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Is Alibaba Comparable To a US Company?

Posted by timothy on from the well-the-name-is-magical-to-start dept.

lpress writes Alibaba is this week's hot news — they have had a lengthy PR campaign (preceded by a documentary film) followed by a record-setting stock offering. After a day of trading Alibaba's market capitalization was comparable to that of established tech giants. But, there are cultural and structural differences between Alibaba and U.S. companies. Alibaba is tightly woven into a complex fabric of personal, corporate and government organization relationships. The same can be said of information technology companies in Singapore. Is owning a share of, say, Apple, conceptually the same as owning a share of Alibaba?

27 of 126 comments (clear)

  1. What a question? by bogaboga · · Score: 5, Interesting

    Is owning a share of, say, Apple, conceptually the same as owning a share of Alibaba?

    How can this be the case? In a few instances: -

    If one is looking for return on investment, then it's probably the same.

    If on the other hand, one is looking for an avenue to influence company direction, owning shares in Alibaba and startng this effort is almost a guaranteed exercise in frustration, for Alibaba is a company with capitalist "genes" which have a tinge of socialist, heavy-handed characteristics.

    I should add that this isn't bad at all.

    1. Re:What a question? by Etherwalk · · Score: 2

      If on the other hand, one is looking for an avenue to influence company direction

      But then, if one is looking for that any has a realistic chance of success, one is too busy to be reading this.

    2. Re:What a question? by Nemyst · · Score: 5, Informative

      Alibaba, socialist? The only thing socialist about it is that the Chinese party calls itself communist. Alibaba is a privately owned but state-blessed corporation with heavy state support. The communist party has a hand in pretty much every large Chinese corporation these days, and in the end they have the final call, and they'll be a lot more meddlesome than even the most pedantic of state regulators in the US.

      Plus, you can't even buy shares for Alibaba, you only get shares for a Cayman Islands shell corporation which has a contract to receive the profits from Alibaba proper. You get absolutely no decision-making power, no influence, and frankly little in the way of actual worth.

    3. Re:What a question? by Zontar+The+Mindless · · Score: 3, Insightful

      Referring to state crony capitalism as "socialism" does not make it that.

      The current setup in China is more accurately described as "Fascism-Lite".

      --
      Il n'y a pas de Planet B.
    4. Re:What a question? by Jane+Q.+Public · · Score: 2

      Referring to state crony capitalism as "socialism" does not make it that.

      I wasn't referring to crony capitalism, although I admit I could have worded it better. Mea culpa; it is reasonable to think that's what I meant from what I wrote. But it isn't actually what I meant.

      To be clearer: EPA for example is "crony capitalism" by way of "market capture". Obamacare is a rather huge attempt at socialism.

      The current setup in China is more accurately described as "Fascism-Lite".

      I wouldn't quite say that either. It is totalitarianism wearing padded gloves. When China's leaders really got it through their heads that their economy was genuinely starting to fail, big time, they introduced "incentives": allowing businesses to be just a little bit capitalist. When that worked, they allowed a little more.

      But make no mistake: the central leadership still rules things with an iron fist, and controls the economy. That's socialism (which, truth be told, isn't that different from fascism, after all). They just know which side of their bread the butter is on, and allow "capitalist" activity where it suits them.

    5. Re:What a question? by Rich0 · · Score: 2

      If on the other hand, one is looking for an avenue to influence company direction

      And how many shares would you realistically have to buy of Apple in order to have an influence on company direction? Do you think that's applicable to anyone reading this?

      Well, the ownership thing DOES matter insofar as the interests of all shareholders are aligned.

      Suppose the CEO of Apple decided to sell all the company's assets and pay the resulting funds to himself as a bonus. The shareholders would be legally able to prevent this, and even though any individual only votes a tiny fraction of the total, their interests are basically all aligned.

      If a few people running Alibaba decided to do the same, there would be no legal recourse, since the "investors" don't actually own anything. It is like "investing" in a company via kickstarter - they get the money, and you only get a promise.

      The same is true of buying stock in companies that have a majority shareholder.

    6. Re:What a question? by liquid_schwartz · · Score: 3, Insightful

      Unless you are from Tibet or practice Falun Gong, then it's fascism heavy

  2. Comparable? Not really. by caladine · · Score: 5, Insightful

    When someone buys a share in Apple, they actually get an ownership share in Apple.
    When someone says they're buying a share in Alibaba, they actually buying shares in a VIE called Alibaba Group Holdings Limited which was incorporated in the Cayman Islands. The VIE has contractual rights to Alibaba China's profits, but not anything that resembles ownership.
    It's not the same thing as share of Apple at all.

    1. Re:Comparable? Not really. by phantomfive · · Score: 4, Interesting
      I read an article recently on exactly that topic, which is probably worth quoting:

      The market is fully capable of pricing the fact that Alibaba stockholders don't actually own a direct claim on Alibaba's Chinese assets and can't elect its board. Truth be told, shareholders don't "own" any company; they own whatever rights are specified in the share agreement........

      True comfort for shareholders comes not from legal boilerplate, but from incentives. Alibaba founder Jack Ma could take the $22 billion raised Friday and stiff his foreign partners. That's a risk. But his self-interest is otherwise. He wants a strong stock as a currency for acquisitions. He wants stock options to motivate his increasingly global management team. He wants easy liquidity for himself and other insiders. .....

      when investors begin to worry about the actual rights specified in a share agreement, it usually means something has already gone seriously wrong.

      Alibaba is probably as good as any stock. If things go wrong, things go wrong.

      --
      "First they came for the slanderers and i said nothing."
    2. Re:Comparable? Not really. by Animats · · Score: 4, Informative

      When someone buys a share in Apple, they actually get an ownership share in Apple.

      Apple, yes. Google or Facebook, no. Google and Facebook have two classes of stock. The class with all the voting rights is in both cases controlled by the founders. The publicly traded shares cannot outvote them, even if someone bought all of them.

      Until recently, multiple classes of stock were prohibited for NYSE-listed companies, which tended to discourage doing this. (The classic exception was Ford, which has two classes of stock, the voting shares controlled by the Ford family. This predates that NYSE rule.)

      This matters when the insiders make a big mistake and the stock starts going down. There's no way to kick them out.

    3. Re:Comparable? Not really. by Anonymous Coward · · Score: 2, Interesting

      No one except hedge funds buys stocks to own voting rights anymore. That would imply caring about the company. Today we chase momentum and hope to make a quick buck buying the f'ing dip, stupidly hoping to front-run the algos that already scanned the news and traded before the headlines even reached us. Stocks are now basically commodities, except that commodities eventually have usefulness, while stocks just represent some abstract value to the extent that someone else might be stupid enough to purchase them.

      Sometimes, late at night, I think it's all worthless. Maybe it would be more responsible just to buy farmland or raw materials. Capital markets aren't places for people but for bots.

      Captcha: religion

  3. weak consumer protection by harvey+the+nerd · · Score: 2

    a lot of fraudulent mainland C trading companies use Ali-B to rip newbies off

  4. Oh hell no by slashmydots · · Score: 2

    No! Not even Paypal has that level of customer support. They don't give a flying fuck about security or verifying their sellers. Every other seller is a scammer in the electronics section. They openly provide them with your e-mail so you get fraud spam selling RAM and SSDs forever. That would be a major violation of security in 1998 let alone 2014. They're so hell bent on money money money and all their e-mails from the company themselves are misleading scams. The whole gold certification is a joke. I can't even begin to compare them to any US company.

  5. Re:Different? by Anonymous Coward · · Score: 3, Funny

    Don't blame me, I bought stock in Amazon!

  6. Re:Style by Dahamma · · Score: 5, Insightful

    You don't know anything about it, do you?

    Basically if you buy "Alibaba" stock you actually bought stock in a Cayman Islands holding company that is somehow related to the actual Chinese company, since China does not allow foreigners to own stock in Chinese companies. It was a weird/complicated enough arrangement that apparently the Hong Kong stock exchange declined to offer it, and the NYSE was the second choice. It's unlikely of course, but if the Chinese government wanted to "close the loophole" investors could be out $20B+ in a day.

    So, no, it's not conceptually the same thing at all...

  7. Place of Business. by Anonymous Coward · · Score: 3, Insightful

    If a US company listed in the US decided to screw its shareholders, it and the board can be held accountable in US courts.

    If a foreign company listed in the US decided to screw its shareholders, recourse is far more limited.

    It's true. For example, a Chinese company would be far less likely to be held accountable for all but destroying the economy, and receive millions of dollars from the US government as punishment.

  8. Re:Place of Business. by tlambert · · Score: 4, Insightful

    If a US company listed in the US decided to screw its shareholders, it and the board can be held accountable in US courts.

    LOL, when has that ever happened

    It's happened many times; it's called "malfeasance" or "misconduct", and it's punishable as criminal fraud.

    This is why corporate board members these days are all about "fiduciary responsibility", even if they have to club baby seals to death in the shallow waters where they are coated in oil from the Exxon Valdez.

  9. Really? by InfiniteZero · · Score: 3, Interesting

    > a complex fabric of personal, corporate and government organization relationships

    Are we talking about China, or America? At that high level, the line between corporations and the government becomes blurry, no matter which country you live in. Just look at Standard Oil, Boeing, Halliburton... The list goes on.

  10. Not like Ebay or Amazon by rdtripp · · Score: 2

    Have dealt with Alibaba twice. The first time was with a legit vendor and was fine. The second time was with a bad vendor and got shipped misrepresented junk. Alibaba sided with the vendor and cost me 200.00 USD. Dramatically different than dealing with US based similar companies. Non-existant customer service and will screw you over in a minute. Will never buy through them again.

  11. US investors don't have shares in Alibaba ... by perpenso · · Score: 5, Insightful

    You seem to be speaking of Alibaba the Chinese retailer, so you are off on a tangent since that is not what US investors are putting their money into.

    What US investors are buying is interest in a Cayman Island “variable-interest entity”. Stockholders won't have the usual influence on corporate governance or management, such as it is. My understanding is that Chinese law doesn't allow foreigners to own a Chinese strategic asset. So this Cayman Island entity was created.

    http://www.marketwatch.com/sto...

    1. Re:US investors don't have shares in Alibaba ... by khallow · · Score: 4, Interesting

      I agree. Asking the question indicates ignorance of this arrangement. My view is that owning a share of this would indicate poor investment judgment and be a strong signal to me to stay clear of the entity in question.

    2. Re:US investors don't have shares in Alibaba ... by antifoidulus · · Score: 2

      My understanding is that Chinese law doesn't allow foreigners to own a Chinese strategic asset.

      Yes, which is exactly why China's campaign to make the yuan a major world currency is laughable. People aren't going to buy a currency just so they can buy consumer goods from you, they are going to want to invest it, and current Chinese law pretty much makes that impossible to do in any sort of meaningful fashion. China is trying to "have it's cake and eat it to" by throwing it's weight around like one of the big boys but still being ultra-protectionist like a developing economy. Sooner or later this is going to catch up with them, and it's not going to be pretty.

      --
      Monstar L
  12. Governmental ?? by Taco+Cowboy · · Score: 2, Interesting

    libaba is tightly woven into a complex fabric of personal, corporate and government organization relationships

    Tim, before you post that article, have you run a thorough check on the submit ?

    I am not in anyway affiliated with Alibaba and do not own even one share of Alibaba, but TFA has gone overboard with its accusation that Alibaba of having "governmental organization relationships"

    Although I am no longer a Chinese citizen, I did come from China and am very familiar with China

    If you say Huawei, another Chinese company, have "government organization relationship" with the Chinese Communist Regime, then I agree. But not Alibaba

    The truth is that Google, Apple, Microsoft, Cisco and many more American companies have MORE "governmental organization relationship" with the US government - especially with alphabetic agencies such as CIA and/or NSA - than Alibaba with the Chinese Communist regime

    Just because Alibaba happens to be a company from China doesn't give anyone the right to spread all kinds of baseless accusations - and I am really sick and tired of the mindless anti-Chinese bashing that has been going on since the listing of Alibaba

    Do you know that the more you guys bash all things Chinese the more you guys are showcasing your idiotic/racist side to the world?

    This world isn't only USA vs China as there are other players - and your childish display will only convince those third-party players that America is not a trustworthy party

    The more you guys bash the Chinese online the more you guys are ruining the whatever reputation that is left of the United States of America

    --
    Muchas Gracias, Señor Edward Snowden !
  13. Re:Style by fustakrakich · · Score: 3, Interesting

    The state serves the business that props it up. When it fails, it is replaced, hopefully with as little property damage as possible. There's nothing "conspiratorial" about it, it just business. Don't be trying to bring all the emotional baggage into it. And if you think that business with Russia is any less than usual, you really bought a bag of magic beans. Just ask Exxon, if you don't want to believe me. Your fantasy marketplace doesn't operate the way you think it does, and that all the documented corruption as simply "isolated incidents", when in fact it is its very essence. It is not corrupt, it is natural, operating on the very same savagery. It is the "Serengeti in Manhattan".

    --
    “He’s not deformed, he’s just drunk!”
  14. Re: Style by peragrin · · Score: 3, Interesting

    The Russian market was also being propped up by those external investors. a closed system wouldn't have grown very big to begin with. hence why the Soviet Union couldn't keep up with the USA in military spending the USA had a world Economy and the Soviet union and the Warsaw pack, partially as not even full trade was allowed between them.

    The USA didn't become a world trade powerhouse because of it's isolationist policies, but because we traded with just about anybody and sold anything including our own grandparents.

    --
    i thought once I was found, but it was only a dream.
  15. Re: Style by fustakrakich · · Score: 2

    Who said anything about the US "government"? The government is muscle, that's it.

    Hey, you're perfectly welcome to stick to your grade school fantasies all you want. If you want to see everything as a "conspiracy", that would be your issue. I see none at all. I only see nature at work, as she always has.

    --
    “He’s not deformed, he’s just drunk!”
  16. Re:Style by fustakrakich · · Score: 2

    Yeah, I guess you're one of those types that don't believe that water is wet, or that humans live and work under the same influences as everything else in nature without proof. Most of the evidence you want can be seen on Animal Planet. And then please try to distinguish us from the rest. Yes, it is that obvious. If you still don't want to believe me, go visit Walmart on your average Black Friday. Your veneer of civility is extremely thin and translucent, to say the least. The system is driven by instinct. The "intellect" is there to serve. Or maybe you're the fish, asking, "What the hell is water?"

    What "evidence" are you looking for? Are you not able to deduce anything from your own observations?

    --
    “He’s not deformed, he’s just drunk!”