were the only game in town for development financing to low- and middle-income countries. Consequently, these global lenders could demand liberalizing reforms that were sometimes contrary to the interests of incumbent rulers, especially autocrats. </p>
<p>China’s rise has created an attractive alternative for autocratic regimes, especially since it does not impose the same kinds of conditions that often require loosening state controls on the corporate sector and reducing clientelism. Between 2014 and 2019, I find that 77% of total BRI spending on construction projects went to autocracies, and primarily to those with semi-competitive elections.</p>
<p><strong>2. Demand for Chinese infrastructure spending</strong></p>
<p>The economies of developing countries have grown <a href="https://www.imf.org/external/datamapper/NGDP_RPCH@WEO/WEOWORLD/ADVEC/OEMDC">more than twice as quickly</a> as advanced economies since 2000 and are projected to <a href="https://www.pwc.com/gx/en/research-insights/economy/the-world-in-2050.html">outpace advanced economies</a> in the decades ahead. On the eve of the Soviet Union’s dissolution in 1991, developing economies accounted for 37% of global GDP; by 2030, the International Monetary Fund projects they will account for <a href="https://www.imf.org/external/datamapper/PPPSH@WEO/OEMDC/ADVEC/WEOWORLD">around 63%</a>. </p>
<p>At the same time, the global infrastructure financing gap – that is, the money needed to build and upgrade existing infrastructure – is estimated to be around <a href="https://www.atlanticcouncil.org/blogs/econographics/the-global-infrastructure-financing-gap-where-sovereign-wealth-funds-swfs-and-pension-funds-can-come-in/#:%7E:text=The%20global%20infrastructure%20financing%20gap%20is%20estimated%20to%20be%20around,year%20in%20the%20infrastructure%20sector.">$15 trillion</a> by 2040. To fill this gap, the world must spend just under $1 trillion more than the previous year up through 2040, with most of this spending directed toward low-income economies.</p>
<p>Because many of these fast-growing, low-income countries are predominantly semicompetitive autocracies, China is well-positioned to expand its global influence via the Belt and Road Initiative. </p>
<p><strong>3. Emerging tech</strong></p>
<p>The advent of what is known as <a href="https://www.mckinsey.com/featured-insights/mckinsey-explainers/what-are-industry-4-0-the-fourth-industrial-revolution-and-4ir">Industry 4.0 technologies</a>, such as artificial intelligence, big data analytics and blockchain, could enable developing countries to <a href="https://hub.unido.org/sites/default/files/publications/Unlocking%20the%20Potential%20of%20Industry%204.0%20for%20Developing%20Countries.pdf">leapfrog stages of development</a>. </p>
<p>By creating <a href="https://www.nbr.org/publication/setting-the-standards-locking-in-chinas-technological-influence/">new technical standards</a> to be used in these emerging digital technologies, China aims to lock in Chinese digital products and services and lock out non-Chinese competitors wherever its standards are adopted. </p>
<p>In Tanzania, for example, the Chinese company contracted to deploy the national ICT broadband network constructed it to be <a href="https://www.cfr.org/sites/default/files/pdf/Chinas%20Digital%20Silk%20Road%20and%20Africas%20Technological%20Future_FINAL.pdf">compatible only with routers</a> made by Chinese firm Huawei. </p>
<p>Incorporating digital technologies into hard infrastructure projects – digital traffic sensors on roads, for example – presents more opportunities for China to use the Belt and Road Initiative to promote adoption of its technologies and standards globally.</p>
<p><strong>4. Urbanization</strong></p>
<p>Finally, the developing world’s <a href="https://ourworldindata.org/urbanization#:%7E:text=Across%20all%20countries%2C%20urban%20shares,from%2054%25%20in%202016">urban population</a> is expected to rise from 35% in 1990 to 65% by 2050. The biggest increases will likely occur in the semi-competitive autocracies of Africa. A desire for sustainable urbanization will increase the demand for infrastructure that incorporates digital technologies – once again amplifying the opportunity for China and the BRI. </p>
<p>Understanding what drives the demand for the Belt and Road Initiative, and the trends that will propel it into the future, is vital for the West to devise an effective strategy that counters China’s rising global influence.</p><img src="https://counter.theconversation.com/content/217960/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard Carney does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>More autocratic governments, growing urbanization and emerging technologies will bolster the spread of Chinese influence around the world, an expert on emerging economies explains.Richard Carney, Associate professor of global studies, Chinese University of Hong Kong, ShenzhenLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1710592021-11-03T14:12:15Z2021-11-03T14:12:15ZChina’s tech and finance crackdown is a challenge to western ideas that cuts across developing world<figure><img src="https://images.theconversation.com/files/429958/original/file-20211103-17-1oz5ejv.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Chinese leader Xi Jinping has been strangling corporate power. </span> <span class="attribution"><a class="source" href="https://www.alamy.com/a-phone-app-called-xuexi-qiangguo-or-study-to-make-china-strong-displaying-a-photo-of-chinas-president-xi-jinping-is-taken-on-october-15-2019-as-a-photo-illustration-the-app-has-recently-been-found-to-have-code-in-the-app-that-can-have-backdoor-access-to-run-arbitrary-commands-with-superuser-root-privileges-photo-by-yichuan-caosipa-usa-image409408220.html?pv=1&stamp=2&imageid=C8A71BCC-DDBF-4B86-AAE3-08E489E2A93E&p=1408119&n=3&orientation=0&pn=1&searchtype=0&IsFromSearch=1&srch=foo%3Dbar%26st%3D0%26sortby%3D2%26qt%3Dxi%2520jinping%2520phone%26qt_raw%3Dxi%2520jinping%2520phone%26qn%3D%26lic%3D3%26edrf%3D0%26mr%3D0%26pr%3D0%26aoa%3D1%26creative%3D%26videos%3D%26nu%3D%26ccc%3D%26bespoke%3D%26apalib%3D%26ag%3D0%26hc%3D0%26et%3D0x000000000000000000000%26vp%3D0%26loc%3D0%26ot%3D0%26imgt%3D0%26dtfr%3D%26dtto%3D%26size%3D0xFF%26blackwhite%3D%26cutout%3D%26archive%3D1%26name%3D%26groupid%3D%26pseudoid%3D196110%26userid%3D%26id%3D%26a%3D%26xstx%3D0%26cbstore%3D1%26resultview%3DsortbyPopular%26lightbox%3D%26gname%3D%26gtype%3D%26apalic%3D%26tbar%3D1%26pc%3D%26simid%3D%26cap%3D1%26customgeoip%3DGB%26vd%3D0%26cid%3D%26pe%3D%26so%3D%26lb%3D%26pl%3D0%26plno%3D%26fi%3D0%26langcode%3Den%26upl%3D0%26cufr%3D%26cuto%3D%26howler%3D%26cvrem%3D0%26cvtype%3D0%26cvloc%3D0%26cl%3D0%26upfr%3D%26upto%3D%26primcat%3D%26seccat%3D%26cvcategory%3D*%26restriction%3D%26random%3D%26ispremium%3D1%26flip%3D0%26contributorqt%3D%26plgalleryno%3D%26plpublic%3D0%26viewaspublic%3D0%26isplcurate%3D0%26imageurl%3D%26saveQry%3D%26editorial%3D%26t%3D0%26filters%3D0">Sipa US</a></span></figcaption></figure><p>China introduced <a href="https://www.businessinsider.com/insider-guide-china-tech-crackdown-from-algorithms-to-crypto-mining-2021-10?r=US&IR=T">new rules</a> on November 1 that restrict the extent to which internet companies can collect and store user data. Known as the <a href="https://www.itpro.co.uk/business/policy-legislation/361408/what-is-chinas-personal-data-protection-law-pipl">personal information protection law</a>, it is said to be among the toughest data-protection regimes in the world. </p>
<p>As part of the rules, tech giants are having to set up external bodies to monitor their data collection, while foreign companies have to appoint representatives within China dedicated to compliance. Companies in breach are risking fines of up to 5% of turnover. </p>
<p>These rules are the latest example in the year-log crackdown on tech and finance in China. It started with Beijing’s decision in November 2020 to scrap finance giant <a href="https://theconversation.com/ant-group-is-holding-the-biggest-ipo-of-all-time-heres-what-it-is-147403">Ant Group’s flotation</a>, which <a href="https://theconversation.com/ant-group-jack-mas-biggest-market-debut-suspended-amid-fears-over-regulation-149475">was expected</a> to have been the world’s largest IPO. Billionaire founder-CEO Jack Ma subsequently disappeared from the public eye for <a href="https://www.independent.co.uk/asia/china/jack-ma-hong-kong-alibaba-b1937359.html">three months</a>, and it is <a href="https://www.bloomberg.com/news/articles/2021-10-19/ant-s-record-ipo-remains-in-limbo-a-year-after-china-crackdown">still not clear</a> if an IPO will go ahead. </p>
<p>Beijing has also been getting tougher on companies, such as DiDi (China’s Uber), whose shares are <a href="https://www.bbc.co.uk/news/business-57739634">listed overseas</a>; shutting down China’s most famous <a href="https://www.ft.com/content/d5725cb3-169c-442f-953e-077bb926f4c0">financial bloggers</a>; banning <a href="https://www.reuters.com/world/china/china-central-bank-vows-crackdown-cryptocurrency-trading-2021-09-24/">cryptocurrency trading and mining</a>; and introducing new restrictions for whole industries <a href="https://qz.com/2056875/chinas-crackdown-on-video-games-is-getting-more-serious/">such as gaming</a>. Most recently, regulators have <a href="https://www.bloomberg.com/news/articles/2021-10-28/china-trading-apps-tank-after-pboc-official-calls-them-illegal?sref=Hjm5biAW">been signalling</a> that some of the country’s most popular stock-trading apps are illegal.</p>
<p>These interventions have consequences not just for Chinese companies but for the global financial system. China’s financial system is a <a href="https://www.bloomberg.com/news/articles/2019-12-29/china-is-dismantling-its-great-financial-wall-a-guide-to-2020">US$45 trillion</a> (£33 trillion) industry, boasting the world’s second-largest stock and bond markets. But when you look closely at the way that China runs these markets, you realise that the whole philosophy underpinning them is very different to markets in the west. This is helpful for making sense of the crackdown – both why it has happened and how it should be viewed. </p>
<h2>Market intervention and China</h2>
<p>I am the principal investigator of a new research project known as <a href="https://statecapfinance.com/the-project/">StateCapFinance</a>, which looks at how emerging economies run capital markets (meaning stocks, bonds and derivatives). In many instances, such markets are influenced by the state, meaning they operate by a very different logic to the west. </p>
<p>In <a href="https://www.tandfonline.com/doi/full/10.1080/13563467.2020.1782368">western capital markets</a>, the underlying principle is efficiency: investors’ money flows to whichever companies are judged the best, in terms of how prudently they are run, the strength of their business models, their prospects for the future and so on. This instils market discipline, encouraging everyone to compete as aggressively as possible – or so the argument goes. Capital markets are seen as the epitome of liberal capitalism, with state interference merely serving as a backstop if things go wrong (think 2008).</p>
<p>In state-capitalist economies such as China, by contrast, capital markets are designed to enable state control and facilitate state objectives. For example, the Chinese don’t like to see too much speculation in their markets, and monitor activity closely to prevent it getting out of hand. If the authorities decide that certain traders are too active, they will ask them to cancel trades and may even ban them. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/429959/original/file-20211103-25-yyzl4q.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Jack Ma holding his hands up" src="https://images.theconversation.com/files/429959/original/file-20211103-25-yyzl4q.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/429959/original/file-20211103-25-yyzl4q.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/429959/original/file-20211103-25-yyzl4q.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/429959/original/file-20211103-25-yyzl4q.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/429959/original/file-20211103-25-yyzl4q.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/429959/original/file-20211103-25-yyzl4q.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/429959/original/file-20211103-25-yyzl4q.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Billionaire Jack Ma is one of victims of China’s crackdown.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/paris-france-may-16-2019-chinese-1404202343">Frederick Legrande - COMEO</a></span>
</figcaption>
</figure>
<p>The state is also careful to restrict international traders, setting limits on how much they can trade for instance. And just like Ant Group demonstrated, the authorities carefully weigh whether flotations can go ahead. Decisions can have less to do with a company’s financial abilities than whether they have political ties or contribute to national development. </p>
<p>As I demonstrate in a recent <a href="https://www.tandfonline.com/doi/full/10.1080/03085147.2020.1718913">paper</a>, these markets are focused on containing financial risk, maintaining social stability and steering financial activity into more productive tracks. It is all geared towards state control and accomplishing national development goals – and here we see the overlap with the recent crackdown. </p>
<p>Some of Beijing’s interventions, such as reining in financial bloggers or restricting Ant Group – with its peer-to-peer payment system and vast consumer data – are part of the same tradition of managing markets. As finance permeates ever more aspects of Chinese life, the authorities are using it as a lever to govern economic activity. Meanwhile, other interventions, such as data protection and restricting gaming, are more broadly about managing society, but with the same approach to putting the state before enterprise. </p>
<h2>Other emerging economies</h2>
<p>Part of our work in the StateCapFinance project is about recognising this Chinese approach as an alternative, and even a <a href="https://journals.sagepub.com/doi/10.1177/1024529420964723">challenge to</a> the contemporary global financial order. Interestingly, we see this not only in China but across emerging markets. In Brazil, Russia, India, South Africa and South Korea – which together with China <a href="https://journals.sagepub.com/doi/full/10.1177/0308518X211047599">account for</a> 25% of global stock market capitalisation and 50% of trading in global futures markets – states facilitate control and national development in similar ways. </p>
<p>In most of these nations, it’s more common for the state to own listed companies and stock exchanges, and foreign and private ownership tends to be more restricted. Speculative trading is much more curbed, while states tend to try and control the price of key commodities by setting up rival benchmarks to the west. China <a href="https://www.cnbc.com/2020/11/18/china-will-roll-out-new-copper-futures-in-a-bid-to-boost-yuan-adoption.html">has done this</a> with commodities like crude oil, iron ore, copper and gold. </p>
<p>In StateCap’s <a href="https://journals.sagepub.com/doi/full/10.1177/0308518X211047599">most recent research</a>, we locate different countries on a continuum, with the neoliberal approach at one end and the state-capitalist approach at the other. China is the closest to state capitalism, but India is quite far in the same direction and, perhaps surprisingly, so is South Korea. On the other hand, Brazil and South Africa are more towards the neoliberal approach, and – again contrary to what you might think – so is Russia. But to emphasise, this is all relative: Russia’s rules about the extent to which foreign companies can invest in strategically important industries are tougher than in most western countries, for example. </p>
<p>Viewed in this context, China’s regulatory crackdown is essentially an exercise in state management where the authorities aim to establish more control over what they perceive as outsized, unproductive economic sectors that ought to facilitate national development goals. Whether these interventions are progress is debatable, of course, but it helps to understand the fundamentally different philosophy underpinning them. </p>
<p>I’ll leave you with two final observations. Wall Street is still aggressively venturing into China. In 2020 alone, global investors channelled upwards of RMB1 trillion (£115 billion) into its capital markets, while global financial players have been <a href="https://www.etfstream.com/features/wall-street-beyond-the-chinese-wall-market-infrastructures-and-the-slow-opening-of-china-s-capital-markets/">scrambling to</a> ramp up their China operations. And while the west worries about the power of its own tech companies within a system that is designed to give them as much leeway as possible, it is perhaps unsurprising that some have <a href="https://www.politico.eu/article/west-china-big-tech-finance-facebook-diem/">been wondering</a> whether some of China’s more strong-handed interventions are the right way forward. </p>
<p>With the centre of the global economy gradually shifting east, we can probably expect an intensification of this clash of philosophies of how to organise the relationship between state and markets.</p><img src="https://counter.theconversation.com/content/171059/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Johannes Petry received funding for this research from the UK Economic and Social Research Council (ESRC; grant number 1791638), the German Science Foundation (DFG; grant number NO 855/7-1) and the SCRIPTS Cluster of Excellence (EXC 2055, Project-ID: 390715649).</span></em></p>China’s statist logic or market organisation is shared by the likes of South Africa, Brazil, India, Russia and even South Korea.Johannes Petry, CSGR Research Fellow, University of WarwickLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1588782021-04-16T06:12:35Z2021-04-16T06:12:35ZChina’s record fine against Alibaba spells the end of big tech’s romance with the state<figure><img src="https://images.theconversation.com/files/395389/original/file-20210416-18-1rdet68.jpg?ixlib=rb-1.1.0&rect=54%2C27%2C5960%2C4290&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">ALEX PLAVEVSKI/EPA</span></span></figcaption></figure><p>China’s state-run <a href="https://www.bloomberg.com/news/articles/2021-04-13/china-orders-34-tech-firms-to-curb-excesses-in-antitrust-review">anti-monopoly bureau</a> has tightened its regulations on big tech players, as shown by its recent move against the country’s largest e-commerce company, Alibaba Group.</p>
<p>Alibaba was <a href="https://www.bbc.com/news/business-56713508">hit with</a> a record antitrust fine of 18.2 billion yuan (more than A$3.6 billion) over the weekend for supposedly abusing its market dominance. The company, which operates the digital payment platform Alipay and offers bank loans to entrepreneurs, issued a <a href="https://www.forbes.com/sites/robertolsen/2021/04/10/jack-mas-alibaba-hit-with-28-billion-fine-for-abusing-its-dominant-market-position/?sh=7297894937d1">public apology</a>:</p>
<blockquote>
<p>Alibaba accepts the penalty with sincerity and will ensure its compliance with determination. To serve its responsibility to society, Alibaba will operate in accordance with the law with utmost diligence, continue to strengthen its compliance systems, and build on growth through innovation.</p>
</blockquote>
<p>Meanwhile, questions have been asked about the whereabouts of Alibaba’s founder Jack Ma. In October last year, Ma lashed out at China’s <a href="https://www.abc.net.au/news/2021-01-10/alibaba-investigation-amid-speculation-jack-ma-whereabouts-china/13042044">financial watchdogs and banks</a>. </p>
<p>Among other complaints, he criticised the state-managed financial sector and was subsequently hauled into a meeting with regulators. After that, the always-visible Ma was not seen in public for months. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/395390/original/file-20210416-15-11zeriv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Jack Ma rocking out on stage" src="https://images.theconversation.com/files/395390/original/file-20210416-15-11zeriv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/395390/original/file-20210416-15-11zeriv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/395390/original/file-20210416-15-11zeriv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/395390/original/file-20210416-15-11zeriv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/395390/original/file-20210416-15-11zeriv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/395390/original/file-20210416-15-11zeriv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/395390/original/file-20210416-15-11zeriv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Jack Ma, founder of Alibaba Group, put on a performance at the company’s 20th anniversary in 2019.</span>
<span class="attribution"><span class="source">ICHPL Imaginechina/AP</span></span>
</figcaption>
</figure>
<p>Ma’s sudden withdrawal is just one of several developments that point to a huge shift in the regulation of China’s digital space. The lenience once accorded to tech companies by the state no longer holds true. </p>
<p>And recent actions against Alibaba may signal the beginning of the end of the romance between Chinese big tech and the government.</p>
<h2>A fawning apology</h2>
<p>The first real test for this relationship came late last year. China’s State Administration for Market Regulation charged Alibaba’s affiliate Ant Group (also owned by Ma) with anti-competitive behaviour. </p>
<p>Some of Ma’s <a href="https://www.bbc.com/news/technology-56448688">comments</a> around that time were not received well in Beijing. In October, <a href="https://www.reuters.com/article/us-ant-group-ipo-suspension-regulators-i-idCAKBN27L1BB">he claimed</a> China’s banks operated with a “pawn-shop mentality”.</p>
<p>According to <a href="https://www.wsj.com/articles/china-president-xi-jinping-halted-jack-ma-ant-ipo-11605203556">reports</a>, President Xi Jinping himself authorised the subsequent withdrawal of Ant Group’s initial public offering launch on the Shanghai and Hong Kong stock exchanges.</p>
<p>The company was then forced to incorporate itself as a financial institution and subject itself to supervision by China’s state-controlled central bank.</p>
<p>The anti-monopoly ruling dealt out to Ant Group last year, and Alibaba more recently, aren’t incompatible with corporate governance in Western democracies. However, the chief executives of Western tech companies generally <a href="https://theconversation.com/facebook-is-merging-messenger-and-instagram-chat-features-its-for-zuckerbergs-benefit-not-yours-147261">don’t make fawning apologies</a> to government following accusations of anti-competitive behaviour. </p>
<h2>Back when big tech was in the state’s pocket</h2>
<p>There was a time in China when big tech firms lived the dream. Historically, China’s regulators have given its internet companies much more latitude than afforded to the tightly controlled state-owned media.</p>
<p>In 2000, when Alibaba was just one year old, only <a href="https://www.internetlivestats.com/internet-users/china/">1.8% of the Chinese population was online</a>. This number now exceeds 50% of the population.</p>
<p>As my colleagues and I explain in <a href="https://anthempress.com/china-s-digital-presence-in-the-asia-pacific-hb">our book</a>, the Chinese government’s decision in 2007 to require all video-sharing platforms to be licensed led to the rapid market dominance of Baidu, Alibaba and <a href="https://www.fool.com/investing/2021/04/12/after-massive-alibaba-fine-tencent-fears-it-could/">Tencent</a>. These were followed by Bytedance (which owns TikTok), Kuaishou and Meituan. </p>
<p>The licensing requirement was a response to pressure from international copyright holders, including the Motion Picture Association of America. It eliminated less financially robust operators, many of whom were breaching copyright.</p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/china-could-be-using-tiktok-to-spy-on-australians-but-banning-it-isnt-a-simple-fix-142157">China could be using TikTok to spy on Australians, but banning it isn’t a simple fix</a>
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<p>Aware of their social responsibility, many big tech leaders espoused the Chinese Dream: Xi Jinping’s roadmap for national rejuvenation. And Alibaba led the way. </p>
<p>Over the past decade it <a href="http://www.xinhuanet.com/english/2019-08/02/c_138278689.htm">set up</a> rural e-commerce hubs called Taobao villages to play to the government’s tune of “<a href="https://www.scmp.com/economy/china-economy/article/3116360/revitalising-chinas-rural-regions-xi-jinpings-next-priority">rural revitalisation</a>”.</p>
<p>In 2015, when the central government announced a campaign to activate grassroots entrepreneurship, Alibaba partnered with the local provincial government in Zhejiang. The resulting project was aptly named “Dream Town”, which the <a href="http://tsxz.zjol.com.cn/system/2016/07/08/021219849.shtml">governor of Zhejiang</a> described as:</p>
<blockquote>
<p>a new type of mass entrepreneurial space, a giant incubator, a young entrepreneurial community, a new information economy motor, an internet start-up ecosystem.</p>
</blockquote>
<p>All the while, Alibaba had been adding several enterprises to its war chest, mostly acquisitions of smaller companies. It took the major share of popular video site Youku Tudou and bought into the film business, getting closer to younger audiences.</p>
<h2>The state steps in</h2>
<p>China’s internet companies have built the infrastructure of China’s digital economy, which is now estimated to account for <a href="https://www.globaltimes.cn/page/202101/1212840.shtml">36.2% of GDP</a>. This growth is largely due to the forces unleashed by China’s new breed of digital capitalists. </p>
<p>Alibaba has invested heavily in research and development over the years. It has <a href="https://www.cnbc.com/2019/09/11/we-went-inside-alibabas-global-headquarters-heres-what-we-saw.html">a modern campus</a> in the Yuhang district in Hangzhou, recruiting foreign talent. Other tech giants aren’t far behind. Tencent has similar campuses in Guangzhou and Shenzhen, and Huawei has one in Dongguan.</p>
<p>As Stephen Barthlomeusz of the Sydney Morning Herald <a href="https://www.smh.com.au/business/companies/disrupted-china-is-slamming-the-brakes-on-big-tech-20201117-p56faf.html">notes</a>, the state regulator’s recent targeting of Alibaba (and <a href="https://www.bbc.com/news/business-56741551">other major tech companies</a>) doesn’t come without cost.</p>
<p>China’s tech market has driven growth and innovation. In fact, China’s <a href="http://www.lawinfochina.com/display.aspx?id=6351&lib=law&EncodingName=big5">anti-monopoly laws</a> have existed since at least 2007. But their enforcement was lacking, as the state opted for innovation by <a href="https://www.bloomberg.com/opinion/articles/2018-04-12/china-is-nationalizing-its-tech-sector">nationalising the tech sector</a> and letting it develop.</p>
<p>Putting a squeeze on activities now runs the risk of slowing down China’s economy. At the same time, the Chinese public is <a href="https://www.scmp.com/comment/opinion/article/3115061/china-joins-other-governments-seeing-dark-side-big-tech-or-has-it">growing disillusioned</a> with the predatory practices of big tech. Sound familiar? </p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/hundreds-of-chinese-citizens-told-me-what-they-thought-about-the-controversial-social-credit-system-127467">Hundreds of Chinese citizens told me what they thought about the controversial social credit system</a>
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<hr>
<h2>The visible hand</h2>
<p>At the same time, China’s tech companies owe a great deal of their success to the government. The state allowed them to benefit from policies designed to keep foreign competitors at bay, and to attract human capital back to China to work in these enterprises. </p>
<p>In return, the companies have helped the Chinese state further its technocratic model of surveillance, through investing in the <a href="https://www.wired.co.uk/article/china-social-credit-system-explained">social credit system</a> and facial recognition.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/395393/original/file-20210416-23-1icxf8g.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/395393/original/file-20210416-23-1icxf8g.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/395393/original/file-20210416-23-1icxf8g.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=600&fit=crop&dpr=1 600w, https://images.theconversation.com/files/395393/original/file-20210416-23-1icxf8g.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=600&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/395393/original/file-20210416-23-1icxf8g.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=600&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/395393/original/file-20210416-23-1icxf8g.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=754&fit=crop&dpr=1 754w, https://images.theconversation.com/files/395393/original/file-20210416-23-1icxf8g.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=754&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/395393/original/file-20210416-23-1icxf8g.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=754&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">China’s social credit system is a national surveillance mechanism that will track citizens, companies and government entities, rating their ‘trustworthiness’. The state missed its rollout deadline for last year.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
</figcaption>
</figure>
<p>But the market no longer offers the pretence of distance from government intervention. And new laws allow the Chinese government to <a href="https://www.smh.com.au/business/banking-and-finance/jack-ma-s-ant-group-is-becoming-a-member-of-a-club-he-despises-20210413-p57irp.html">access information</a> about the users of China’s tech platforms. </p>
<p>This is the status of the relationship going forward. The question now is whether this will lead to a permanent chill. In the year celebrating the <a href="https://www.ap.org/live-and-location-services/events/china-anniversary">100th anniversary</a> of the Chinese Communist Party, perhaps it would be more expedient for China’s tech companies to toe the party line. </p>
<p>With the state’s propaganda apparatus reminding people of its victory over capitalism, it’s in the interest of incumbent players to adopt the principles of socialism, rather than play to their shareholders.</p><img src="https://counter.theconversation.com/content/158878/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael Keane has received funding from the Australian Research Council. </span></em></p>It would be useful for China’s big tech firms to toe the party line. But the once mutually-beneficial relationship between these companies and the government is becoming increasingly strained.Michael Keane, Professor of Chinese Digital Media and Culture, Queensland University of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1527122021-01-06T15:18:52Z2021-01-06T15:18:52ZJack Ma: China’s spat with billionaire is part of bigger push to control big tech – Silicon Valley could be next<p>Chinese tech billionaire Jack Ma has allegedly fallen out with the Beijing government. <a href="https://www.theguardian.com/business/2021/jan/05/where-is-jack-ma-chinese-tycoon-not-seen-since-october-alibaba">Several</a> <a href="https://www.ft.com/content/a91dfeae-da1e-4348-8212-bbfbe94d93bd">recent articles</a> reported that Ma offended the Chinese authorities by delivering a speech in Shanghai in October criticising financial regulation, and that he and his colleagues were called in for questioning. </p>
<p>The planned IPO of his financial services powerhouse, Ant Group, for over US$30 billion, was suddenly suspended. Antitrust investigations were instigated against his other major company, online retailer Alibaba (and also Chinese tech giant, Tencent). </p>
<p>Towards the end of the year, <a href="https://www.sharecast.com/news/international-companies/china-plans-rectification-drive-divide-alibaba-empire--7763825.html">Ma then received</a> a “rectification order” from the People’s Bank of China (PBoC), the central bank, outlining five ways in which Ant Group must comply with the regulator. To cap it all, the entrepreneur has reportedly not been seen in public since October. </p>
<p>Whatever the reality behind Ma’s government relations, many of these actions are part of steps to increase Chinese tech regulation that have been years in the making. After several decades of allowing experimentation by big tech companies, this is in fact overdue. Indeed, Ma almost asked for it himself when he mentioned in his October speech that China’s financial sector lacks regulation. The reforms may also provide a glimpse of what might happen elsewhere – Silicon Valley should take note.</p>
<h2>China’s antitrust regime in three acts</h2>
<p>There have been three major movements in Chinese tech regulation in the past decade. The first Anti-Monopoly Law came into effect in August 2008. It outlawed monopolistic practices, but the authorities were hesitant to enforce the rules against tech companies in the heyday of China’s internet boom. Except for a few high-profile cases, such as a <a href="https://www.antitrustlawblog.com/2013/07/articles/uncategorized/qihoo-360-v-tencent-a-landmark-decision-under-chinas-anti-monopoly-law/">private action</a> concerning anti-virus software that was brought under the act against Tencent by rival Qihoo 360, China’s focus was on building digital capabilities and increasing consumption. </p>
<p>Major new laws began to appear a decade later. The <a href="https://www.chinalawtranslate.com/en/p-r-c-e-commerce-law-2018/">E-Commerce Law</a> became effective in January 2019, for example. E-commerce operators were required to register as market entities, and more importantly they became <a href="https://www.scmp.com/tech/apps-social/article/2180194/heres-how-chinas-new-e-commerce-law-will-affect-consumers-platform">jointly liable</a> with merchants for selling counterfeit merchandise. Operators could be fined up to US$300,000 for serious intellectual property infringement. </p>
<p>But it was really in 2020 when China’s antitrust regime for big tech came into focus. July saw the first concrete action as China’s State Council’s Anti-Monopoly Commission <a href="https://www.reuters.com/article/us-alipay-wechat-pay-china-exclusive-idUSKCN24W0XD">investigated</a> Ant Group payments arm Alipay and Tencent’s WeChat Pay. The Alipay investigation did not seem to cool investor interest in the Ant Group IPO. But well ahead of the November suspension and Ma’s Shanghai speech, it was a clear warning to the market. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/377356/original/file-20210106-17-5ur2kk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Consumer using WeChat Pay on their phone" src="https://images.theconversation.com/files/377356/original/file-20210106-17-5ur2kk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/377356/original/file-20210106-17-5ur2kk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/377356/original/file-20210106-17-5ur2kk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/377356/original/file-20210106-17-5ur2kk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/377356/original/file-20210106-17-5ur2kk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/377356/original/file-20210106-17-5ur2kk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/377356/original/file-20210106-17-5ur2kk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">WeChat Pay has also been in the firing line.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/beijing-china-on-october-9-2019-1526450492">An Ming</a></span>
</figcaption>
</figure>
<p>We also saw major data-protection legislation during the year: the <a href="http://www.ahwx.gov.cn/zcfg/gfxwj/202007/t20200708_4629245.html">Draft Data Security Law</a> was issued for public comments in July, followed by the <a href="https://thediplomat.com/2020/09/chinas-draft-data-security-law-a-practical-review/">Draft Personal Data Protection Law</a> in October. Together with the <a href="https://thediplomat.com/2017/06/chinas-cybersecurity-law-what-you-need-to-know/#:%7E:text=China's%20Cybersecurity%20Law%20comes%20into,global%20best%20practices%20for%20cybersecurity.">Cybersecurity Law</a> of 2016, it means that three fundamental pieces of legislation are now in place in this area. </p>
<p>On the back of this, the <a href="http://www.npc.gov.cn/npc/c30834/202006/75ba6483b8344591abd07917e1d25cc8.shtml">Civil Code of the People’s Republic of China</a>, which became effective on January 1, expressly provides the right of privacy and personal information protection to citizens. This regime is clearly with an eye to the EU data protection rules, and coincides with a new <a href="https://ec.europa.eu/commission/presscorner/detail/en/ip_20_2541">investment treaty</a> between China and the EU that gives them more access to one another’s markets. </p>
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Read more:
<a href="https://theconversation.com/chinas-new-civil-code-has-angered-feminists-the-chinese-communist-party-is-now-trying-to-appease-them-151165">China's new civil code has angered feminists – the Chinese Communist Party is now trying to appease them</a>
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<p>November then saw a <a href="http://www.samr.gov.cn/hd/zjdc/202011/t20201109_323234.html">consultation draft</a> of the Anti-Monopoly Guidelines on the Sector of Platform Economies. It was published one day before Single’s Day, China’s huge retail extravaganza on November 11 to celebrate people not in relationships, which has become Alibaba’s hallmark annual sales event. </p>
<p>These anti-monopoly guidelines attempt to address shortcomings in applying the existing rules to companies like Ant Group. <a href="https://www.paulweiss.com/practices/litigation/antitrust/publications/china-s-draft-anti-monopoly-guidelines-on-platform-economy?id=38602">They restrict</a> behaviour such as price discrimination favouring certain types of consumers, preferential treatment for merchants who sign exclusive agreements with platforms, and compulsory collection of user data. </p>
<p>In sum, Chinese big tech will likely have to fundamentally rethink the way it does business in future. The window of opportunity to scale at will without boundaries has closed shut.</p>
<h2>Pay attention, Google and Facebook</h2>
<p>What will the immediate effects be? Newcomers like Bytedance and Pinduoduo were already eating market share from Alibaba and Tencent, and the antitrust reforms could well accelerate that trend. </p>
<p>Flagship changes like loosening merchant exclusivity might have had more impact several years ago, before competition intensified, but the direction of travel is clear. In a sign of its new tougher stance, the authorities also <a href="https://www.cnbc.com/2020/12/14/alibaba-and-two-other-firms-fined-for-not-reporting-deals-to-chinese-regulators-.html">issued fines</a> of 500,000 yuan (£56,738) in December against Alibaba, Tencent subsidiary China Literature and Shenzhen Hive Box Technology for not declaring past acquisitions. </p>
<p>Meanwhile, the central bank’s December order to Ant Group will broadly require the company to go back to its <a href="https://theconversation.com/ant-group-is-holding-the-biggest-ipo-of-all-time-heres-what-it-is-147403">roots as online payments business Alipay</a>, which was originally spun out of Alibaba. Having branched into areas like insurance, credit and wealth management, these businesses now have to be restructured into a separate holding company. Ant Group must also introduce new data privacy rules and improve compliance around the securities that it manages for investors. </p>
<p>Some players not (yet) facing the same scrutiny appear to be paying close attention. JD Finance, another fintech spin-off, this time from Alibaba rival JD.com, has <a href="https://www.caixinglobal.com/2020-12-22/jdcoms-fintech-unit-reshuffles-executives-ahead-of-ipo-101642174.html">appointed</a> its former chief compliance officer as the new CEO. And while incumbents look over their shoulders, TikTok owner Bytedance just moved into financial services by launching a one-stop consumer finance app in October. </p>
<p>If we compare all this with the <a href="https://www.theguardian.com/us-news/video/2020/nov/18/facebook-and-twitter-ceos-face-senate-hearing-over-handling-of-2020-us-election-video">recent US congressional hearings</a> for Facebook’s Mark Zuckerberg and Twitter’s Jack Dorsey, it’s tempting to conclude that while China acts, America puts on a show. Of course, US antitrust cases are underway against <a href="https://www.ft.com/content/4be47818-e889-4442-a009-1d1adda25b0d">Facebook</a> and <a href="https://www.cnbc.com/2020/12/18/google-antitrust-cases-in-us-and-europe-overview.html">Google</a>. But now that China has taken a major step towards a comprehensive regime for regulating competition among digital platforms, the big question is to what extent this chilling wind will blow to the west.</p><img src="https://counter.theconversation.com/content/152712/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mark Greeven does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>It’s not only Alibaba and Ant Group that are feeling the heat.Mark Greeven, Professor of Innovation and Strategy, International Institute for Management Development (IMD)Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1494752020-11-04T13:30:22Z2020-11-04T13:30:22ZAnt Group: Jack Ma’s biggest market debut suspended amid fears over regulation<figure><img src="https://images.theconversation.com/files/367456/original/file-20201104-21-zr0zqj.png?ixlib=rb-1.1.0&rect=2%2C7%2C932%2C615&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Back to the start?</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/paris-france-may-16-2019-chinese-1404202478">Frederic Legrand - COMEO /Shutterstock</a></span></figcaption></figure><p>In a surprise <a href="https://www.bbc.co.uk/news/business-54798278">last minute decision</a>, the flagship stock exchange listing of Ant Group was suspended by regulators <a href="http://www.sse.com.cn/disclosure/announcement/general/c/c_20201103_5253315.shtml">in China</a> and <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/1103/2020110302285.pdf">Hong Kong</a>. The Chinese tech giant, backed by Alibaba billionaire Jack Ma, <a href="https://theconversation.com/ant-group-is-holding-the-biggest-ipo-of-all-time-heres-what-it-is-147403">was to be the biggest</a> initial public offering (IPO) in history. </p>
<p>The suspension puts in doubt the future of the US$34.4 billion share sale, part of the US$313 billion dual listing of this giant financial technology (fintech) payments company. The move followed <a href="https://www.bloombergquint.com/markets/jack-ma-summoned-by-china-financial-regulators-on-eve-of-ant-ipo">a regulatory interview</a> between the Chinese Financial Stability and Development Committee and Ma, the company’s ultimate controller. The committee’s chair, Vice Premier Liu He, was of the opinion that fintech companies needed to be better regulated amid an ongoing global debate about whether fintechs should be regulated as <a href="https://www.aljazeera.com/economy/2020/11/3/ahead-of-giant-ipo-chinas-ant-faces-key-question-what-is-it">financial companies or technology companies</a>.</p>
<p>Liu made a valid point, albeit with unfortunate timing. Similar debates are being conducted in the US where <a href="https://www.frbsf.org/banking/fintech/regulators/">fintech companies face multiple regulators</a> with overlapping authorities. The issue goes to the heart of the fintech revolution and the future of banking: what constitutes financial intermediation?</p>
<h2>Traditional banking vs fintech</h2>
<p>A bank <a href="https://www.jstor.org/stable/2976705?casa_token=vBJFK1blhQIAAAAA%3AMpzOxyOKSPPHbvBbcoX-JRjnrLsfqVuKWqCPSVfBHK20NcaIxnAX-1c-7AQ9VaxmKdrLlB9yRhHiH8Ewv4Ut5-3KcmmxvZ5E9t2X03FUduEDu4UZ686o&seq=1#metadata_info_tab_contents">is an intermediary</a>. It has a customer relationship and borrows funds by way of deposits (liabilities). It uses these to lend or invest (assets). In facilitating this mediation banks provide a service by providing a store of money and a mechanism to transmit that money. With improvements in fintech, however, money can be stored electronically, lenders and investors can source funds directly over the internet, and money transfer can be done digitally.</p>
<p>As a result, fintech companies such as Ant Group have the potential to disintermediate banking. To put it in simple terms, financial technology can cut out the middle man and enjoy a regulatory advantage. This increases the reach of financial services, but it raises the question of whether we need to fundamentally change the way we conduct financial transactions. The solution in China is to simply extend the regulatory net.</p>
<p>Many fintech companies, such as the Ant Group, are essentially brokers. They are not asset transformers. They do not have banking licenses, and as such don’t have access to deposits or insurance protection. Banks, however, are dependent on capital availability and borrowers’ credit. During the process of intermediation between loans and deposits, there is a mismatch between long-term assets and short-term deposits. This results in the risk of bankruptcy for traditional banks, unless it’s well managed. As a result, the banking sector is one of the most regulated sectors in the world. And a bank’s capital liquidity is intrinsically linked to its ability to function. Fintech companies do not face the same regulatory scrutiny.</p>
<figure class="align-center ">
<img alt="Ground view of Ant Financial hedquarters" src="https://images.theconversation.com/files/367454/original/file-20201104-13-hf2na9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/367454/original/file-20201104-13-hf2na9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/367454/original/file-20201104-13-hf2na9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/367454/original/file-20201104-13-hf2na9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/367454/original/file-20201104-13-hf2na9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/367454/original/file-20201104-13-hf2na9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/367454/original/file-20201104-13-hf2na9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Ant Group HQ.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/hangzhou-chinamarch-10-2018ant-financial-services-1662877429">wcarrot_007/Shutterstock</a></span>
</figcaption>
</figure>
<p><a href="https://www1.hkexnews.hk/app/sehk/2020/102484/documents/sehk20082500535.pdf">As of June 30, 2020</a>, about 98% of Ant Group’s credit balance originated through its platform was underwritten by its partner financial institutions or securitized. <strong>page 137</strong> As a credit broker, it does not shoulder much default risk. Potential <a href="https://www.nasdaq.com/articles/china-issues-draft-rules-to-regulate-online-micro-lending-business-2020-11-03">new rules</a> in China on micro-lending suggest this might change by setting a requirement for small online lenders to provide at least 30% risk sharing for any loan they fund jointly with banks. The Chinese Financial Stability and Development Committee are rightly concerned that <a href="https://www.aljazeera.com/economy/2020/11/3/ahead-of-giant-ipo-chinas-ant-faces-key-question-what-is-it">such a major change in business model</a> imposed by the regulator on Ant Group needs to be fairly disclosed to investors, hence the suspension of the listing. The IPO had marketed Ant Group as more of a technology company than a financial one. The regulator took a slightly different view, so a lot of face has been lost.</p>
<p>The regulation of fintech is not just a Chinese issue, and it would be unfair to criticise their regulatory intervention. In October 2020, the Federal District Court in New York <a href="https://www.businessinsider.com/office-of-comptroller-of-currency-fintech-charter-takes-hit-2019-10?r=US&IR=">reached a ruling</a> that also put the nature of fintech regulation in the US spotlight. </p>
<p>It decided the US Office of the Comptroller of the Currency could not grant charters to fintech companies, something it had previously planned to do for non-deposit taking fintech companies. This suggests such companies will be forced to use the traditional route to regulation, a banking license. This is a heavy regulatory burden and may hold back US innovation in fintech.</p>
<h2>Designing new regulations</h2>
<p>Europe is <a href="https://www.ebf.eu/priorities/cybersecurity-innovation/eu-framework-for-experimentation/">a more innovation-friendly environment</a> for fintechs. </p>
<p>The European Supervisory Authorities, part of the EU’s financial supervision system, have been asked <a href="https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:52018DC0109&from=EN#footnote15">to systematically consider fintech</a> in all their activities and consider ways in which the regulatory environment can be adapted. This treats fintechs more like technology companies and as such is a more flexible approach than taken in China or the US. </p>
<p>In the UK, the government’s strategy has been to make the UK the best place to start and grow a fintech business, including a desire <a href="https://www2.deloitte.com/uk/en/pages/financial-services/articles/regulating-fintech.html">to co-create regulation</a> with fintechs in mind. The Financial Conduct Authority’s Project Innovate, Fintech sandbox and the Bank of England’s FinTech accelerator are examples of <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/801277/UK-fintech-state-of-the-nation.pdf">this approach</a>. This approach may well prove more adaptable and help shape the debate on the future of regulation of fintech companies globally. No doubt Ant Group wishes it was operating in such an accommodating regulatory environment.</p><img src="https://counter.theconversation.com/content/149475/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Daniel Broby is affiliated with Centre for Financial Regulation and Innovation.</span></em></p>Last minute decision suspends world’s biggest IPO. But it exposes debates still ongoing about how to regulate fintech companies.Daniel Broby, Director, Centre for Financial Regulation and Innovation, University of Strathclyde Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1474032020-10-29T14:49:17Z2020-10-29T14:49:17ZAnt Group is holding the biggest IPO of all time – here’s what it is<figure><img src="https://images.theconversation.com/files/366228/original/file-20201028-17-1vd01rb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Ant climax. </span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/hangzhou-chinamarch-10-2018ant-financial-services-1662877429">wcarrot_007</a></span></figcaption></figure><p>Ant Group is likely to pull off the largest initial public offering (IPO) <a href="https://theconversation.com/ant-group-why-america-is-missing-out-on-the-biggest-ipo-in-history-145405">in history</a> when it goes public on the Hong Kong and Shanghai exchanges on November 5. The Chinese digital finance giant is <a href="https://www.bbc.co.uk/news/business-54692537">hoping to raise</a> US$34.4 billion, eclipsing flotations by <a href="https://uk.reuters.com/article/us-saudi-aramco-stocks/saudi-aramco-raises-ipo-to-record-29-4-billion-by-over-allotment-of-shares-idUKKBN1ZB03D">Saudi Aramco</a> (US$29.4 billion) and its cousin <a href="https://www.ft.com/content/0f97cc70-4208-11e4-a7b3-00144feabdc0">Alibaba</a> (US$25 billion). </p>
<p>The IPO is likely to value Ant Group at US$313 billion. This will make it the fourth biggest financial company in the world (after Berkshire Hathaway, Visa and Mastercard). </p>
<p>Many are asking what Ant Group is, how it has become so successful, and why it is worth so much. There are also questions about how it relates to the rest of the empire of Alibaba founder Jack Ma. Let’s start at the beginning.</p>
<h2>The rise of Alipay</h2>
<p>Unlike many emerging digital giants, Ant Group <a href="https://www.businesstimes.com.sg/opinion/us200b-ipo-for-ant-will-be-a-cheap-buy">has been profitable</a> from the get go. It started life as Alipay, a third-party online payment tool created by <a href="https://www.alibaba.com/">Alibaba</a> in 2004. </p>
<p>The catalyst for this move was eBay announcing plans to enter the Chinese market in 2003. Alibaba was China’s star in online retail, but was focused on selling goods for businesses. It now launched <a href="https://world.taobao.com/">Taobao</a>, a cross between eBay and Amazon, to serve consumers. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/366231/original/file-20201028-13-ikl0f5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Jack Ma giving a presentation" src="https://images.theconversation.com/files/366231/original/file-20201028-13-ikl0f5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/366231/original/file-20201028-13-ikl0f5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/366231/original/file-20201028-13-ikl0f5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/366231/original/file-20201028-13-ikl0f5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/366231/original/file-20201028-13-ikl0f5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/366231/original/file-20201028-13-ikl0f5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/366231/original/file-20201028-13-ikl0f5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Alibaba co-founder Jack Ma launched Taobao and Alipay to head off eBay’s incursion into China.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/paris-france-may-16-2019-chinese-1404202358">Frederic Legrand - COMEO</a></span>
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<p>Taobao conjured up millions of users, but didn’t initially make much revenue since listings were free and there were no commissions. There was also an issue of trust between vendors and buyers; imagine a rudimentary eBay without PayPal. </p>
<p>To address this, Alipay began as <a href="https://www.bloomberg.com/news/articles/2020-08-30/as-ipo-looms-all-you-need-to-know-about-jack-ma-s-ant-group">a simple escrow service</a> to secure transactions between independent buyers and sellers on Taobao. Alipay did not have the appropriate licences, but <a href="https://www.biznews.com/interviews/2015/02/09/the-incredible-story-behind-alibabas-jack-ma-an-inspiration-that-will-span-generations">Jack Ma insisted</a> they push forward within a grey zone of legality, believing that e-commerce in China depended on it. </p>
<p>Collaboration with Chinese banks was the next step, but there were archaic and bureaucratic obstacles, and online banking was still very basic. Building a new infrastructure from scratch was the only way to scale, in collaboration with the Industrial and Commercial Bank of China and Sun Microsystems.</p>
<p>By 2006, over 300,000 merchants in everything from travel to gaming had adopted Alipay. By 2010, it had connections with over <a href="https://www.researchgate.net/publication/323877493_How_a_Little_Ant_Challenges_Giant_Banks_The_Rise_of_Ant_Financial_Alipay's_Fintech_Empire_and_Relevant_Regulatory_Concerns">200 banks in China</a> and started providing payment services for online retailers outside Alibaba Group. </p>
<p>As Alipay grew, regulation became a hot topic. China precluded foreign-owned companies from operating banks, which technically included Alibaba, since Yahoo and Softbank controlled over 50% of the company. Jack Ma and Xie Shihuang, another Alibaba co-founder, <a href="https://www.marketwatch.com/story/how-alibabas-mistake-damaged-chinas-market-2011-06-14">purchased back the majority</a> of Alipay stock to create a Chinese-controlled entity that could operate legally. </p>
<h2>Ant invasion</h2>
<p>Today, Alipay <a href="https://techcrunch.com/2020/07/14/ant-alibaba-1-3-billion-users/#:%7E:text=Alipay%2C%20the%20brand%20of%20Ant's,active%20users%20as%20of%20March.">has 1.3 billion</a> active users. Alipay has captured a huge amount of value for Alibaba by enhancing its sales proposition, though it could have taken more from mobile payment fees for itself: around <a href="https://finance.sina.cn/chanjing/gsxw/2020-03-15/detail-iimxyqwa0537070.d.html">50% of transactions</a> are free and Alibaba transactions are heavily discounted. </p>
<p>Alipay faces <a href="https://fintechnews.hk/12618/mobilepayment/alipay-maintains-dominance-in-china-over-tencents-wechat-pay-and-qq-wallet/">fierce competition</a> to maintain its 55% share of Chinese mobile payments, with rival Tencent’s WeChat Pay and QQ Wallet closing in on 40% combined. <a href="https://www.weekinchina.com/2020/07/its-all-about-the-money/">And once</a> the digital yuan being developed by the People’s Bank of China is released, new payment channels could reduce all the incumbents’ market share.</p>
<p>But if growth in user numbers is <a href="https://www.forbes.com/sites/sarahsu/2018/05/30/how-will-ant-financial-chinas-fintech-giant-be-impacted-by-new-regulations/#773f25943df4">beginning to plateau</a>, the revenue stream per user promises to continue rising. Alipay has long understood that capturing value depends on how long it retains customers’ loyalty. Payments alone were never going to be enough. Alipay has built on its <a href="https://www.researchgate.net/publication/323877493_How_a_Little_Ant_Challenges_Giant_Banks_The_Rise_of_Ant_Financial_Alipay%27s_Fintech_Empire_and_Relevant_Regulatory_Concerns">two main resources</a> – access to funds and customer data – to branch into other financial services. </p>
<p>Ant Financial was established in 2014 as a vehicle for the entire operation, amid <a href="https://www.ft.com/content/dcd9fc62-1638-11e5-a58d-00144feabdc0">a private fundraising</a>. The insect name is a metaphor for no transaction or investment being too small – when added up, they become significant. Alibaba owns a 33% equity interest, with the remainder controlled by Ma (about 50%) and early investors. </p>
<p>Ant Group now offers services across five domains - payments, wealth management, lending, credit scoring, and insurance. Wealth management relates to Yu'e Bao (“leftover treasure”), launched in 2013 to allow even the smallest customers to invest leftover funds. It offers an average of 2% greater returns than traditional bank deposit interest, plus lower fees to its asset management partners. It is one of the <a href="https://www.wsj.com/articles/investors-pull-cash-from-chinas-money-market-behemoth-as-yields-tumble-11592481715">largest money market funds</a> in the world.</p>
<p>Ant Financial has also created a wealth management platform, Ant Fortune, which enables users to choose between Yu'e Bao and other funds offered by rivals. It <a href="https://www.shine.cn/biz/tech/1906207041/">now boasts</a> over 4,000 wealth management products from over 100 asset management companies.</p>
<p>Elsewhere, <a href="https://www.ft.com/content/ba163b00-fd4d-11e8-ac00-57a2a826423e">Sesame Credit</a> was created to leverage Ant’s access to personal data to create credit score profiles for borrowers, as well as offering them financial advice. <a href="https://fortune.com/2019/07/29/jack-ma-mybank-lending/">MYbank</a> was launched to use big data and AI to lend to small and medium-sized firms that were underserved by larger banks. </p>
<p>In 2018, Ant Group launched <a href="https://www.scmp.com/business/companies/article/3039554/ant-financials-mutual-aid-platform-xiang-hu-bao-attracts-100">Xiang Hu Bao</a>, a mutual insurance platform designed to address the lack of affordable healthcare for lower-wage workers. Free to join and only charging premiums upon treatment, 100 million users joined in the first year alone. </p>
<p>This ecosystem of service offerings is why Ant Group is worth so much today. The company cross-sells them extremely well. <a href="https://www.alibabagroup.com/en/ir/investorday">As many as</a> 80% of customers use three or more services, and 40% use all five. By taking a platform approach, direct competition with traditional financial institutions has been reduced. </p>
<p>The ambition doesn’t end at financial services, <a href="https://m.chinaknowledge.com/News/DetailNews?id=64408">as evidenced by</a> the Ant/Alibaba acquisition of online food delivery group Ele.me in 2018. As a company spokesperson put it, “The idea is that people are living their lives through this platform.” </p>
<h2>The big picture</h2>
<p><a href="https://www.antgroup.com/en/ir/notices">In 2019</a>, Ant Group made profits of more than US$2.6 billion from US$17.5 billion in revenues. Profits in just the first half of 2020 superseded 2019 at US$3.2 billion (PayPal’s net income over the same period was <a href="https://www.statista.com/statistics/478481/paypal-quarterly-net-income/#:%7E:text=PayPal%3A%20quarterly%20net%20income%202014%2D2020&text=In%20the%20second%20quarter%20of,dollars%20from%20the%20previous%20quarter.">US$1.6 billion</a>).</p>
<p>There appears strong potential for Ant Group to grow outside China, having formed strategic partnerships with mobile payments providers in <a href="https://mnacritique.mergersindia.com/news/alibaba-ant-financial-invest-in-paytm/">India</a>, <a href="https://www.scmp.com/business/article/2041909/ant-financial-forms-strategic-partnership-thai-fintech-ascend-money">Thailand</a> and <a href="https://iupana.com/2018/04/26/alipay-hunts-for-latam-opportunities-after-openpay-deal/?lang=en">Mexico</a>. <a href="https://www.antgroup.com/en/ir/notices">These added</a> another US$90 billion to the US$17 trillion in processed transactions in China in 2019. Besides new revenues, they have also proven to be a successful conduit for drawing new users into the services ecosystem. Recently, however, Ant Group has <a href="https://www.nasdaq.com/articles/insight-ant-group-curbs-support-for-overseas-partners-in-strategy-rethink-ahead-of-listing">dialed back</a> some of its global expansion ambitions to focus on consolidating its gains in the Chinese market ahead of the IPO. </p>
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<a href="https://images.theconversation.com/files/366233/original/file-20201028-23-1hd5erv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Mobile phone with Ant Financial app in front of keyboard and headphones" src="https://images.theconversation.com/files/366233/original/file-20201028-23-1hd5erv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/366233/original/file-20201028-23-1hd5erv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/366233/original/file-20201028-23-1hd5erv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/366233/original/file-20201028-23-1hd5erv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/366233/original/file-20201028-23-1hd5erv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/366233/original/file-20201028-23-1hd5erv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/366233/original/file-20201028-23-1hd5erv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Stand by for the ant invasion.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/july-26-2020-brazil-this-photo-1785414962">rafapress</a></span>
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</figure>
<p>To offer expanded financial services, Ant Group has also developed a portfolio of tech capabilities including <a href="https://www.forrester.com/report/The+BATJ+Firms+Are+Driving+Digital+Financial+Services+For+All/-/E-RES144756">cloud and blockchain platforms</a>. It has been selling these tech services to financial companies, emphasising that the group is primarily about tech not finance, coining itself “techfin” not “fintech”. Indeed, <a href="https://go.forrester.com/blogs/ant-groups-next-move/">these tech services</a> produced 50% of 2019 revenues, compared to payments bringing in 36%, and this switch has further excited investors. </p>
<p>Ant Group would not be worth as much, or as scaleable, had it stuck to disrupting China’s payments market. It is only by having become a digital enabler of all financial services that such a large IPO is now about to take place.</p><img src="https://counter.theconversation.com/content/147403/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Most people would be content to pull off one of the world’s top five IPOs, but Jack Ma is on course for his second.Michael Wade, Professor of Innovation and Strategy, Cisco Chair in Digital Business Transformation, International Institute for Management Development (IMD)Elizabeth Teracino, Research Fellow, International Institute for Management Development (IMD)Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1454052020-09-01T13:01:50Z2020-09-01T13:01:50ZAnt Group: why America is missing out on the biggest IPO in history<figure><img src="https://images.theconversation.com/files/355820/original/file-20200901-24-wcq991.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Ant Group is the payments powerhouse behind Alibaba.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/konskie-poland-september-06-2018-ant-1174445692">Piotr Swap</a></span></figcaption></figure><p>The US capital markets are being shunned by the largest initial public offering in history. This is an <a href="https://www.theguardian.com/commentisfree/2020/jun/23/the-guardian-view-on-china-trump-and-the-rest-might-right-and-trade-bait">indirect result</a> of the recent China-baiting by US politicians, led by Donald Trump. </p>
<p>Ant Group’s <a href="https://edition.cnn.com/2020/08/26/tech/ant-group-ipo-hnk-intl/index.html">US$200 billion</a> (£168 billion) flotation would normally have been a candidate for either the NYSE or NASDAQ, but will instead take place on the Hong Kong Stock Exchange (as well as Shanghai). This is especially galling to the US stock markets considering American financial royalty Citigroup, JP Morgan and Morgan Stanley are among those overseeing the listing. </p>
<p><a href="https://marker.medium.com/how-ant-group-became-the-biggest-fintech-company-in-the-world-7afae29ec1d3">Ant Group</a> is an online payments powerhouse that grew out of Alibaba, China’s answer to Amazon, and is ultimately controlled by Alibaba co-founder Jack Ma and his longstanding executives. The fact that it not listing in the US looks very likely to be the latest instalment in the very real and potentially dangerous political spat taking place between China and the US. </p>
<p>In August, Trump <a href="https://www.cnbc.com/2020/08/07/trump-issues-executive-orders-to-ban-us-transactions-with-wechat-tiktok.html">issued executive orders</a> restricting transactions related to two other Chinese tech gians: Tencent, which owns WeChat, and TikTok owner ByteDance. The president also issued an executive order to TikTok to make it destroy all copies of data on its US customers. </p>
<p>Meanwhile, the US Bureau of Industry and Security <a href="https://www.jdsupra.com/legalnews/updated-list-of-u-s-national-security-20966/">is restricting</a> Chinese companies from using US-origin technology in their products. And there is the “<a href="https://www.datacenterdynamics.com/en/news/us-clean-network-program-seeks-build-clouds-cables-and-apps-free-china/">clean network program</a>”, which started as a snub to Huawei’s superior 5G wireless technology and has since been expanded to restrict storage on cloud-based systems by certain other Chinese companies. </p>
<p>Finally, and perhaps most relevant of all to Ant Group, there is the proposed “<a href="https://www.lexology.com/library/detail.aspx?g=c7cdc8c4-5e0e-493b-b548-f49e23720117">Holding Foreign Companies Accountable Act</a>”. This legislation is designed to enforce compliance with certain company rules, including complying with US audits and disclosing foreign government ownership or control. </p>
<p>Failure to comply by the <a href="https://www.forbes.com/sites/kenrapoza/2020/08/19/why-200-chinese-companies-may-soon-delist-from-the-us-stock-exchange/#4126dcca3fe7">230 Chinese companies</a> listed in the US, which are worth circa US$1 trillion, would see them removed from American stock exchanges. These <a href="https://www.investors.com/etfs-and-funds/sectors/baba-stock-own-biggest-chinese-stocks-hit-list/">companies include</a> Alibaba, internet giant Baidu, e-commerce group JD.com and PetroChina. The proposals are supposed to have a three-year timeframe, but Trump has politicised them and is planning on using yet another executive order to speed up the process.</p>
<h2>Pension impact</h2>
<p>In much the same way as US capital markets have missed out on the listing of Ant Group, those who will be harmed by this act are the US pension funds and other financial institutions with <a href="https://www.researchgate.net/profile/Tatiana_Didier/publication/265449561_Information_Asymmetry_and_Institutional_Investor_Mandate_Evidence_from_US_Mutual_Fund_Foreign_Holdings/links/5523c77d0cf2c74f0dff1927/Information-Asymmetry-and-Institutional-Investor-Mandate-Evidence-from-US-Mutual-Fund-Foreign-Holdings.pdf">restrictive investment mandates</a> that stipulate that they can only buy shares in companies with US listings. </p>
<p>Qualified institutional buyers within the meaning of rule 144A under the US Securities Act will still be able to buy companies overseas, as indeed they might with Ant Group. The problem is that not all US institutions are mandated to invest outside of US capital markets. As for the Chinese companies themselves, they would not be starved of capital because they would simply relist elsewhere. </p>
<p>Some investors will therefore be forced sellers under the proposed act. There is <a href="https://www.jstor.org/stable/2330828">academic evidence</a> that delisting causes a company’s share price to fall: a sample of 520 companies demonstrated an average decline of 8.5%. As such, the biggest losers will be those US pension funds that diversified into these Chinese stocks, following <a href="https://www.buildalpha.com/mean-variance-optimization-portfolio-construction/">established techniques</a> for building more profitable portfolios. </p>
<p>Although there are very sound reasons for punishing rule breakers, delisting for the kinds of violations included in the proposed act has been the exception in the US. The legislation, which sets a precedent, is being viewed as targeted specifically at Chinese companies. Although it applies to all foreign companies, it <a href="https://www.forbes.com/sites/kenrapoza/2020/08/19/why-200-chinese-companies-may-soon-delist-from-the-us-stock-exchange/#d5f18793fe71">will be hard</a> for the Chinese to comply because of the state’s particularly tangled relationship with businesses. </p>
<p>The China Securities Regulatory Authority, in a bid to reduce the tension, <a href="https://www.bloombergquint.com/onweb/china-securities-regulator-sends-new-proposal-on-u-s-audits">approached the</a> US Public Company Accounting Oversight Board in August with an offer to let it audit a few selected state-owned enterprises. It is unlikely that this will pacify the China hawks in the US administration. If it doesn’t, the biggest losers will be US capital markets and investment funds – and ultimately ordinary Americans trying to save for their retirement. </p>
<p>Targeted punitive action against companies, individual sanctions and nationalistic legislation will likely mean that Ant Group is not the last non-US company to decide against a listing in the US. As a result, <a href="https://heinonline.org/HOL/LandingPage?handle=hein.journals/busl50&div=21&id=&page=">the hegemony</a> of US capital markets may well be under threat. It could all potentially be powerful ammunition for the Democrats in their battle to unseat the president in November. </p>
<hr>
<p><em>The original version of this article suggested that Ant Group may also have avoided the US because of different rules about disclosing controlling shareholders in Hong Kong, but the rules are in fact not different in this respect.</em></p><img src="https://counter.theconversation.com/content/145405/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Daniel Broby is affiliated with the Centre for Financial Regulation and Innovation. He is a Chartered Fellow of the CISI and a Fellow of CFA Society of the UK.</span></em></p>In the teeth of the crackdown on foreign listed companies, Ant Group has opted for Hong Kong – ultimately to the cost of American savers.Daniel Broby, Director, Centre for Financial Regulation and Innovation, University of Strathclyde Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1441442020-08-11T21:24:56Z2020-08-11T21:24:56ZTrump’s attempts to ban TikTok and other Chinese tech undermine global democracy<figure><img src="https://images.theconversation.com/files/352355/original/file-20200811-21-j84y4j.jpg?ixlib=rb-1.1.0&rect=14%2C0%2C4767%2C2946&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Banning TikTok in the United States poses a threat to global democracy.</span> <span class="attribution"><span class="source">(Shutterstock)</span></span></figcaption></figure><p>The Trump administration aims to purge Chinese tech companies from the United States, and that has consequences for all of us.</p>
<p>U.S. President Donald Trump and his administration recently issued three new national security measures: an expansion of the State Department’s Clean Network initiative and two executive orders. The <a href="https://www.state.gov/the-clean-network/">Clean Network</a> initiative forbids the use of Chinese tech in the U.S. telecom system and prevents app stores such as Google Play and the Apple App Store from offering certain Chinese apps. </p>
<p>The two executive orders ban U.S. persons and businesses from doing business with two Chinese companies: <a href="https://www.whitehouse.gov/presidential-actions/executive-order-addressing-threat-posed-wechat/">Tencent Holdings</a>, owner of <a href="https://www.nytimes.com/video/technology/100000004574648/china-internet-wechat.html">the WeChat app</a>, and <a href="https://www.whitehouse.gov/presidential-actions/executive-order-addressing-threat-posed-tiktok/">ByteDance Ltd.</a>, owner of <a href="https://www.commonsensemedia.org/blog/parents-ultimate-guide-to-tiktok">the viral video-sharing app TikTok</a>.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/352310/original/file-20200811-24-1oiy7ko.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C3000%2C1994&q=45&auto=format&w=1000&fit=clip"><img alt="A photograph of a man's back wearing a shirt promoting TikTok in an Apple Store" src="https://images.theconversation.com/files/352310/original/file-20200811-24-1oiy7ko.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C3000%2C1994&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/352310/original/file-20200811-24-1oiy7ko.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/352310/original/file-20200811-24-1oiy7ko.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/352310/original/file-20200811-24-1oiy7ko.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/352310/original/file-20200811-24-1oiy7ko.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/352310/original/file-20200811-24-1oiy7ko.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/352310/original/file-20200811-24-1oiy7ko.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The Trump administration has been taking measure to ban TikTok and other Chinese technologies from the U.S.</span>
<span class="attribution"><span class="source">(AP Photo/Ng Han Guan)</span></span>
</figcaption>
</figure>
<h2>Dancing into trouble</h2>
<p>At first glance, it seems strange that a social media app aimed at teenagers could be at the centre of a global controversy over national security and privacy concerns. TikTok is best known as a platform for teens and young adults to share short videos of themselves dancing or lip-syncing to their favourite songs.</p>
<p><a href="https://www.whitehouse.gov/presidential-actions/executive-order-addressing-threat-posed-tiktok/">According to Trump</a>, TikTok is collecting and sending personal data about Americans directly to the Chinese government. The administration is also worried that, in the future, the app can be used as a conduit for spreading disinformation to Americans. At this point, all these fears are hypothetical. TikTok has consistently rejected these accusations — even the <a href="https://www.nytimes.com/2020/08/07/us/politics/tiktok-security-threat.html">Central Intelligence Agency agrees</a> that the app does not pose a threat.</p>
<p>Since 2018, TikTok has been downloaded <a href="https://sensortower.com/blog/tiktok-downloads-2-billion">two billion times</a> worldwide. Its success represents the first real challenge to dominant U.S.-based social media platforms such as Facebook and Instagram. In the U.S., TikTok has been downloaded 165 million times. </p>
<p><div data-react-class="InstagramEmbed" data-react-props="{"url":"https://www.instagram.com/p/CDWXPVzn80B","accessToken":"127105130696839|b4b75090c9688d81dfd245afe6052f20"}"></div></p>
<p>According to a new survey report, the “<a href="https://socialmedialab.ca/2020/07/13/the-state-of-social-media-in-canada-2020-a-new-survey-report-from-the-ryerson-social-media-lab/">State of Social Media in Canada 2020</a>,” TikTok is now one of the top 10 most popular social media apps in Canada. Fifteen per cent of online Canadians over the age of 18 reported having an account; TikTok is the only Chinese-owned social media platform to achieve a 10 per cent adoption rate in Canada.</p>
<h2>Tech fault lines</h2>
<p>These actions by the U.S. government represent a major break along a geopolitical and technological fault line between China and the U.S. that has been building for over 20 years and could signal the beginning of a new Cold War between the two states. </p>
<p>In recent years, privacy has become a national security concern in Washington. U.S. policy-makers have been alarmed about the volume of personal data gushing out of the U.S. via social media apps, computer hacking and <a href="https://home.treasury.gov/policy-issues/international/the-committee-on-foreign-investment-in-the-united-states-cfius">foreign acquisitions of American firms</a>. This treasure trove of data can be used to build profiles of Americans, commit all manner of financial fraud and even be used for blackmail. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/huawei-and-tiktok-are-at-the-forefront-of-a-new-drift-to-regionalism-many-others-will-follow-143306">Huawei and TikTok are at the forefront of a new drift to regionalism – many others will follow</a>
</strong>
</em>
</p>
<hr>
<p>In 2018, the U.S. prevented a company <a href="https://www.nytimes.com/2018/01/02/business/moneygram-ant-financial-china-cfius.html">owned by Chinese billionaire Jack Ma from buying MoneyGram</a> over fears that American banking data would be leaked to the Chinese government. </p>
<p>In 2019, the U.S. ordered another Chinese company, Kunlun, to sell <a href="https://www.reuters.com/article/us-grindr-m-a-beijingkunlun/chinas-kunlun-tech-agrees-to-u-s-demand-to-sell-grindr-gay-dating-app-idUSKCN1SJ28N">Grindr</a>, a dating app for gay, bi, trans and queer people, to an American investor group. The argument was made that the app’s database contained sensitive personal information such as a user’s location, messages and HIV status.</p>
<p>According to the <a href="https://www.state.gov/5g-clean-network/#nav__primary-nav">U.S. Department of State</a>, these latest decrees are part of “the Trump Administration’s comprehensive approach to safeguarding the nation’s assets including citizens’ privacy and companies’ most sensitive information from aggressive intrusions by malign actors, such as the Chinese Communist Party.”</p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/NFj1KG97_VQ?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">A Yahoo! Finance news story about the Trump administration’s attempt to ban TikTok.</span></figcaption>
</figure>
<h2>A ‘digital Berlin Wall’</h2>
<p>At first glance, these measures look like a reasonable response against a repressive government with a reputation for <a href="https://www.wired.co.uk/article/china-social-credit-system-explained">using electronic data to control</a> and <a href="https://www.nytimes.com/2019/05/22/world/asia/china-surveillance-xinjiang.html">imprison its own citizens</a>. But in a bid to divide the online world between itself and China, the U.S. government might have inadvertently started the construction of a new “<a href="https://globalfreedomofexpression.columbia.edu/publications/the-digital-berlin-wall-how-germany-accidentally-created-a-prototype-for-global-online-censorship/">digital Berlin Wall</a>.” And like all walls, this new digital wall can lock people in just as well as it can keep people out. </p>
<p>This lays the groundwork for the end of an open and free internet and may accelerate the creation of a <a href="https://techcrunch.com/2019/03/13/the-splinternet-is-already-here/">splinternet</a>, whereby a country or groups of countries fracture the world wide web into a series of walled sections shaped according to their own politics. The splinternet is becoming a reality. These crude measures by the U.S. brings U.S. tech policy in line with China and other authoritarian regimes. </p>
<p>In response to these moves, the Internet Society, a group founded in 1992 by internet pioneers Vint Cerf and Bob Kahn, warned that “<a href="https://www.internetsociety.org/news/statements/2020/internet-society-statement-on-u-s-clean-network-program/">[h]aving a government dictate how networks interconnect according to political considerations rather than technical considerations runs contrary to the very idea of the internet. Such interventions will significantly impact the agility, resiliency and flexibility of the internet</a>.”</p>
<h2>Challenge to global democracy</h2>
<p>With these attempts to extend control over foreign ownership of social media apps and platforms, the internet becomes a tool to limit democratic freedoms. These actions will further legitimize and embolden governments around the world to <a href="https://www.wsj.com/articles/internet-shutdowns-become-a-favorite-tool-of-governments-its-like-we-suddenly-went-blind-11582648765">interfere with or shut down the internet whenever it is politically expedient</a>. Long-term and frequent internet interference can cause the systematic and structural erosion of freedom of expression and freedom of speech.</p>
<p>Platform ownership matters, especially the foreign kind. Trump’s action against TikTok is a <a href="https://www.wired.com/story/trump-tiktok-ban-hypocrisy/">gift to Facebook</a>, which recently launched TikTok copycat feature Instagram Reels. Forcing the sale of TikTok in the U.S. will also be a win for whichever company purchases it. </p>
<p>In the long run, however, these executive orders likely will remind regulators around the world, but especially those in the European Union, about the strategic importance of foreign ownership of communication platforms. Citing data privacy and national security, many countries will likely pass new cyber-sovereignty laws, making it more difficult for foreign companies to operate. Long-term fallouts from this policy include increased operating costs, which in turn will impact large tech companies such as Google and Facebook the most.</p>
<p>With <a href="https://www.npr.org/2020/08/08/900394707/tiktok-to-sue-trump-administration-over-ban-as-soon-as-tuesday">litigation pending</a> and talks of <a href="https://blogs.microsoft.com/blog/2020/08/02/microsoft-to-continue-discussions-on-potential-tiktok-purchase-in-the-united-states/">fire sales and shotgun weddings to Microsoft or some other western tech company</a>, the fate and <a href="https://www.lawfareblog.com/tiktok-and-law-primer-case-you-need-explain-things-your-teenager">legality</a> of Trump’s executive measures are still in doubt. </p>
<p>If cyber sovereignty and the splinternet take root, we are in for some troubling times ahead for global democracy. Whether Trump intended to or not, he has set in motion changes that might fundamentally undermine the internet as we know it.</p><img src="https://counter.theconversation.com/content/144144/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Philip Mai does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Trump administration’s attempts to ban TikTok and other Chinese technologies sets a dangerous precedent for internet regulation.Philip Mai, Senior Researcher and Director of Business and Communications, Social Media Lab, Toronto Metropolitan UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1347772020-04-03T12:43:41Z2020-04-03T12:43:41ZChina’s big donors are pitching in to deal with the new coronavirus – and not just in their own country<figure><img src="https://images.theconversation.com/files/324792/original/file-20200402-23157-1btdojh.jpg?ixlib=rb-1.1.0&rect=0%2C794%2C3698%2C1812&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Alibaba founder Jack Ma, left, is funding African entrepreneurs through his foundation.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/alibaba-founder-jack-ma-attends-the-maiden-awards-ceremony-news-photo/1188211400">VCG/VCG via Getty Images</a></span></figcaption></figure><p><a href="https://www.nytimes.com/article/coronavirus-timeline.html">Less than a month after China confirmed</a> the emergence of what soon became the new coronavirus pandemic, the Chinese <a href="https://theconversation.com/business-moguls-seek-to-build-a-wanda-full-future-for-sport-in-china-59864">e-commerce giant</a> <a href="https://www.cnbc.com/video/2017/09/21/what-is-alibaba.html">Alibaba</a> pledged US<a href="https://www.cnn.com/2020/01/29/business/jack-ma-coronavirus-vaccine/index.html">$144 million</a> in medical supplies for Hubei province and its capital city Wuhan.</p>
<p>Soon after that Jan. 29 announcement, Chinese billionaire Jack Ma, Alibaba’s founder, said he was giving away <a href="http://philanthropynewsdigest.org/news/jack-ma-commits-14.4-million-for-coronavirus-vaccine-efforts">$14 million through his own foundation</a> to develop a COVID-19 vaccine. These gifts from Ma, a former high school teacher, and the company roughly equaled everything else given by that point to fight coronavirus.</p>
<p>Ma has continued to step up. On March 3, he donated <a href="https://mainichi.jp/english/articles/20200304/p2a/00m/0na/022000c">1 million masks to Japan</a>. On March 13, he announced that he was <a href="https://www.scmp.com/news/china/article/3075469/coronavirus-masks-and-test-kits-donated-jack-ma-arrive-us">shipping</a> <a href="https://twitter.com/foundation_ma/status/1238317660871393280">500,000 test kits</a> and <a href="https://thehill.com/policy/healthcare/487535-chinese-billionaire-to-send-us-500000-coronavirus-test-kits-1-million-face">a million masks to the U.S.</a> Three days later, he announced a donation of 1.1 million test kits and 6 million masks to be distributed to <a href="https://www.cnn.com/2020/03/16/africa/jack-ma-donate-masks-coronavirus-africa/index.html">all 54 African countries</a>.</p>
<p>By the end of March, every other region of the world benefited from his largesse, including <a href="https://www.euractiv.com/section/politics/news/capitals-special-edition-how-effective-is-chinas-mask-diplomacy-in-europe/">Western Europe</a>, <a href="https://www.laprensalatina.com/chinas-alibaba-to-send-masks-testing-kits-to-latin-america/">Latin America</a>, <a href="https://www.scmp.com/news/china/diplomacy/article/3076319/jack-ma-donates-18-million-masks-medical-supplies-help">Asia</a> and <a href="https://www.aljazeera.com/news/2020/03/russia-latest-country-receive-coronavirus-kits-jack-ma-200326215605441.html">Russia</a>. </p>
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<h2>A wave of giving</h2>
<p>This wave of Chinese giving goes beyond Ma’s own checkbook.</p>
<p>The Chinese search engine company <a href="https://www.thestar.com.my/news/regional/2020/01/27/gates-foundation-and-baidu-to-assist-coronavirus-fight-in-china">Baidu has pledged $43 million</a> to support drug research and help disseminate public health information in China.</p>
<p>The giant tech company Tencent Holdings says it donated <a href="https://www.tencent.com/en-us/articles/2201014.html">$211 million in February</a> for medical supplies, efforts to fight the new coronavirus in China and other related priorities.</p>
<p>In addition, on March 24, Tencent announced the creation of a <a href="https://techcrunch.com/2020/03/25/tencent-launches-100m-fund-to-fight-covid-19/">$100 million global fund</a> to support international efforts to deal with the pandemic. The company seeks to <a href="https://www.tencent.com/en-us/articles/2200955.html">harness the power of internet</a> by providing faster access to health care services online, facilitating remote working and battling misinformation.</p>
<p>Tencent also played a key role in getting more than a million N95 masks delivered, courtesy of the private jet the <a href="https://www.wsj.com/articles/a-million-n95-masks-are-coming-from-chinaon-board-the-new-england-patriots-plane-11585821600">New England Patriots</a> football team uses, to Boston on April 3.</p>
<p>Separately, <a href="https://www.marketwatch.com/investing/stock/egrnf/profile">China Evergrande Group</a>, China’s <a href="https://investableuniverse.com/2020/03/06/evergrande-funding-coronavirus-research/">largest real estate company</a>, has set up a <a href="https://www.bostonglobe.com/2020/03/05/opinion/how-greater-boston-biomedical-community-is-tackling-coronavirus/">$115 million effort in Boston</a> that brings together researchers at top universities such as Harvard and the Massachusetts Institute of Technology China’s Guangzhou Institute of Respiratory Health along with local biotechnology companies to develop tests, treatments and do other work aimed at halting the pandemic.</p>
<p>All told, Chinese donors, foundations and corporations are already planning to kick in some <a href="https://blog.candid.org/post/update-on-the-philanthropic-response-to-the-coronavirus-disease-covid-19/">$900 million</a>, about a fifth of the estimated $4.3 billion in this initial wave of worldwide <a href="https://candid.org/explore-issues/coronavirus">donations raised by April 2</a> to deal with COVID-19 and its many repercussions, according to Candid – a group that tracks charities and funders.</p>
<p>We have observed through our research that <a href="https://www.theguardian.com/global-development-professionals-network/2017/jun/28/seven-things-you-probably-didnt-know-about-chinese-philanthropy">private philanthropy is flourishing in China</a>. The response by Chinese donors to this pandemic illustrates how this generosity is beginning to extend far beyond China’s borders.</p>
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<h2>Chinese charity</h2>
<p>Ma is, according to Forbes Magazine, the <a href="https://www.forbes.com/profile/jack-ma/#564772991ee4">21st wealthiest person in the world</a> with a pre-pandemic fortune estimated to be worth approximately $43 billion.</p>
<p>In the fall 2019, he stepped away from his leadership role at Alibaba, the <a href="https://www.cnbc.com/2019/09/10/jack-ma-steps-down-as-alibaba-baba-chairman-history-of-the-company.html">company he founded in 1999</a> that now has more than 100,000 employees. The entrepreneur stated at that time that he wanted to <a href="https://www.nytimes.com/2019/09/10/business/alibaba-jack-ma-retire.html">devote himself to philanthropy</a>, especially causes tied to <a href="https://www.norrag.org/building-new-bonds-for-social-impact-in-education-by-beth-yu/">education</a>.</p>
<p>Large-scale private charity only emerged in modern China <a href="https://www.chinacenter.net/2017/china_currents/16-1/giving-harder-earning-philanthropy-china">after 2000</a>. </p>
<p>After China embraced capitalism, it experienced meteoric economic growth, which generated not just islands of wealth but also <a href="https://theconversation.com/inequality-in-china-and-the-impact-on-womens-rights-38744">vast inequalities</a>. China’s first private foundations <a href="https://www.globethics.net/documents/4289936/17452664/GE_China_Ethics_7_isbn9782889311781.pdf">flourished in the 1980s and 1990s</a> in attempt to halt this process and help the government establish a safety net.</p>
<p>In 1994, China’s leaders officially admitted that <a href="https://www.globethics.net/documents/4289936/17452664/GE_China_Ethics_7_isbn9782889311781.pdf">philanthropy and socialism could be compatible</a>. Its philanthropy is fueling China’s worldwide influence through what’s known as “<a href="https://www.foreignaffairs.com/reviews/capsule-review/2004-05-01/soft-power-means-success-world-politics">soft power</a>” – an effort to persuade others to do what it wants without force or coercion.</p>
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<h2>Other Chinese billionaire philanthropists</h2>
<p>The proliferation of Chinese philanthropists is directly linked to the rise of massive Chinese fortunes and “<a href="https://www.globethics.net/documents/4289936/17452664/GE_China_Ethics_7_isbn9782889311781.pdf">wealth polarization</a>.” There were <a href="https://www.scmp.com/news/china/article/3036822/chinas-billionaires-had-rough-2018-amid-slowing-economy-and-rising">325 billionaires in mainland China</a> and <a href="https://www.ubs.com/global/en/wealth-management/uhnw/billionaires-report.html">436 in greater China</a> in 2018 – the second-largest number anywhere after the United States, where <a href="https://www.usnews.com/news/best-states/slideshows/states-with-the-most-billionaires">607 billionaires</a> live.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/310803/original/file-20200120-118315-1bgmhl0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/310803/original/file-20200120-118315-1bgmhl0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/310803/original/file-20200120-118315-1bgmhl0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=375&fit=crop&dpr=1 600w, https://images.theconversation.com/files/310803/original/file-20200120-118315-1bgmhl0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=375&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/310803/original/file-20200120-118315-1bgmhl0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=375&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/310803/original/file-20200120-118315-1bgmhl0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=471&fit=crop&dpr=1 754w, https://images.theconversation.com/files/310803/original/file-20200120-118315-1bgmhl0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=471&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/310803/original/file-20200120-118315-1bgmhl0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=471&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Charles Chen Yidan is dedicating a large part of his fortune to education.</span>
<span class="attribution"><span class="source">Yidan Prize Foundation</span></span>
</figcaption>
</figure>
<p>Ma isn’t the only self-made Chinese entrepreneur to go big with philanthropy.
<a href="https://yidanprize.org/the-founder/">Charles Chen Yidan</a>, a Tencent co-founder, left the company in 2013. Like Ma, he’s emphasizing education. The <a href="https://yidanprize.org/the-prize/">Yidan Prize</a> – which amounts to $3.8 million – is the world’s <a href="https://thediplomat.com/2019/01/chinas-philanthropy-boom/">most generous award for educational research</a>.</p>
<p><a href="https://philanthropynewsdigest.org/news/chinese-philanthropist-to-commit-1.5-billion-to-conservation">He Qiaonv</a>, who made her fortune in China’s burgeoning landscaping business, pledged that she would give away $1.5 billion for wildlife conservation in 2017. At that time, this was the world’s largest-ever personal philanthropic commitment for this cause.</p>
<p>The government is also encouraging giving. China increased its <a href="https://www.cof.org/content/nonprofit-law-china#deductibility">tax incentives for philanthropy</a> in 2018. Individuals can deduct donations up to 30% of their taxable income, and businesses can do the same with up to 12% of their annual profits.</p>
<p>Despite the global economic downturn that’s unfolding now, we expect <a href="https://doi.org/10.1007/s11266-019-00142-3">Chinese philanthropy</a> to become an even bigger force to be reckoned with far beyond its borders in the years ahead.</p>
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<p><em>Some of this information appeared in an article The Conversation France published on <a href="https://theconversation.com/china-rise-of-a-new-philanthropic-power-130495">February 6, 2020</a>.</em></p>
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<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The response by Chinese donors to this pandemic so far illustrates how the country’s philanthropy is beginning to go global.Charles Sellen, Global Philanthropy Fellow, Lilly Family School of Philanthropy, IUPUIFabrice Jaumont, Researcher, Author, International Educator, Fondation Maison des Sciences de l'Homme (FMSH)Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1304952020-02-06T17:13:12Z2020-02-06T17:13:12ZChina: rise of a new philanthropic power<figure><img src="https://images.theconversation.com/files/314023/original/file-20200206-43119-uc3v3r.jpg?ixlib=rb-1.1.0&rect=0%2C7%2C1022%2C654&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Jack Ma speaks at a meeting of the World Economic Forum Foundation in 2015.</span> <span class="attribution"><a class="source" href="https://live.staticflickr.com/8658/16159152258_4f0d7bf7a3_b.jpg">Jolanda Flubacher/World Economic Forum</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>In response to the ongoing coronavirus emergency, on January 31, Chinese billionaire Jack Ma pledged the equivalent of <a href="http://philanthropynewsdigest.org/news/jack-ma-commits-14.4-million-for-coronavirus-vaccine-efforts">US$144 million for medical supplies for Wuhan and Hubei</a> as well as $14 million to help develop a vaccine. Just a few months ago, the former teacher had left the reins of a company of more than 100,000 employees, valued $450 billion, stating that he wanted to <a href="https://www.nytimes.com/2019/09/10/business/alibaba-jack-ma-retire.html">devote himself to philanthropy</a> in the <a href="https://www.norrag.org/building-new-bonds-for-social-impact-in-education-by-beth-yu/">field of education</a>. The emergence of the coronavirus threat showed his commitment to supporting public-health efforts as well.</p>
<p>In China, public figures have long since practised philanthropy – understood as <a href="http://www.iupress.indiana.edu/product_info.php?products_id=67601">“voluntary action for the public good”</a> – often quietly. But given the magnitude of Jack Ma’s fortune, <a href="https://www.forbes.com/profile/jack-ma/#564772991ee4">21st in the world</a> at approximately $43 billion, this decision indicates that Chinese philanthropy is at a historic turning point.</p>
<h2>The revival of a thousand-year-old philanthropic tradition</h2>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/310881/original/file-20200120-69539-6xltr9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/310881/original/file-20200120-69539-6xltr9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=1010&fit=crop&dpr=1 600w, https://images.theconversation.com/files/310881/original/file-20200120-69539-6xltr9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=1010&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/310881/original/file-20200120-69539-6xltr9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=1010&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/310881/original/file-20200120-69539-6xltr9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1269&fit=crop&dpr=1 754w, https://images.theconversation.com/files/310881/original/file-20200120-69539-6xltr9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1269&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/310881/original/file-20200120-69539-6xltr9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1269&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Confucius, bronze. Gratitude and societal harmony are at the heart of Confucian thought.</span>
<span class="attribution"><a class="source" href="https://fr.wikipedia.org/wiki/Confucianisme#/media/Fichier:Konfuzius.jpg">Wikimedia</a></span>
</figcaption>
</figure>
<p>One of the often-overlooked aspects of Chinese capitalism is the relative absence of private philanthropy on the part of the wealthy classes toward the most modest, <a href="https://www.chinacenter.net/2017/china_currents/16-1/giving-harder-earning-philanthropy-china/">until recently</a>. Historically, however, the country has a tradition of generosity dating back <a href="https://www.globalchinesephilanthropy.org/gcpi/report/178332">more than 3,000 years</a>, echoed by <a href="https://www.britannica.com/topic/Confucianism">Confucianism</a>. This tradition stagnated after 1949, in the early years of the People’s Republic: nationalisation of assets; foreign organisations dissolved or expelled from the territory. The socialist state had to provide for social needs and private initiatives were discouraged.</p>
<p>This chronology contrasts sharply with <a href="https://www.abc-clio.com/ABC-CLIOCorporate/product.aspx?pc=A1391C">US economic history</a>, where philanthropy emerged early on as a <a href="https://press.princeton.edu/books/hardcover/9780691128368/philanthropy-in-america">remedy for the social ills</a> of laissez-faire capitalism in the Gilded Age.</p>
<p>Philanthropy served for over a century as “soft power” for the countries that practised it. Historical examples abound, as in the Cold War when it was used by the West to <a href="http://audrajwolfe.com/freedoms-laboratory/">fight Marxism</a>. The developing world today is a vast area of multiple philanthropic influences, invoking the pursuit of the United Nations’ <a href="https://sustainabledevelopment.un.org/hlpf/2019/philanthropy">Sustainable Development Goals</a>.</p>
<p>There is already a growing number of researchers of Chinese origin in the academic community dedicated to nonprofits and philanthropy (<a href="https://www.arnova.org/page/conferenceschedule">ARNOVA 2019 conference</a>), and China is the subject of more <a href="https://link.springer.com/article/10.1007/s11266-019-00142-3">extensive research</a>.</p>
<p>Since the “open door” policy under Deng Xiaoping, China has experienced tremendous growth, which generated wealth but also more inequalities. The first private foundations flourished in the 1980s and ‘90s in attempt to halt this process and assist the state in its social spending. It was not until 1994 that the <a href="https://www.globethics.net/documents/4289936/17452664/GE_China_Ethics_7_isbn9782889311781.pdf">compatibility between philanthropy and socialism was officially admitted</a>. Today, we are witnessing a real <a href="https://www.chinacenter.net/2017/china_currents/16-1/giving-harder-earning-philanthropy-china/">renaissance of the spirit of private philanthropy</a> in the country.</p>
<h2>Multiplication of billionaire philanthropists</h2>
<p>The proliferation of Chinese philanthropists is directly linked to the rise of fortunes. In 2017, there were 373 billionaires in mainland China (the second largest concentration in the world after the 585 billionaires living in the United States), including 89 new individuals, an average of <a href="https://www.bbc.com/news/business-45989908">nearly two new billionaires every week</a>. Their number slightly decreased in 2018, in line with the global market downturn, after five years of continuous growth.</p>
<p>Among rising self-made entrepreneurs, some influential national figures want to inspire a new generation of philanthropists.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/310803/original/file-20200120-118315-1bgmhl0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/310803/original/file-20200120-118315-1bgmhl0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/310803/original/file-20200120-118315-1bgmhl0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=375&fit=crop&dpr=1 600w, https://images.theconversation.com/files/310803/original/file-20200120-118315-1bgmhl0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=375&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/310803/original/file-20200120-118315-1bgmhl0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=375&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/310803/original/file-20200120-118315-1bgmhl0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=471&fit=crop&dpr=1 754w, https://images.theconversation.com/files/310803/original/file-20200120-118315-1bgmhl0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=471&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/310803/original/file-20200120-118315-1bgmhl0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=471&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Dr. Charles Chen Yidan, founder of the Yidan Prize for education.</span>
<span class="attribution"><span class="source">Yidan Prize Foundation</span></span>
</figcaption>
</figure>
<p>Dr. Charles Chen Yidan, co-founder of Tencent, left the company in 2013 after becoming one of the wealthiest men in the country, to devote himself to promoting education. The <a href="https://yidanprize.org/the-prize/">Yidan Prize</a> ($3.8 million) is the world’s <a href="https://thediplomat.com/2019/01/chinas-philanthropy-boom/">most generous award for educational research</a>.</p>
<p>Another prominent figure is Ms. He Quiaonv, who in 2017 made a $1.5 billion pledge for <a href="https://www.bloomberg.com/news/articles/2017-10-12/beijing-philanthropist-he-qiaonv-commits-1-5-billion-to-conservation">biodiversity conservation</a>, the largest donation ever for this cause.</p>
<p><a href="https://www.cof.org/content/nonprofit-law-china#deductibility">Tax incentives for philanthropy</a> have recently been increased. Individuals can deduct donations up to 30% of their taxable income, and businesses up to 12% of their annual profits.</p>
<h2>Observatories of philanthropy</h2>
<p><a href="https://link.springer.com/article/10.1007/s11266-019-00142-3">Research</a> is expanding on Chinese philanthropy, as are institutions aimed at supporting the growth of the sector and training executives of new foundations.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/310798/original/file-20200120-118319-1hi1zkx.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/310798/original/file-20200120-118319-1hi1zkx.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/310798/original/file-20200120-118319-1hi1zkx.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=878&fit=crop&dpr=1 600w, https://images.theconversation.com/files/310798/original/file-20200120-118319-1hi1zkx.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=878&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/310798/original/file-20200120-118319-1hi1zkx.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=878&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/310798/original/file-20200120-118319-1hi1zkx.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1103&fit=crop&dpr=1 754w, https://images.theconversation.com/files/310798/original/file-20200120-118319-1hi1zkx.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1103&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/310798/original/file-20200120-118319-1hi1zkx.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1103&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Growth in Number of Chinese Foundations (2006–2016).</span>
<span class="attribution"><a class="source" href="https://www.international.ucla.edu/media/images/GCPI-Image.PNG-n5-0qa.png">China Foundation Center, GCPI</a>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>The China Foundation Center counted 5,545 foundations (endowed by wealthy individuals or using an annual public fund) in 2016, a figure that has <a href="https://www.globalchinesephilanthropy.org/gcpi/report/178332">more than quadrupled (+430%)</a> in a decade since 2006. Their number then grew to <a href="https://www.alliancemagazine.org/blog/the-4-unique-drivers-leading-chinas-philanthropy-ecosystem/">6,322 foundations in 2017</a> and <a href="https://chinaphilanthropy.ash.harvard.edu/uploads/files/425dfc92-63ae-43a8-a188-585d39d01478-2017%C2%A0%20Reprot%C2%A0%20v3_EN.pdf">7,048 foundations in 2018</a>. In 2014, their total gifts amounted to <a href="https://www.cn.undp.org/content/china/en/home/library/poverty/unleashing-the-potential-of-philanthropy-in-china-.html">102 billion yuan</a> ($16.7 billion).</p>
<p>On the American side, Harvard University created a <a href="https://chinaphilanthropy.ash.harvard.edu/">database</a> to gather the most accurate data possible on Chinese philanthropy. It also offers several <a href="https://ash.harvard.edu/china-programs-executive-education">high-level trainings</a> for leaders in this emerging field.</p>
<p>The number of Sino-American foundations listed in the US has quadrupled since 2000 to reach <a href="https://www.scpr.org/news/2017/09/06/75367/first-generation-chinese-americans-growing-their-i/">1,300 entities in 2014</a>. Bilateral cooperation is underway in attempt to align the interests and strategies of the two global philanthropic giants.</p>
<p>The <a href="http://en.cgpi.org.cn/auto/index.html">China Global Philanthropy Institute</a> was founded in 2015 by five Chinese and American philanthropists, including Bill Gates and Ray Dalio. The objective is to inspire others by “bringing out exemplary philanthropists and professional leaders in the philanthropic sector”, with a national and international dual focus. To this end, the Institute relies on a triptych of academic training, support for good practices, and study tours.</p>
<p>Moreover, the <a href="https://philanthropyinfocus.org/2019/11/26/china-foundation-center-launched-china-philanthropy-big-data-research-institute-in-beijing/">China Philanthropy big data Research Institute</a> was launched in 2019 to mobilise the entire field of science and technology, including artificial intelligence, in favour of charitable activities with a stated intent for international cooperation.</p>
<p>These steps are aligned with China’s more general activism, which seeks prominence in the field of technology applicable to financial transactions via the imminent adoption of a <a href="https://www.technologyreview.com/s/614905/china-digital-currency-dcep-test/">digital currency</a> or mastery of the <a href="https://www.reuters.com/article/us-china-blockchain/beijings-backing-could-tip-scales-in-race-for-blockchain-supremacy-industry-figures-say-idUSKBN1X91K1">blockchain</a>.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/310801/original/file-20200120-118365-186h9ut.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/310801/original/file-20200120-118365-186h9ut.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/310801/original/file-20200120-118365-186h9ut.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=344&fit=crop&dpr=1 600w, https://images.theconversation.com/files/310801/original/file-20200120-118365-186h9ut.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=344&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/310801/original/file-20200120-118365-186h9ut.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=344&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/310801/original/file-20200120-118365-186h9ut.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=432&fit=crop&dpr=1 754w, https://images.theconversation.com/files/310801/original/file-20200120-118365-186h9ut.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=432&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/310801/original/file-20200120-118365-186h9ut.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=432&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">International giving to American universities (2007–2013), Jason Chow, <em>Wall Street Journal</em>, September 2014.</span>
<span class="attribution"><a class="source" href="https://www.international.ucla.edu/media/images/GCPI-Image.PNG-br-zmv.png">Infographics GCPI</a>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<h2>A predictable international projection</h2>
<p>Greater China, including Hong Kong, is already the main source of external funding to American universities through donations made by alumni, far ahead of traditional sources such as the United Kingdom and Canada. These exchanges also foster criticism in a broader context of tension between China and the United States, which <a href="https://foreignpolicy.com/2019/05/19/universities-arent-ready-for-trade-war-casualties-china-trump-us/">affects universities</a>.</p>
<p>To date, Chinese foundations have made international donations on all continents, especially in response to natural disasters. A dozen have even established <a href="https://link.springer.com/article/10.1007/s11266-017-9868-7">offices or pilot projects abroad</a>.</p>
<p>On the world stage, China intervenes more visibly than before through its <a href="https://www.aei.org/china-global-investment-tracker/">foreign direct investments</a> and <a href="https://carnegieendowment.org/2019/05/21/logic-behind-china-s-foreign-aid-agency-pub-79154">official development aid</a>, particularly in Africa.</p>
<p>President Xi Jinping’s thought on “socialism with Chinese characteristics for a new era” include <a href="http://www.china-un.org/eng/zgyw/t1571296.htm">specific guidelines for diplomats</a> called to build a <a href="http://www.chinadaily.com.cn/a/201806/28/WS5b34179da3103349141df593.html">“shared future for mankind”</a>. If the authorities deployed a similar vision to direct the huge potential for philanthropic flows outward with equal long-term determination, there is no doubt that China will rise to the status of “great philanthropic power”.</p>
<h2>Foresighted world influence</h2>
<p>Although the great masses of Chinese philanthropy are still contained within national borders, <a href="https://www.theguardian.com/global-development-professionals-network/2017/jun/28/seven-things-you-probably-didnt-know-about-chinese-philanthropy">all the ingredients are now there</a> for its exponential international projection. This will likely have two consequences.</p>
<p>On one hand, the landscape of international philanthropy will be influenced by the increased presence of Chinese actors – yet no one currently knows what orientations they will favour. How will they fit into existing peer networks? How will they contribute to the emergence of a <a href="https://wings.issuelab.org/resource/what-makes-a-strong-ecosystem-of-support-to-philanthropy.html">global philanthropic infrastructure</a>?</p>
<p>How will this rise and the redistribution of power within the global philanthropic ecosystem be managed, given that the field has traditionally been under <a href="https://knowledge.wharton.upenn.edu/article/global-philanthropy-why-western-models-may-not-work-everywhere/">strong Western influence</a> through its cardinal values, its financial networks, and its operational modes?</p>
<p>Symmetrically, internationally active Chinese foundations and philanthropists will probably nurture, enrich, and undoubtedly adjust their visions in contact with their foreign counterparts. Will this global sharing of experiences be a source of inspiration for the domestic philanthropic sector? How will China manage this two-way exchange of concepts, ideas, techniques, and perhaps even personnel?</p>
<p>Whatever the answers to these questions, China’s philanthropic sector will become a force to be reckoned with far beyond its borders in the 21st century. One must carefully look at this expansion today among the <a href="https://www.belfercenter.org/publication/rise-and-fall-great-powers-twenty-first-century-chinas-rise-and-fate-americas-global">corollaries of the nation’s upward trajectory</a>.</p><img src="https://counter.theconversation.com/content/130495/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Fabrice Jaumont has received funding from various entities for his research and for the educational initiatives that he has fundraised for, including grants from several American foundations, French governmental agencies, corporations, and individual contributors. He is affiliated with Fondation Maison des Sciences de l'Homme in Paris, FACE Foundation in New York, and the Embassy of France to the United States. His views are his own and in no way represent those of the organizations that he is affiliated to or that have supported his work.</span></em></p><p class="fine-print"><em><span>Charles Sellen has received funding from Indiana University and from the Franco-American Fulbright Commission to conduct research on philanthropy. He is currently affiliated with Indiana University’s Lilly Family School of Philanthropy in Indianapolis. His views are his own and in no way represent those of the organizations that he is affiliated to or that have supported his work.</span></em></p>From helping fight coronavirus to supporting education and biodiversity projects, China’s tech billionaires have moved boldly into philanthropy, continuing what is an ancient tradition.Fabrice Jaumont, Chercheur en sciences de l'éducation, Fondation Maison des Sciences de l'Homme (FMSH)Charles Sellen, Global Philanthropy Fellow, Lilly Family School of Philanthropy, Indiana UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/929822018-03-15T13:01:10Z2018-03-15T13:01:10ZHow China is rebooting retail<p>The story of shops closing and the decline of retail has become a familiar one across the Western world. Giants such as <a href="https://graphics.wsj.com/table/walmart_012016">Walmart</a> and <a href="http://uk.businessinsider.com/macys-stores-closing-list-2018-1">Macy’s</a> in the US, and <a href="http://www.cityam.com/279784/your-local-ms-closing-full-list-store-closures-announced">Marks and Spencer</a> in the UK have been forced to close stores amid falling sales. Toys ‘R’ Us is shutting up shop altogether <a href="https://www.reuters.com/article/us-toys-r-us-bankruptcy/toys-r-us-plans-to-close-all-u-s-stores-33000-jobs-at-risk-source-idUSKCN1GQ36S?mc_cid=8a3caac8e6&mc_eid=64128eabee">in the US</a>.</p>
<p>E-commerce is often blamed. This accounted for just <a href="https://www.digitalcommerce360.com/article/us-ecommerce-sales/">13% of total 2017 retail transactions in the US</a>, largely spurred on <a href="http://uk.businessinsider.com/amazon-accounts-for-43-of-us-online-retail-sales-2017-2?r=US&IR=T">by Amazon’s growth</a>. But this pales in comparison to what is happening in China. Alibaba, China’s answer to Amazon, generated an astonishing US$25.3 billion of revenue in the 24-hour “Singles Day” shopping holiday frenzy last November, <a href="https://techcrunch.com/2017/11/11/alibaba-smashes-its-singles-day-record/">smashing its previous record</a>. The company’s profit rocketed 146% to US$2.6 billion in the last quarter of 2017, while its stock price doubled during the year. </p>
<p>And yet, real-life retail is enjoying an unlikely resurgence at the same time in China. Xiaomi, the Chinese tech giant that previously focused exclusively on online retail, is investing heavily in the offline market. In 2017, Xiaomi opened <a href="https://www.gizmochina.com/2017/10/02/xiaomi-opened-200-mi-stores-china-year-alone-planned/">more than 200 stores across China</a> and <a href="https://www.theverge.com/2017/11/7/16610720/xiaomi-spain-mi-mix-2-launch-europe-android-business">another 130 official Xiaomi stores abroad</a>. Internet-only sales used to help Xiaomi keep its operational costs down, but in order to reach consumers in rural areas, Jun Lei, company CEO and cofounder, <a href="https://www.bloomberg.com/news/articles/2017-02-10/xiaomi-goes-all-in-on-retail-to-revive-china-smartphone-sales">stated</a>: “Our model can no longer be online, it has to be new retail.” </p>
<h2>Introducing ‘new retail’</h2>
<p>The concept of “new retail” was first coined by Alibaba in 2016. In a letter to company shareholders in October of that year, founder and Chairman Jack Ma <a href="https://www.forbes.com/sites/deborahweinswig/2017/04/14/alibabas-new-retail-integrates-e-commerce-stores-logistics-is-this-the-next-gen-of-retail/">argued</a>: </p>
<blockquote>
<p>Pure e-commerce will be reduced to a traditional business and replaced by the concept of new retail – the integration of online, offline, logistics and data across a single value-chain.</p>
</blockquote>
<p>Hema, Alibaba’s technology-powered fresh food focused supermarket, illustrates Ma’s comments perfectly. Consumers can search for product information in store by scanning a product code, place an order for home delivery (30-minute delivery within a 3km radius), make a payment, and even order fresh food – including live seafood – to be cooked and eaten in store, all via a dedicated Hema app. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/210589/original/file-20180315-104673-9uyhjj.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/210589/original/file-20180315-104673-9uyhjj.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=375&fit=crop&dpr=1 600w, https://images.theconversation.com/files/210589/original/file-20180315-104673-9uyhjj.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=375&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/210589/original/file-20180315-104673-9uyhjj.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=375&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/210589/original/file-20180315-104673-9uyhjj.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=471&fit=crop&dpr=1 754w, https://images.theconversation.com/files/210589/original/file-20180315-104673-9uyhjj.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=471&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/210589/original/file-20180315-104673-9uyhjj.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=471&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Alibaba’s Taobao website is one of the world’s biggest e-commerce sites.</span>
<span class="attribution"><span class="source">Annabel Bligh</span>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
</figcaption>
</figure>
<p>Alibaba relies heavily on analytics to drive its retail strategy. Hema knows everything about its customers: phone numbers, purchasing history, payment and financial activities, home addresses. This data is leveraged to offer enticing deals. </p>
<p>According to <a href="http://www.alizila.com/hema-supermarket-offers-shoppers-new-retail-experience/">company reports</a>, store sales per unit area are three to five times those of other supermarkets. Hema is a good example of the new retail concept, with its focus on the in-store experience combined with a drive to push offline customers to shop online. Huge growth is <a href="http://www.alizila.com/hema-to-open-30-new-stores-in-beijing/">planned</a>.</p>
<p>Alibaba is also experimenting with an unmanned supermarket <a href="http://www.marketing-interactive.com/alibaba-unveils-staff-less-tao-cafe-and-smart-speaker-to-revolutionise-offline-retail/">called Tao Café</a>. With just a scan of a personalised QR code at the entrance, consumers can pick up items and simply walk out while the items are automatically detected and charged to their Alipay account. On top of this, Alibaba made a <a href="https://www.bloomberg.com/news/articles/2017-01-09/alibaba-others-to-privatize-intime-for-up-to-hk-19-8-billion">string</a> of <a href="https://uk.reuters.com/article/us-alibaba-bailian/alibaba-expands-bricks-and-mortar-retail-push-with-bailian-deal-idUKKBN15Z08C">other</a> <a href="https://uk.reuters.com/article/uk-alibaba-sun-art-retail/alibaba-goes-offline-with-2-2-billion-stake-in-chinas-top-grocer-idUKKBN1DK07N">big</a> <a href="https://uk.reuters.com/article/uk-lianhua-m-a-alibaba/chinas-lianhua-supermarket-says-alibaba-takes-18-percent-stake-idUKKBN18P0EW">investments</a> in large Chinese retailers in the last year. </p>
<h2>Offline and online</h2>
<p>Of course, Alibaba is not the only player in the new retail era. In early 2018, JD.com, China’s second largest e-commerce company, launched its first offline high-tech supermarket in Beijing, 7Fresh. And tech giant Tencent invested in a number of supermarket ventures across the country and opened its first unmanned shop, We Life, in January 2018. </p>
<p>New retail extends to clothes, too. Success comes from having the same products and prices across online and offline channels, an integral part of new retail. This is demonstrated by Japanese clothes company Uniqlo. China is Uniqlo’s biggest overseas market with more than 500 stores in the country. </p>
<p>It goes to great lengths to offer the same deals online and in store. It also offers a “click and collect” service, enabling people to buy online and pick items up in store. This gives customers a huge amount of flexibility and choice and allows Uniqlo to dramatically reduce return rates – all making it <a href="http://www.vmarketing.cn/index.php?mod=news&ac=content&id=12327">highly profitable</a>.</p>
<h2>Games and entertainment</h2>
<p>Gamifying retail is not new – loyalty programs and flash sales have been around <a href="http://blog.onestop.com/a-quick-history-of-gamification-in-brand-marketing">for a long time</a>. But Chinese companies are experimenting with new technologies like virtual and augmented reality to engage customers as much as possible in the shopping experience. </p>
<p>Last year, Alibaba released an updated Pokémon Go-like AR mobile game in its app two weeks before the bonanza “Singles Day” shopping holiday. Gamers were able to follow a cat mascot both online and offline via their smartphones for prizes and coupons, which could be used both online and offline in stores like Starbucks and KFC. It also <a href="https://www.thestreet.com/story/14367763/1/alibaba-advances-11-11-chinese-global-shopping-day-offerings.html">rewarded users</a> with coins and coupons to be redeemed on Singles Day through bonus games. </p>
<p>Alibaba also put on a four-hour gala on the eve of Singles Day, spawning the idea of <a href="https://www.forbes.com/sites/helenwang/2017/11/12/alibabas-singles-day-by-the-numbers-a-record-25-billion-haul/#2e6b895d1db1">“retail-tainment”</a>. It featured big names like popstar Pharrell Williams and Chinese movie star Fan Bingbing. Seen by 400m viewers, it encouraged them to “Watch now, Buy now” in real time from the comfort of their homes. </p>
<p>So while the traditional store of the past may be dead, the physical store is not. On the contrary, it is a key component in China’s new retail ecosystem. Online giants, such as Alibaba, JD.com and Tencent, have been actively investing in the offline space. They are battling to differentiate themselves not just by offering convenience and competitive pricing, but also by giving customers an experience that is easy, dynamic, personalised, and seamless between offline and online formats.</p><img src="https://counter.theconversation.com/content/92982/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Old retail might be dying in the West, but it’s been given new life in China.Michael Wade, Professor of Innovation and Strategy, Cisco Chair in Digital Business Transformation, International Institute for Management Development (IMD)Jialu Shan, Research Associate at Global Center for Digital Business Transformation, International Institute for Management Development (IMD)Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/598642016-06-10T15:38:08Z2016-06-10T15:38:08ZBusiness moguls seek to build a Wanda-full future for sport in China<p>Wang Jianlin of Wanda Dalian. Jack Ma of Alibaba. Heard of them? Not many people outside of China have, but they are the modern-day moguls powering China’s entrepreneurial sprint towards economic supremacy. They are also largely responsible for the surge of interest in Chinese sport, at home and abroad. </p>
<p>Until his early 40s Ma was a high school teacher, now he is the founder of e-commerce giant Alibaba, an organisation that <a href="http://qz.com/545687/alibaba-vs-amazon-how-the-worlds-two-online-shopping-giants-stack-up/">dwarfs the likes of Amazon</a> and eBay in both scale and scope of operations. Wang, founder of the Wanda Dalian group, monopolises Chinese retail and entertainment and in 2012 <a href="http://articles.latimes.com/2012/may/20/entertainment/la-et-ct-amc-wanda-20120517">acquired the US cinema chain AMC</a> for US$2.6 billion to aid his global ambitions. Some might argue that Wang has been raised with a “red spoon in his mouth” given his father’s role alongside Chairman Mao in the cultural revolution, but his desire to see China rival the West on every level is undisputed.</p>
<p>Traditional views of markets tend to focus on supply and demand. This leads us to overlook the intermediaries that help shape, craft and bring supply and demand together in markets. Chinese sports market could be viewed as a blend of suppliers (manufacturers, club teams, and athletes) and demand (customers, consumers, and sports fans). But what draws them together? This is where Ma and Wang come in – they, and their firms, are the intermediaries driving investment, development and interest. So how have they done it?</p>
<h2>Alisport</h2>
<p>One route was created by premier Xi Jinping’s relaxation of <a href="http://www.scmp.com/sport/china/article/1908849/how-alibaba-aims-transform-chinas-sports-market-and-help-bring-world-cup">barriers to entry in the Chinese sports market</a>. </p>
<p>One man to take advantage was Ma. In September 2005, <a href="http://www.businesswire.com/news/home/20150908006846/en/Alibaba-Group-Establishes-Sports-Group">Alibaba launched AliSport</a>. The aim is to revolutionise sports media events, ticketing, coaching, fan experience, and access to sports services using Alibaba’s e-commerce, digital marketing, and cloud computing network. Alibaba’s technology arsenal is seen as the tool which will connect Chinese consumers to the sports industry. </p>
<p>Through Alipsort, Chinese sport consumers have a gateway into this new sector. From live events and streamed content to next-day delivery of sporting goods, memorabilia and risk-free ticket purchases, Alisport is trying to immerse people in their favourite sports.</p>
<p>Alisport CEO Zhang Dazhong cited the ability of sport to create and share “happiness”, and “encourage healthy lifestyles”. He argued that by surrounding the the Chinese sports industry with a constant online feed of access and content, people will get better products and services. From an economics perspective, these could be seen as the positive cultural effects that will build demand and help sustain the Chinese economy in the long term. From a sporting perspective, future investment and sustainability hinges on strong, resilient consumer activity. </p>
<p>Alibaba’s horizons extend beyond this domestic intermediary network. As well as owning half of China’s most successful football club, <a href="http://gzevergrandefc.com/english/default.aspx">Guangzhou Evergrande Taobao FC</a>, Alisport recently agreed a multi-million dollar deal with <a href="http://www.ft.com/cms/s/0/fb269480-ff00-11e5-ac98-3c15a1aa2e62.html">World Rugby</a> for development and sponsorship. China is not a rugby hotbed, at least for now. But the deal helps give Alibaba a foothold in more global markets. The sight of a major Chinese organisation associating with an international sporting body ultimately reflects on Chinese sport, raising the profile of an infant domestic industry and sowing the seeds of future growth in the brand power of sport in China. </p>
<h2>The Magic Wanda</h2>
<p>While Alisport mediates the operational rise of China’s sport industry, Wang and his Wanda Dalian group are taking the media and entertainment route – most recently in the spotlight for <a href="http://shanghaiist.com/2016/05/29/wang_jianlin_wanda_world_nanchang.php">a bold swipe at Disney</a> as Wang launched his own theme-park. In January 2015 he <a href="http://www.bbc.co.uk/news/business-30910664">purchased a 20% stake in Spanish soccer giant Atletico Madrid</a>, and quickly followed that up with a <a href="http://www.fifa.com/about-fifa/news/y=2016/m=3/news=wanda-group-becomes-new-fifa-partner-2771032.html">sponsorship deal with FIFA</a>.</p>
<p>It is yet more evidence of the drive to position China as a global player in sports business. Deals like Wang’s may not deliver cash directly into the country’s sporting infrastructure but they substantiate China’s rise in the industry. Over the longer-term, the diversification into international sport could significantly aid the sponsorship potentiality and investment within Chinese sport. </p>
<h2>Beyond performance</h2>
<p>Wang and Ma undoubtedly have personal motivation to see Chinese sport develop. Helping their president in his quest to <a href="http://www.independent.co.uk/news/world/asia/chinas-xi-jinping-loves-football-so-much-hes-put-it-on-the-national-curriculum-but-can-he-secure-the-10071110.html">bring the World Cup and co to China</a> would likely have profound long-term benefits for them and their respective firms. More than this however, they see sport as the language in which to communicate with China’s consumers. </p>
<p>The rising wealth of the middle classes (largely through a booming real-estate sector) is fertile ground for companies. In practical terms, people simply have more cash to spend on leisure activities and sporting enthusiasms than they ever had before. Wanda’s desire for Chinese enterprise, and Alibaba’s market innovation enables this – but is it just the moguls behind this market revolution that stand to benefit?</p>
<p>The beautiful thing about intermediaries is that the value they create (initially for themselves) often spills over elsewhere. <a href="https://www.sportengland.org/research/benefits-of-sport/">Investment in sport can be beneficial on numerous levels</a>. Better facilities, safer environments to play and train, more qualified coaches, and improved sporting education can create memorable shared experiences, and foster greater social cohesion. It’s not just about deep pockets, it is about building something <a href="https://theconversation.com/chinas-huge-punt-on-football-needs-a-heart-as-well-as-deep-pockets-58173">that has, for want of a better word, a heart</a>.</p>
<p>Intermediary moguls like Ma and Wang understand the potential riches of the Chinese consumer market, and sport is one way of accessing this. They also highlight the opportunity for others to invest in an industry that has huge potential.</p><img src="https://counter.theconversation.com/content/59864/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>David Cockayne does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A new industry is being created under President Xi Jinping. Meet the two men making it happen.David Cockayne, Senior Lecturer: University of Huddersfield Business School, University of HuddersfieldLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/367502015-01-28T14:29:01Z2015-01-28T14:29:01ZChina’s financial muscle makes its mark on the global sport industry<p>The Chinese economy has been growing at break-neck pace for the past three decades. It is the <a href="http://www.forbes.com/sites/timworstall/2014/12/07/chinas-now-the-world-number-one-economy-and-it-doesnt-matter-a-darn/">largest in the world</a> by some measures and, as we all know, the Chinese sell the world everything from electronics to iron and steel. </p>
<p>But in one industry the Chinese have been rather slow out of the blocks – sport. The 2008 Olympics may well have been a breath-taking extravaganza, but the country has failed to take full advantage of the exceptional facilities that remain at Beijing’s Olympic Park. The same story is true at Shanghai’s F1 circuit, a US$450m grandiose folly that routinely attracts significantly less than full capacity crowds.</p>
<p>If ever a sport was symbolic of a nation’s sporting plight though, then it is football in China. The country may well be a global powerhouse but it has singularly failed at playing the global game. One poor World Cup appearance in 2002 aside, China has made no perceptible impact on the world’s favourite sport. Historically <a href="http://www.theguardian.com/world/2013/feb/20/match-fixing-bribery-chinese-football">beset by corruption</a>, poorly managed and often playing second-fiddle domestically to basketball, football is a persistent drag on China’s global ambitions. </p>
<p>Their attitude to football is changing though, especially as rumour has it that the country’s president, Xi Jinping, is a football fan. A purge of corrupt officials has been taking place, China’s football leagues are modernising and <a href="http://shanghaiist.com/2011/07/08/xi_jinpings_three_wishes_for_chines.php">the feeling in some circles</a> is that a Chinese World Cup bid is imminent. More significantly, we have recently seen growing corporate interest in football – both domestically and overseas.</p>
<p>Last year, as the Chinese e-commerce giant Alibaba was being readied for its <a href="https://theconversation.com/alibaba-investors-gamble-on-rise-of-ecosystem-internet-in-record-breaking-ipo-31807">record-breaking IPO</a>, owner Jack Ma <a href="http://www.bbc.co.uk/news/business-27709641">purchased 50% of Guangzhou Evergrande</a> Football Club for US$192m. Somewhat enigmatically, Ma at the time explained the purchase by saying, “At Alibaba our strategy is health and happiness. Investing in soccer is investing in happiness.”</p>
<p>In recent weeks, Ma has been joined in football by his countryman and fellow billionaire, Wang Jianlin, chairman of the Dalian Wanda property group. Wang has <a href="http://www.ft.com/cms/s/0/687428ee-a076-11e4-8ad8-00144feab7de.html">just purchased a 20% stake in Spain’s Atletico Madrid</a> for US$52m. His stated intention is to build a global entertainment business that will stretch from China to Hollywood.</p>
<h2>Government backing</h2>
<p>In spite of this apparently sudden interest in sport by corporate China, nothing happens in the PRC unless there is close coordination with the government. It is not a coincidence therefore that in December 2014 the Chinese government <a href="http://www.insidethegames.biz/news/1023349-china-reveals-multi-billion-dollar-investment-plan-for-sport">announced a major investment programme in sport</a>.</p>
<p>By 2025 the Chinese government is aiming to create a sports industry worth US$800 billion, which will account for 1% of GDP. This is an ambitious target, as the industry currently accounts for <a href="http://www.bloomberg.com/bw/articles/2014-10-23/china-wants-to-trigger-a-sports-industry-boom">only 0.6% of GDP</a>. Some critics believe that such a prediction is wildly optimistic, the total size of the global sport industry currently being only US$145 billion. But given the Chinese government’s success so far in what it puts its hand to, you’d be remiss to dismiss it. And the likes of Ma and Wang are clearly well-positioned to take advantage of developments.</p>
<p>Thus far, China’s sporting development has been dominated by the state, which has owned and run all sports. This has restricted both the commercial and the international development of Chinese sport. However, following last year’s announcement, the (politically approved) route to market is now being established. The arrival of Wang at Atletico and Ma at Guangzhou is a move which we should expect to be replicated across the world in the coming years.</p>
<h2>A growing influence</h2>
<p>A look back at the Chinese government’s attitude to sport shows
China’s latest sporting initiative was entirely predictable; in fact, it has been fermenting for some time. In addition to the re-launch of Brand China which the 2008 Olympics represented, the country has been exerting a subtle yet pervasive influence on sport across the world. </p>
<p>For instance, China’s strategy of <a href="http://www.worldpolicy.org/journal/summer2012/chinas-stadium-diplomacy">“stadium diplomacy”</a> has seen new venues being created across the world, gifts presented to countries in return for preferential access to much-needed natural resources. The mega-event bidding continues apace too, with Beijing facing a decision later this year on its bid to host the 2022 Winter Olympics.</p>
<p>While China’s commitment to building a sustainable sport industry is admirable, the country’s officials are rather prone to exaggeration. As such, it remains to be seen whether the size and scale of the industry they envisage is in any way achievable by 2025.</p>
<h2>Obstacles to overcome</h2>
<p>If there is a chance of achieving the 2025 target, then there are many obstacles to overcome. Corruption is still endemic in many Chinese sports, <a href="http://www.ibtimes.com/soccer-fixing-scandal-reveals-chinas-bigger-gambling-problem-1094388">most notably match-fixing</a>. And competition for space and resources often dictates that sports requiring large areas for games, such as football, often lose out.</p>
<p>It also remains to be seen how the growing Chinese middle class responds to the promotion of sport. Many of them are now playing golf and tennis, but not with the intention of achieving Grand Slam glory. Rather, these sports are often a form of conspicuous consumption and a basis for networking.</p>
<p>While the country’s new-found wealth is providing the money for growth, China’s sport industry is still in a fledgling, even fragile, state. Becoming a global superpower in football is normally developed not bought. Still, China’s attempt to create the 21st century’s biggest sport industry should make for an epic production.</p><img src="https://counter.theconversation.com/content/36750/count.gif" alt="The Conversation" width="1" height="1" />
The Chinese economy has been growing at break-neck pace for the past three decades. It is the largest in the world by some measures and, as we all know, the Chinese sell the world everything from electronics…Simon Chadwick, Professor of Sport Business Strategy, Coventry UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/344452014-11-21T14:40:06Z2014-11-21T14:40:06ZWhy Apple should watch out with Xiaomi smartphones about<figure><img src="https://images.theconversation.com/files/65192/original/image-20141121-1043-kt5zk6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">China's top smartphone maker has its sights on global dominance.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/worldleaks/14879080703">World Leaks</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-sa/4.0/">CC BY-NC-SA</a></span></figcaption></figure><p>Xiaomi might still sound a bit foreign to you, but the Chinese smartphone manufacturer is now the <a href="http://www.theguardian.com/technology/2014/oct/30/china-xiaomi-third-biggest-smartphone">third largest in the world and the largest in China</a>. And they are largely building their market share by offering a cheaper alternative to the likes of Apple. </p>
<p>The latest smartphone they are working on sent ripples around the industry following reports <a href="http://www.ubergizmo.com/2014/11/xiaomi-could-release-65-smartphone/">it would retail at US$65</a>. Xiaomi’s current low-end model, the Redmi 1S, offers similar technical specifications and costs about US$150. </p>
<p>These low prices are achieved thanks to a business plan
where they sell a specific model for a longer period of time than competitors. By selling the same model for 18 months (as opposed to the usual six), they have more flexibility with profits and the ability to make money from selling accessories for a longer period. Alongside Xiaomi’s low overheads due to their not owning any physical stores or engaging in traditional advertising, this means that phones can be sold at an almost bill-of-material price. </p>
<h2>Same same, but different?</h2>
<p>As a result, Xiaomi has been gaining market share since its launch in 2011. In 2013 it sold 18.7m smartphones; <a href="https://www.techinasia.com/xiaomi-sold-26-million-phones-in-first-half-2014/">in the first half of 2014 alone, it sold 26.1m</a>. Add to this its modelling of itself and its products on Apple and the Xiaomi phenomenon becomes an irresistible object of speculation across the smartphone industry. But can this homegrown Chinese brand, which prides itself on its cheapness, knock Apple off the top spot?</p>
<p>Xiaomi’s CEO, Lei Jun, appears to actively cultivate the iconic Steve Jobs image, complete with jeans and dark shirts. And, during product unveiling conferences, he has even copied Apple’s “one more thing …” slide. There is also no disputing the fact that the products look very similar to Apple products. </p>
<p>But Xiaomi maintains that its principles differ from those of Apple as it sells all its products online, has no partners or third-party distributors, and gives customers the ability to customise software. Perhaps more important to understand is the Chinese attitude towards new products that often does not draw the same lines between “innovation” and “copying” as Western legal systems would dictate. </p>
<h2>The phenomenon of ‘shanzhai’</h2>
<p>Shanzhai is Chinese for “fake”. It’s a cultural phenomenon in China where fake brands play on existing (generally Western) famous ones – from “Dolce and Banana” t-shirts to tourist villages perfectly mimicking the Eiffel Tower or the Coliseum. Shanzhai is often not seen as copying, but as admiring and even improving upon, and is hugely popular amongst Chinese youth. This is sometimes due to its ability to provide products not dissimilar to their favourite Western brands, but often as a politic statement in its own right. </p>
<p>Xiaomi, in paying tribute to Apple in its design, may well tap into the feeling around shanzhai as an alternative to the West. Despite the 70 years that have passed since the National Products Movement of the 1930s, nationalistic sentiment is not uncommon amongst pockets of Chinese youth and a more generalised low-key nationalism and support for Chinese brands is never far away.</p>
<h2>Appealing to the Chinese masses</h2>
<p>In fact, Xiaomi’s ability to speak to a specifically Chinese customer base may well make its affordability less problematic for those consumers seeking conspicuously expensive Western brands such as Apple. Xiaomi (小米) is the Chinese word for “millet” – and CEO Lei Jun has previously linked the “Xiao” part of the word (Chinese for “small”) to the Buddhist concept that a single grain of rice is as great as a mountain, suggesting Xiaomi sees value in working from small things. </p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/65185/original/image-20141121-1055-bhd5l8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/65185/original/image-20141121-1055-bhd5l8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=387&fit=crop&dpr=1 600w, https://images.theconversation.com/files/65185/original/image-20141121-1055-bhd5l8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=387&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/65185/original/image-20141121-1055-bhd5l8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=387&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/65185/original/image-20141121-1055-bhd5l8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=486&fit=crop&dpr=1 754w, https://images.theconversation.com/files/65185/original/image-20141121-1055-bhd5l8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=486&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/65185/original/image-20141121-1055-bhd5l8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=486&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Communist people’s hero Lei Feng.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/thomasfisherlibrary/6813010996">Thomas Fisher Library</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc/4.0/">CC BY-NC</a></span>
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<p>This strikes a very similar chord to the <a href="http://resources.alibaba.com/article/19867/Interview_with_Alibaba_com_s_CEO_Jack_Ma.htm">“shrimps not whales”</a> philosophy of another of China’s business stars, Jack Ma, the founder of Alibaba. Both have huge resonances with the Mao-era emphasis on small parts – the people as the “trusty screws” of the Party machine. It is entirely fitting therefore that Xiaomi’s mascot is a bunny wearing a ushanka-hat, which in China is associated with the Communist and people’s hero, Lei Feng. He epitomises the idea of the “trusty little screw” and Xiaomi are not the first company to use him to tap into popular sentiment in the Chinese domestic market.</p>
<p>It is difficult not to feel though, that this branding is more appealing to the new rural consumers of smartphones in China than the better-off, upwardly mobile ones in the urbanised coastal provinces. Due to the cheapness of phones compared to computers, internet use on smartphones is a rapidly increasing phenomenon in rural provinces where the typically more traditional citizens feel greater affinity with references to “millet” and Lei Feng. </p>
<p>But perhaps Xiaomi’s plan is, like Mao, to consciously build its revolutionary base among the rural masses before wholeheartedly attempting to win market-share amongst the urban proletariat. If this is the case, Apple will certainly have tough competition on its hands.</p><img src="https://counter.theconversation.com/content/34445/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alison Hulme does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Xiaomi might still sound a bit foreign to you, but the Chinese smartphone manufacturer is now the third largest in the world and the largest in China. And they are largely building their market share by…Alison Hulme, Teaching Fellow, Royal Holloway University of LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/319882014-09-22T14:14:17Z2014-09-22T14:14:17ZAlibaba feeding frenzy shows how little we have learnt<p>Greed is still good. Wall Street has just witnessed its largest ever stock market launch as Chinese internet giant <a href="https://theconversation.com/alibaba-investors-gamble-on-rise-of-ecosystem-internet-in-record-breaking-ipo-31807">Alibaba raised some $25 billion</a> and watched its share price rise by 35% on its first day’s trading. It says a lot about how little we have changed after the 2008 crash. We are still willing to be seduced by the perennial golden goose; still fearful of missing out; and still addicted to power, wealth and growth at any cost. </p>
<p>So if the shares saw such a spike, why did the bankers get the pricing so wrong? Effectively, the company lost over $8 billion at the launch because it <a href="http://www.ft.com/cms/s/3/cecb939e-4166-11e4-a7b3-00144feabdc0.html?siteedition=uk#axzz3E2O2MVdN">did not pitch at the right price to investors</a> from the outset. It is a similar story to the <a href="https://theconversation.com/royal-mail-row-shows-we-still-dont-understand-markets-26027">sale of Royal Mail shares</a> in the UK, though without the political fallout. The sad reality is that finance theory knows little about the fundamental value of a company as it all depends on future expectations which are uncertain and unpredictable. Even the best financial institutions could not price the shares “correctly”. The Financial Times believes the share issue was wildly over-priced and says that <a href="http://www.ft.com/cms/s/0/29d31b02-3fe8-11e4-936b-00144feabdc0.html#axzz3E1aUIug6">only with hindsight</a> will we know whether the market is pricing US equities correctly. </p>
<p>The FT has also expressed concern that a lot of investment is happening through hedge funds and funded with borrowed money. The bets are being placed with money from the banks which means the repercussions can be systemic if prices fall. </p>
<h2>Beauty parade</h2>
<p>Prior to the sale of the shares, millions were spent on a <a href="http://www.ft.com/cms/s/0/19399804-417b-11e4-a7b3-00144feabdc0.html#slide0">big public relations exercise</a> to boost the profile of Alibaba. Its founder Jack Ma had to go around the world to persuade potential investors about the future prospects of the company, and reassure them about the fact that the new shares do not give voting rights or direct ownership of the company. He argued that the legal structure is robust and reliable, but the legal structure is frankly complex, and the rights it gives shareholders not precisely clear. Room for doubt then you might say, and yet billions poured into the company. </p>
<p>The finance textbooks have little to say about the value of public relations and marketing when share prices are set. In fact, theory predicts that in an efficient and perfect world, it is a waste of money as investors and markets are smart enough to figure out the truth for themselves. Alibaba and its bankers clearly thought that theory was worth ignoring: millions were spent, the launch was seen as a huge success, and credit given to Jack Ma. It was a clever stage show.</p>
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<a href="https://images.theconversation.com/files/59712/original/f2b86bnf-1411389690.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/59712/original/f2b86bnf-1411389690.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/59712/original/f2b86bnf-1411389690.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=420&fit=crop&dpr=1 600w, https://images.theconversation.com/files/59712/original/f2b86bnf-1411389690.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=420&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/59712/original/f2b86bnf-1411389690.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=420&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/59712/original/f2b86bnf-1411389690.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=528&fit=crop&dpr=1 754w, https://images.theconversation.com/files/59712/original/f2b86bnf-1411389690.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=528&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/59712/original/f2b86bnf-1411389690.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=528&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Alibaba: There’s the rub.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/micke_nordin/6971947491/in/photolist-bC646e-6v7Bx-9n5jqB-63JCm6-EExYs-fs8K1H-dfgr5i-7Fy3z-dDB4qS-gFRVf-9fWnug-8RqGgd-7fMnT8-7fRjmu-9fZtWA-6qnFQa-9fWnax-9fWnke-9fWnZi-9fZuf1-9fZtLY-9fWoi8">Micke Nordin</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
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<p>The fact that all this is happening right in front of our eyes – and allowed to happen – shows how out of control modern finance has become. Prices are based on expectations, and expectations of expectations. It also shows how willing many people are to cast their values aside for a share of the rollercoaster fortune, no matter how it is made, by whom or with what wider and longer-term repercussions for society. Just as Aladdin unleashed a genie from his lamp, it seems with Alibaba we have unleashed a genie out of global control, but with huge global power and influence. The market has said <em>Open Sesame</em>, without fully caring for the consequences. All most of us can do is to sit and watch, and be ready to bail out this gambling machine if it all turns sour. We are all participants in the feeding frenzy, whether or not we eat. Society is once again taking <a href="https://theconversation.com/financial-literacy-is-shockingly-low-and-the-academy-must-do-more-31321">involuntary risks</a> through financial markets, and we have already experienced the human consequences of this madness many times.</p>
<h2>All gain no pain</h2>
<p>We should also question the fundamental ethics and values of those investors and institutions so keen to make a quick return for no effort at all. When people put effort into their jobs or business, and it grows, they can experience the joy of achieving something, learning and enhancing their skills in the process, and sharing the rewards with their colleagues or stakeholders. </p>
<p>I fail to see human sacrifice in earning a quick buck on Alibaba shares, nor any interest in the fundamental ethics of the company or its practices. It is classed as a combination of Amazon and eBay in the world’s fastest-growing economy. It is a middle-man – not a manufacturer or farmer, but a supplier with huge selling power and reach. Jack Ma thanked the investors for their “trust” in Alibaba after the successful launch. <a href="http://www.theguardian.com/business/2014/sep/18/alibaba-and-the-40-facts-ipo">The Guardian </a> reports that Ma’s letter to staff the day after the IPO signalled the firm would “adhere to the principle of ‘customers first, employees second, shareholders third’.” </p>
<p>The report also notes criticism that Alibaba sites are a magnet for sellers of fake goods, even though the company says it spend millions rooting them out. <a href="https://theconversation.com/bankers-should-look-eastwards-for-ethical-guidance-27747">Ethics</a> seem very far from the way modern powerful businesses act and behave. Contradiction is rampant.</p>
<p>When investors are on a rollercoaster, the only thing they pray for is that they can profit from the ride, and get off just in time. No trust is involved here. Initially <a href="http://www.ft.com/cms/s/3/cecb939e-4166-11e4-a7b3-00144feabdc0.html?siteedition=uk#axzz3E2O2MVdN">there is a fear of missing out, and later there is a fear of staying involved</a> according to the Financial Times. The common by-word is <em>fear</em>. We are afraid to not make money, and afraid of losing it once we have made it. That fear imprints on our psyche, and lasts longer than the profit we have made from the bubble. </p>
<p>The investors who piled into Alibaba are not so different from the rest of us. Financial fear ruins the lives of so many ordinary people and I wonder how much modern finance contributes to depression and mental illness? The <a href="https://theconversation.com/its-time-to-put-social-impact-of-finance-on-the-curriculum-21930">Tax Justice Network </a> have shown that is indeed a curse on society. Instead of being its servant, it has become our master. They are not far from the truth. Perhaps if financial markets would scale back the bets based on smoke and mirrors, fear and greed, then we might be able to learn to trust one another for real.</p><img src="https://counter.theconversation.com/content/31988/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Atul Shah does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.</span></em></p>Greed is still good. Wall Street has just witnessed its largest ever stock market launch as Chinese internet giant Alibaba raised some $25 billion and watched its share price rise by 35% on its first day’s…Atul K. Shah, Senior Lecturer - Accounting & Finance, University of SuffolkLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/317232014-09-21T14:45:19Z2014-09-21T14:45:19ZEmotions fuel Alibaba’s historic IPO.<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/59638/original/4s2kd92d-1411309627.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/59638/original/4s2kd92d-1411309627.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=849&fit=crop&dpr=1 600w, https://images.theconversation.com/files/59638/original/4s2kd92d-1411309627.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=849&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/59638/original/4s2kd92d-1411309627.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=849&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/59638/original/4s2kd92d-1411309627.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1067&fit=crop&dpr=1 754w, https://images.theconversation.com/files/59638/original/4s2kd92d-1411309627.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1067&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/59638/original/4s2kd92d-1411309627.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1067&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Ali Baba and the Forty Thieves.</span>
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</figure>
<p>The story of Chinese e-commerce company <a href="http://en.wikipedia.org/wiki/Alibaba_Group">Alibaba</a> has become almost as magical as the original Arabian story that gave it its name. It has become compelling because of the dazzling success of its public listing on the New York Stock Exchange last Friday. Alibaba’s shares opened at $92.70, already some 27% above their listing price of $68 and ended up raising US $21.8 billion for the company, making it the world’s largest technology IPO. Alibaba is now <a href="http://online.wsj.com/articles/alibaba-shares-trade-higher-in-ipo-1411142120">valued</a> at $231 billion, making it bigger than Facebook ($200 billion), Amazon ($150 billion) and eBay ($65 billion). </p>
<p>The curious aspect of this phenomenal success is that immediately prior to the IPO, the general US public were largely unaware of the company, what it actually did, and why it would be worth that much money. A <a href="http://ipsos-na.com/download/pr.aspx?id=13903">poll</a> held on the 18th September in the US showed that only 12% of those surveyed had ever heard of the company or the IPO.
In the case of Alibaba’s IPO, what was important was not its visibility with the US general public, but with the institutional investors <a href="http://online.wsj.com/articles/alibabas-ipo-priced-at-68-a-share-1411075675">involved</a> in the initial allocation of shares.</p>
<h2>The emotional drivers of the stock market</h2>
<p>It is easy to assume that when it comes to buying and selling shares that the large investment banks, fund managers and brokers are all acting on the basis of objective calculations and financial models. Behind the rhetoric however, are decisions based on emotions. Not only is there good evidence that emotions drive a <a href="http://www.psychologytoday.com/blog/wired-success/201309/emotion-not-rational-logic-determines-the-stock-market">great deal</a> of the day-to-day trading, even in the professional and seasoned trader, but that key events such as IPOs are driven in much the <a href="http://fac.comtech.depaul.edu/wdebondt/Publications/Bubble.pdf">same way</a>. This is perhaps stating the obvious. The price of shares will ultimately be decided by what buyers in the market are willing to pay for them and so if there is a collective view that a company is worth a particular valuation, then it doesn’t really matter what the company fundamentals are actually saying.
In the case of Alibaba, sentiment is being driven by a rich and gripping story that could well have come from the “<a href="http://en.wikipedia.org/wiki/One_Thousand_and_One_Nights">Arabian Nights</a>”.</p>
<h2>Jack the hero</h2>
<p>The hero of the piece is of course Alibaba’s founder <a href="http://www.smh.com.au/business/china/alibaba-founder-jack-mas-road-to-the-top-2014">Jack Ma</a> who started his working career reputedly as a street seller and english teacher and last week became a multi-billionaire worth $18.5 billion. Ma is a true maverick who professes no technical knowledge and is prone to spontaneous decisions about how his money is spent. He bought half of the Chinese Guangzhou Evergrande Football Club after <a href="http://www.bloomberg.com/news/2014-06-05/evergrande-rises-on-alibaba-soccer-stake-report-hong-kong-mover.html">discussing</a> the deal over drinks. But he has built a company that is growing faster than Amazon and is making a <a href="http://www.bloomberg.com/news/2014-09-18/alibaba-overtakes-amazon-as-most-highly-valued-online-retailer.html">consistent profit</a>, which Amazon has been unable to do.</p>
<h2>Setting the scene</h2>
<p>The backdrop to the story is China, where e-commerce is set to <a href="http://www.economist.com/news/briefing/21573980-alibaba-trailblazing-chinese-internet-giant-will-soon-go-public-worlds-greatest-bazaar">overtake</a> the US this year, heading towards being double its value by 2016. Even before that happens, China’s online commerce is already breaking records. Single’s Day, a special online shopping day held each 11th November, saw Alibaba process $5.75 billion in sales last year. This was 2.5 times more than the total sales on Cyber Monday in the US, a special day of sales held by companies like Amazon and eBay.</p>
<h2>Trials and ordeals in the hero’s journey</h2>
<p>Of course, no story of the <a href="http://www.thewritersjourney.com/hero's_journey.htm">hero’s journey</a> would be complete without the tests and ordeals. <a href="http://dealbook.nytimes.com/2014/09/16/alibabas-governance-leaves-investors-at-a-disadvantage/?_php=true&_type=blogs&_php=true&_type=blogs&_r=1">Academics</a> have already warned that the corporate structure of Alibaba, with a few people wielding enormous power, represents an enormous governance risk. The corporate structure is partly a reflection of how the company has had to structure to get around regulations in China, but also in part to deals that Ma did with early investor companies like Yahoo and Softbank. Yahoo was <a href="http://americasmarkets.usatoday.com/2014/09/19/yahoo-loses-out-on-3b-from-alibaba-deal/">forced</a> to sell 121.7 million shares at the offering price of $68, potentially losing nearly $3 billion if they had been able to sell them on the open market later that day.</p>
<p>Other challenges range from normal concerns of competition through to ongoing issues with the quality of traders and <a href="http://online.wsj.com/articles/alibaba-expedites-action-against-fakes-1400087667">fake products</a> on Alibaba’s sites.</p>
<p>The Alibaba story was captivating enough to make investors clammer after their shares on the opening day. Of course, investors could also have simply been displaying the irrational exuberance that accompanies an <a href="http://en.wikipedia.org/wiki/Dot-com_bubble">Internet stock bubble</a>. In any event, it is still a story that has a long way to play out and it is guaranteed to be a page turner.</p><img src="https://counter.theconversation.com/content/31723/count.gif" alt="The Conversation" width="1" height="1" />
The story of Chinese e-commerce company Alibaba has become almost as magical as the original Arabian story that gave it its name. It has become compelling because of the dazzling success of its public…David Glance, Director of Innovation, Faculty of Arts, Director of Centre for Software Practice, The University of Western AustraliaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/318072014-09-19T12:07:56Z2014-09-19T12:07:56ZAlibaba investors gamble on rise of ‘ecosystem internet’ in record breaking IPO<p>Alibaba shares will start trading on the New York Stock Exchange in a <a href="http://www.theguardian.com/business/2014/sep/18/alibaba-investor-ipo-sell-shares-lockup-flotation">record-breaking initial public offering</a>(IPO) which could end up raising US$25 billion. Investors have bought into a new kind of internet company – an ecosystem more than a service – which came out of a frenetic battle between emerging Chinese internet giants. Their gamble is that CEO Jack Ma can make an Asian ecosystem work in the West.</p>
<p>As the largest internet company in China, it will become the 8th most valuable technology company in the world, behind the likes of Apple, Google, Microsoft, Facebook and IBM. And, with annual growth rates of more than 30%, the gap between Chinese companies such as Alibaba and <a href="http://www.forbes.com/sites/chriswright/2014/09/16/tencent-the-alibaba-thats-already-listed/">Tencent</a> and their Western counterparts is getting closer. In fact, with Alibaba’s listing, Chinese internet companies share the top four spots equally with the US in terms of their market value. In descending order, these are: Google, Alibaba, Tencent and Amazon. </p>
<p>The strong performance and rapid rise of China’s tech firms may shock some – outside of China, Alibaba is not a household name like Amazon or Google. But, with hundreds of millions of users hosting millions of merchants and businessmen, Alibaba handles more business than any other e-commerce company. It is, of course, China’s enormous and fast growing domestic market that has spurred the rise of these tech companies to service their needs.</p>
<h2>Fast moving innovator</h2>
<p>But there is more: the competition in this domestic market among Chinese companies as well as with other multinationals is extremely fierce. Successful private companies like Alibaba have to be highly entrepreneurial and customer-oriented to survive, let alone thrive. For example, Alibaba recently introduced <a href="http://online.wsj.com/articles/alibabas-alipay-treasure-is-hard-to-tally-heard-on-the-street-1410861146">online payment platform Alipay Wallet</a> and taxi-calling features in an attempt to compete with rival Tencent’s highly successful WeChat.</p>
<p>There is little doubt that Alibaba is a fast moving innovator in the world of e-commerce. It has created its own model by constantly adding and integrating new functions and features, driven by the needs of its customers and the desire to offer them something that competitors such as Tencent, Baidu and eBay do not have. </p>
<p>In terms of the value proposition and business model, Alibaba differs from its Western counterparts. Take Google and Amazon – they both specialise in one area: Google aims to be the best search engine and Amazon the best online retail store. The way that they have positioned themselves in terms of the market reflects the game they played when they first opened up shop. This was to compete with bricks and mortar companies such as Walmart. </p>
<p>Alibaba is part of the next generation of internet companies. It is first and foremost focused on creating online ecosystems rather than specialising in a niche service. Its main focus is to create new services for customers who have been brought up in and who are highly versed in the world of the internet.</p>
<h2>From East to West</h2>
<p>A big question though for Alibaba is whether the innovative capabilities and competences that it developed in a Chinese environment will be transferable to the West. The ability to understand customers intimately and continuously innovate is transferable in principle, but will need significant adjustment before it can become a truly global player like Google and Amazon. </p>
<p>The needs of customers in the West may be very different to those in China, and so the innovative features they have successfully introduced there may not float the boats of Western consumers. Alibaba may also lack the closely knit business network and institutional support that would be critical for the company to create an online ecosystem outside of China. However, these are not insurmountable problems, and their expansion overseas is more likely to start in emerging markets such as Africa and Asia, where Alibaba is much more recognised and admired, than in Europe and North America. </p>
<p>If Alibaba’s Jack Ma can navigate a route to reach Western markets successfully, then there will be others in China waiting to ride in his wake. Competition among Chinese companies in the tech sector is very strong. It comprises some well known names such as Lenovo, Huawei, Baidu and Tencent, as well as some promising newcomers like DJI and Xiaomi. Their battling rivalry has given them the motivation and tools to innovate and promote themselves in a way that gives them a foothold to compete in the global market. And it means that China will continue to chip away at US dominance in the world technology sector.</p><img src="https://counter.theconversation.com/content/31807/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Qing Wang does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Alibaba shares will start trading on the New York Stock Exchange in a record-breaking initial public offering(IPO) which could end up raising US$25 billion. Investors have bought into a new kind of internet…Qing Wang, Professor of Marketing and Innovation, Director, Marketing Innovation and The Chinese and Emerging Economies (MICEE) Network, Warwick Business School, Warwick Business School, University of WarwickLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/264072014-05-08T09:41:42Z2014-05-08T09:41:42ZAlibaba’s IPO signals a fresh appetite for Chinese technology<p>The planned stock market listing of Chinese e-commerce giant Alibaba in New York is a landmark deal for several reasons. The listing is anticipated to become <a href="http://dealbook.nytimes.com/2014/05/06/alibaba-files-to-go-public-in-the-u-s/">the largest in the US since Facebook’s issue in 2012</a>, and there are some key signals it sends about markets and investor sentiment.</p>
<p>The company, which operates both an eBay-style marketplace and business-to-business platform Alibaba.com, has been here before. Alibaba.com went public in Hong Kong in November 2007 and its shares remained listed there until the company went private again in September 2012. This time around, Alibaba’s entrepreneur founder <a href="http://topics.wsj.com/person/M/jack-ma/6347">Jack Ma</a> has shunned Asia for the bright lights of the Big Apple.</p>
<p>The group <a href="http://blogs.wsj.com/moneybeat/2014/05/06/alibabas-ipo-filing-everything-you-need-to-know/">filed for an initial public offering (IPO) this week</a>, setting in train a process which should see the shares start trading on the New York Stock Exchange or the Nasdaq Global Market in the form of American Depositary Shares. </p>
<p>Alibaba Group is not the first successful Chinese online business grabbed by US exchanges. Past examples include <a href="http://uk.reuters.com/article/2011/05/04/us-renren-ipo-idUSTRE7433HI20110504">Renren (the Facebook of China)</a>, <a href="http://www.ft.com/cms/s/0/4ecc199e-c5af-11e3-a7d4-00144feabdc0.html#axzz313a9visa">Weibo (the Twitter of China)</a>, and <a href="http://www.marketwatch.com/story/baidu-ipo-jumps-354-into-the-record-books">Baidu (the Google of China)</a>, all of which shunned Chinese stock markets and the Hong Kong Stock Exchange. The case of Alibaba Group is particularly dramatic for Hong Kong, as the company was initially planning to list there. </p>
<p>So the decision offers further evidence of structural problems with Asian IPO markets, and it also signals a fresh appetite for Chinese offerings in the US – or at least among the bankers preparing to sell the stock to investors.</p>
<h2>Dot-com Bubble to Social Media Wave</h2>
<p>It has been a rocky road for investors in technology stocks. During 1999 and the early months of 2000, it looked as if appetite was insatiable. The frenzy led to unrealistically high valuations; some companies profited by simply <a href="http://onlinelibrary.wiley.com/doi/10.1111/0022-1082.00408/abstract">adding the .com suffix to their names</a>, even if their business had little to do with the internet. Of course, the bubble eventually burst with a sharp correction in prices and the thirst for internet stocks swiftly dried up.</p>
<p>It took a long time before internet firms regained the market’s trust. <a href="http://blogs.wsj.com/moneybeat/2013/08/19/googles-ipo-nine-years-later-only-nine-stocks-beat-it/">Google’s successful IPO in 2004</a> was an important step in this respect. Then came the IPO wave of social media firms. <a href="http://www.bloomberg.com/news/2011-05-18/linkedin-raises-352-8-million-in-ipo-as-shares-priced-at-top-end-of-range.html">Linkedin</a>, <a href="http://www.reuters.com/article/2011/11/04/us-groupon-idUSTRE7A352020111104">Groupon</a>, and <a href="http://online.wsj.com/news/articles/SB10001424052970204466004577102371445084982">Zynga</a> went public one after the other in 2011. <a href="http://www.bbc.co.uk/news/business-18141990">Facebook</a> made its debut in 2012. <a href="http://money.cnn.com/2013/11/07/technology/social/twitter-ipo-stock/">Twitter</a> followed in 2013. <a href="http://uk.reuters.com/article/2011/05/11/us-jiayuan-ipo-debut-idUSTRE74A5XM20110511">Jiayuan.com</a> and <a href="http://online.wsj.com/news/articles/SB10001424053111903480904576513133655907232">Tudou Holdings</a> joined their Chinese internet peers that went public in the US during this wave.</p>
<p>The market is more cautious these days in terms of valuing internet stocks, as can be seen in the less-than-frothy debuts of some of those above. The dotcom bubble and the bear market that followed are still painful memories for US investors. There is less hype about internet stocks and the market reacts efficiently when it feels a valuation is too high, as was the case with Facebook. It means that demand for internet stocks in the US seems less flaky and more likely to be sustained this time around.</p>
<p>It is also a relatively good time for Chinese firms to turn to US markets. <a href="http://www.reuters.com/article/2011/06/24/us-china-accounting-idUSTRE75N19J20110624">Accounting scandals concerning Chinese firms</a> that listed shares in the US dented the enthusiasm for new listings in 2011 and 2012. However, these scandals mainly involved Chinese firms that took a shortcut to a US listing by engaging in a reverse merger – sometimes known as a <a href="http://www.investopedia.com/terms/b/backdoorlisting.asp">backdoor IPO</a> – and not those that took the normal route. Recently, <a href="http://online.wsj.com/news/articles/SB10001424052702303843104579167632835494614">Chinese issuers are returning to the US IPO market</a>, which suggest a regained confidence in China’s growth story.</p>
<p>It all means this should be a comfortable moment for Alibaba to go public in the US.</p>
<h2>Keeping control</h2>
<p>And that means ChiNext, China’s version of the Nasdaq exchange, and the HKSE are losing yet another major Chinese tech firm to the US exchanges. </p>
<p><a href="https://theconversation.com/chinas-nasdaq-fails-to-get-off-the-ground-as-venture-capitalists-look-to-the-us-24170">My colleagues and I have found</a> that <a href="http://www.sciencedirect.com/science/article/pii/S1057521914000337">ChiNext is not yet ready</a> to attract firms of the calibre of Alibaba Group. For the Hong Kong Stock Exchange, however, Alibaba slipped through their fingers.</p>
<p>The US IPOs of Baidu, Renren and Weibo had a common feature that explains much. All of these companies issued class A shares with inferior voting rights compared to the class B shares held by pre-IPO owners. In each case, class A shares are entitled to a single vote, whereas class B ones are entitled to ten votes in the cases of Baidu and Renren and three votes in the case of Weibo. This dual-class share structure is quite common in the US and, crucially, allows insiders to retain control after taking their firms public.</p>
<p>Hong Kong Stock Exchange rules do not allow for different classes of shares. And although there are merits in the “one share, one vote” principle, at a practical level, it is one of the key reasons why US exchanges are managing to grab successful Chinese tech businesses.</p>
<p>Alibaba’s listing is set to be a landmark whatever the outcome. A positive reception by the market will reinforce a recovery in the US IPO market which has rallied from its dismal state in the heart of the financial crisis. On the other hand, while a negative reaction would dent momentum, the market seems more resilient at present and confidence more established. And of course, a negative reaction might offer some succour to the spurned Asian exchanges if Chinese tech firms think twice before they turn their backs again.</p><img src="https://counter.theconversation.com/content/26407/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ufuk Gucbilmez does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The planned stock market listing of Chinese e-commerce giant Alibaba in New York is a landmark deal for several reasons. The listing is anticipated to become the largest in the US since Facebook’s issue…Ufuk Gucbilmez, Lecturer in Accounting & Finance, The University of EdinburghLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/263722014-05-08T03:29:56Z2014-05-08T03:29:56ZChina’s Alibaba cries ‘open sesame’ to US market<figure><img src="https://images.theconversation.com/files/48006/original/hjz3jnf7-1399507486.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">English teacher Jack Ma founded Alibaba 15 years ago.</span> <span class="attribution"><span class="source">World Economic Forum/Flickr</span>, <a class="license" href="http://creativecommons.org/licenses/by-nc-sa/4.0/">CC BY-NC-SA</a></span></figcaption></figure><p>The upcoming <a href="http://www.sec.gov/Archives/edgar/data/1577552/000119312514184994/d709111df1.htm">IPO</a> of Chinese e-commerce giant Alibaba is likely to be the biggest the US market has seen. At an expected US$20 to $25 billion, it would be one and a half times bigger than Facebook’s IPO which raised US$16 billion.</p>
<p>The Alibaba group conists of a number of companies that roughly cover the same businesses as Amazon and eBay combined. Its <a href="http://blogs.wsj.com/moneybeat/2014/05/06/alibabas-ipo-filing-everything-you-need-to-know/">revenue</a> last year was around US$240 billion - about three times the size of eBay and twice that of Amazon. In 2013, it made US$2.5 billion net income off $6.5 billion in revenue. The success of Alibaba reflects the huge opportunities that China’s large population combined with poor physical commercial infrastructure offers to internet commerce.</p>
<p>Given the penetration of mobile phones in the Chinese market, it is not surprising that Alibaba has been especially successful in the mobile space. Alibaba’s mobile <a href="http://www.sec.gov/Archives/edgar/data/1577552/000119312514184994/d709111df1.htm">sales</a> account for 15% of total revenues and are responsible for 76% of all mobile commerce in China. Nearly 20% of Alibaba’s payment transactions through Alipay (the equivalent of PayPal) are done through mobiles.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/47976/original/rw73c2rs-1399465360.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/47976/original/rw73c2rs-1399465360.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=806&fit=crop&dpr=1 600w, https://images.theconversation.com/files/47976/original/rw73c2rs-1399465360.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=806&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/47976/original/rw73c2rs-1399465360.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=806&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/47976/original/rw73c2rs-1399465360.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1013&fit=crop&dpr=1 754w, https://images.theconversation.com/files/47976/original/rw73c2rs-1399465360.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1013&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/47976/original/rw73c2rs-1399465360.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1013&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Alibaba Corporate Structure.</span>
</figcaption>
</figure>
<h2>Alibaba’s origins</h2>
<p>Alibaba was founded 15 years ago by english teacher Jack Ma. It is structured in a complex arrangement of companies that are registered in the Cayman Islands. Despite having an english site <a href="http://aliexpress.com">aliexpress.com</a> catering for the global market, it is little known outside of China. What is more widely known, however, is that in 2005 Yahoo co-founder Jerry Yang invested US$1 billion for a 40% stake in the company. Yahoo <a href="http://blogs.wsj.com/moneybeat/2014/05/06/alibabas-ipo-filing-everything-you-need-to-know/">still owns</a> 23%, which after the IPO could be worth about US$13 billion. </p>
<p>When Yahoo sold Alibaba shares in 2012, netting itself US$7 billion, it became <a href="http://www.sec.gov/Archives/edgar/data/1577552/000119312514184994/d709111df1.htm">obliged</a> to sell Alibaba another 208 million shares which would bring down its stake in Alibaba to about 14%.</p>
<h2>IPO possibilities</h2>
<p>The most intriguing question the IPO throws up is what the company will do with the money it raises. Investors at least will be expecting the company to continue to develop the enormous market in China, but will also be anticipating an expansion into the US. This could pose a significant problem for companies like Amazon and eBay. Non-Chinese consumers may take a little time to accept the Chinese company, but the US market listing will certainly help.</p>
<p>Like Amazon, Alibaba runs a <a href="http://aliyun.com/">cloud services business</a> which in many ways is a cheaper alternative to Amazon Web Services. Western businesses are unlikely to want to put corporate data on computers in China, and so Alibaba’s growth of this business will depend on it setting up data centres in other countries and it isn’t clear whether this is something it’s interested in doing.</p>
<p>Another question post-IPO is what Yahoo will do with its investment and possibly more pertinent, what Alibaba will do with Yahoo. Despite Yahoo’s general improvement in its performance, it is still seen as a company with an unclear future. The recent increase in Yahoo’s share price has been largely attributed to speculation around Alibaba’s listing and so once that happens, investors are expecting some sort of payoff from the money generated by the IPO. Yahoo CEO Marissa Mayer has not said what she intends to do with the remaining stake in Alibaba.</p>
<p>The other big foreign Alibaba investor is the Japanese tech company Softbank (owner of US mobile company Sprint) which owns 34.4% of Alibaba. Softbank CEO Masayoshi Son has <a href="http://www.reuters.com/article/2014/05/07/us-softbank-results-idUSBREA4608F20140507">said</a> the company doesn’t intend to sell the shares, seeing itself in a strategic partnership. Given Softbank’s current attempts to buy another US mobile carrier, T-mobile, the combination of two predatory tech companies in the ascendancy in the US doesn’t bode particularly well for US companies in their path.</p>
<h2>What the IPO will reveal</h2>
<p>Stock market listings serve one important function and that is to bring public transparency to the way businesses operate and have been operating. Not only will this information lead to a greater understanding of what sort of company Alibaba is and what its prospects are, it will also serve to establish a new relationship with consumers in other countries, especially the US. Investors and consumers may also obtain a greater insight into a country that <a href="http://www.census.gov/foreign-trade/statistics/highlights/top/top1403yr.html">supplies</a> the US with 25% of its total imports.</p>
<p>In the <a href="http://www.sec.gov/Archives/edgar/data/1577552/000119312514184994/d709111df1.htm">original story</a> of Ali Baba and the Forty Thieves, Ali Baba is the only person left knowing the secret to the thieves’ cave of riches. The company Alibaba is probably hoping this story is about to come to pass in its future. </p><img src="https://counter.theconversation.com/content/26372/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>David Glance does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The upcoming IPO of Chinese e-commerce giant Alibaba is likely to be the biggest the US market has seen. At an expected US$20 to $25 billion, it would be one and a half times bigger than Facebook’s IPO…David Glance, Director of Innovation, Faculty of Arts, Director of Centre for Software Practice, The University of Western AustraliaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/194402013-10-23T03:31:39Z2013-10-23T03:31:39ZCommunist fat cats: Forbes counts 168 billionaires in China<figure><img src="https://images.theconversation.com/files/33470/original/xmhdq59c-1382434032.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">There are a record 168 billionaires in China, according to the most recent Forbes list.</span> <span class="attribution"><span class="source">Adam Nelson</span></span></figcaption></figure><p>“To get rich is glorious” – Deng Xiaoping’s famous aphorism has clearly been taken to heart by at least 168 people in China. That’s the number of billionaires identified in Forbes’ annual China Rich List. </p>
<p>Second only to the United States, the swelling ranks of the spectacularly wealthy are at best an incongruous anomaly in what is still notionally the People’s Republic. At worst they are a threat to the legitimacy and durability of the existing political order in China.</p>
<p>No doubt many will think this is no bad thing. China is, after all, an authoritarian regime with limited tolerance of opposition and dissent. It’s human rights record doesn’t withstand close scrutiny – unless lifting millions of people out of grinding poverty is recognised as a not insignificant contribution to the life chances of the most disadvantaged.</p>
<p>For those who wonder why there hasn’t already been more unrest about growing levels of inequality in China, this has to be part of the answer. The reality is that the benefits of successful economic development have been widely shared, even if some have done significantly better than others.</p>
<hr>
<h2>Big Earners: China’s Top Five</h2>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/33469/original/wq47nn7n-1382433727.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/33469/original/wq47nn7n-1382433727.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/33469/original/wq47nn7n-1382433727.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/33469/original/wq47nn7n-1382433727.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/33469/original/wq47nn7n-1382433727.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/33469/original/wq47nn7n-1382433727.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/33469/original/wq47nn7n-1382433727.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Moneybags: Wang Jianlin has made a fortune out of developing real estate in China and is expanding his business around the world.</span>
<span class="attribution"><span class="source">Fortune Live Media</span></span>
</figcaption>
</figure>
<p><strong>Wang Jianlin</strong> ($14.1 billion): Joined the army in 1970 and the Communist Party in 1976. Sits on a number of powerful state bodies. A property developer, owns a chain of cinemas in the US, is building a $1 billion hotel in London, loves celebrities.</p>
<p><strong>Zong Qinghou</strong> ($11.2 billion): A self-made man, borrowed money to start a small drinks business which is the now the largest in China. Has been a delegate to the Chinese National Congress since 2002.</p>
<p><strong>Li Robin</strong> ($11.1 billion): Recieved the highest high school scores in his state and was sent to the State University of New York. Worked for Dow Jones and Infoseek in the US before making his fortune with Baidu, China’s largest search engine.</p>
<p><strong>Li Hejun</strong> ($10.9 billion): Originally acquired small dams until he built the world’s largest privately owned hydropower station in western China. Has a fast expanding renewable energy business. Enjoys golf.</p>
<p><strong>Ma Huateng</strong> ($10.2 billion): Owner of enormous internet company Tencent, which has a series of products with messenger services, online games and video players.</p>
<hr>
<p>The problem for the Communist Party of China and the elite group of its members who actually run the show is that they have yet to develop a discourse that actually makes sense of this fundamental “contradiction”, as the Marxists used to say.</p>
<p>It is not simply that inequality is becoming an ever more visible part of the contemporary social order in China. There is also the problem that some of the comrades are clearly benefiting from their connections to China’s expanding capitalist class. Indeed, many in the senior ranks of the Communist Party of China – or close members of their families – are the capitalist class.</p>
<p>When the <a href="http://www.nytimes.com/2012/10/26/business/global/family-of-wen-jiabao-holds-a-hidden-fortune-in-china.html?_r=0">New York Times revealed last year</a> that former premier Wen Jiabao’s mother had, amongst other things, a $120 million investment in a financial services company, more than eyebrows were raised. Despite the Chinese government’s efforts to limit discussion on increasingly influential social media outlets, the damage to “Uncle Wen’s” man-of-the-people image was significant.</p>
<p>China’s netizens have become similarly indignant and outspoken about the antics of the sons and occasionally daughters of China’s ruling class. Not only has conspicuous consumption apparently become de rigueur, but so has an expensive education at the most prestigious schools and universities in the West. </p>
<p>The fact that disgraced former power-broker Bo Xilai’s son had been educated at Harrow was one of the more bizarre revelations of the recent political turmoil in China.</p>
<p>The idea that Bo represented “the left” in China and was the inheritor of Mao Zedong’s socialist mantle was equally confounding. Perhaps it is no more unlikely than a plutocrat like Mitt Romney claiming to be a regular guy, but there is one important difference, of course: in the US the ability to accumulate vast wealth is seen as a validation of fundamental national values and individual achievement. Despite the fact that this goal is increasingly harder to achieve for the vast majority of the population, it has done little to undermine the centrality of this belief.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/33472/original/yvsqz3bh-1382434999.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/33472/original/yvsqz3bh-1382434999.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=422&fit=crop&dpr=1 600w, https://images.theconversation.com/files/33472/original/yvsqz3bh-1382434999.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=422&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/33472/original/yvsqz3bh-1382434999.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=422&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/33472/original/yvsqz3bh-1382434999.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=530&fit=crop&dpr=1 754w, https://images.theconversation.com/files/33472/original/yvsqz3bh-1382434999.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=530&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/33472/original/yvsqz3bh-1382434999.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=530&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Will inequality break the Chinese political system? Not if everyone is better off, even if some are far better off.</span>
<span class="attribution"><span class="source">EPA/Qilai Shen</span></span>
</figcaption>
</figure>
<p>In China there is no such legitimating discourse. Whatever Xi Jinping’s “Chinese dream” is supposed to be about, it’s still linked rhetorically to socialism and the collective fate of the nation. It may, indeed, also be about encouraging entrepreneurial activity and contributing to sustainable national development, but it is still a long way from the Communist Party’s traditional role as the representative of the proletariat.</p>
<p>Luckily for China’s leaders, not many people are interested in, much less take seriously, Marxist ideology anymore. But there are plenty of people in China who do care about corruption and the apparent links between political power and personal enrichment. </p>
<p>Even members of Xi Jinping’s own family have become conspicuously wealthy, although there is no evidence to suggest that he played any direct role in this. Nevertheless, it’s not a good look for the leader of a communist party trying sell the idea of collective endeavour and common purpose.</p>
<hr>
<h2>Almost There: The Next Five Richest</h2>
<p><strong>Wei Jianjun</strong> ($9 billion): Started a truck company which became Great Wall Motors, the 9th biggest car company in China. Sells nearly a million units every year, and has started exporting elsewhere, including Australia.</p>
<p><strong>Yang Huiyan</strong> ($7.2 billion): China’s richest woman, mainly her father’s wealth. He was another real estate developer. She graduated from Ohio State University in 2003.</p>
<p><strong>Jack Ma</strong> ($7.1 billion): Failed high school twice, then became a university lecturer before starting one of China’s first internet companies. Launched Alibaba in 1999, the website is now one of the world’s largest e-commerce sites.</p>
<p><strong>He Xiangjian</strong> ($6.8 billion): Owns a large share in China’s biggest appliance maker, Midea, which is the second biggest appliance manufacturer in the world.</p>
<p><strong>Liu Yongxing</strong> ($6.1 billion): Made money in the quail breeding and animal feed industries before launching a conglomerate that makes plastics. Still owns China’s largest animal feed companies.</p>
<hr>
<p>It is not too fanciful to suggest that China is currently the most successful capitalist economy on the planet. Significantly, however, China’s capitalists are not pushing for political liberalisation in the way some in the West think they could or should. </p>
<p>The nexus between political and economic power that has been such a feature of the so-called East Asian miracle continues to underpin a remarkably effective and – thus far, at least – stable Chinese developmental model.</p>
<p>Whether, the proletariat can be persuaded that this model is still in their interests, too, remains to be seen. The highly publicised misdemeanours of the over-privileged off-spring of the rich and powerful have incensed the majority of China’s less fortunate masses. </p>
<p>China’s leaders might do well to remember that history suggests too much conspicuous consumption by a fortunate few is not good for social cohesion anywhere. It could be especially galling and corrosive in the People’s Republic.</p><img src="https://counter.theconversation.com/content/19440/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mark Beeson does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>“To get rich is glorious” – Deng Xiaoping’s famous aphorism has clearly been taken to heart by at least 168 people in China. That’s the number of billionaires identified in Forbes’ annual China Rich List…Mark Beeson, Professor of International Politics, Murdoch UniversityLicensed as Creative Commons – attribution, no derivatives.