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With Alibaba, It’s Not About You, It’s About China

Dana Blankenhorn

Alibaba (NASDAQ:BABA) stock is reacting to the trade war with China by becoming more Chinese.

"Counterfeit" lawsuit just noise for BABA stock

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Lured by rules that allow listing of dual-class shares in Hong Kong, Alibaba has announced plans to raise $20 billion there after doing an 8:1 stock split. Dual class shares were forbidden in Hong Kong when Alibaba went public in New York in 2014.

The split will make it possible to buy a share in the company, which opened for trade at about $166 on June 19, for just under $21. This makes it affordable to small Chinese investors.

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While American business writers file gigabytes about how to trade this or what it means to us, it’s not about us.

It’s about China.

Alibaba as China

Alibaba has become a proxy for what is possible to ordinary Chinese by combining the Horatio Alger maxims of co-founder Jack Ma with the absolute obedience preached by Chinese president Xi Jinping.

Alibaba bought the South China Morning Post, Hong Kong’s leading news outlet, in 2015. It now finds itself caught between the Xi government and the demand of Hong Kong’s people for autonomy. Millions of people, a substantial portion of Hong Kong’s population, have participated in protests over a proposal to allow quick extradition, to China, of people accused of crimes.

China’s government could crack down, as it did in Beijing 30 years ago, stifling democratic impulses. But the price could be heavy. So far, the government has backed off its proposal, but has taken no further action.

The Post has covered the story but has mostly focused on stories like a call to “restore business confidence.” The protests threaten to overshadow the listing and the stock split.

Ma’s Dream

While giving full autonomy to CEO Daniel Zhang and a new executive team and preparing for his own retirement in September, Ma is quietly making Alibaba more of a tech play and less of the retail play Zhang had crafted. Its Hema supermarket unit, for instance, will be split off. CEO Zhang told Reuters the moves are meant to “guarantee innovation.” 

The moves indicate more focus on Alibaba’s cloud, which is gaining the same global footprint as the American “Cloud Czars.” But the Alibaba cloud, unlike the American clouds, is based on Alibaba’s own business applications. The company need not worry about charges of being a “monopoly” since, to Chinese leaders, that’s not a bad thing, So long as the monopoly is answerable to government power.

Ma himself, who is China’s richest man and also a member of the Chinese Communist Party, talks about going into teaching and philanthropy. He speaks of following the example of Microsoft (NASDAQ:MSFT) co-founder Bill Gates, who also retired from business in his mid-50s.

But Ma won’t be, and can’t be, Gates, anymore than he can be Forrest Gump, the American movie character he so loves. That’s because Ma is Chinese, and Alibaba is Chinese, subjects to a strong central government that hands out freedom with an eye dropper.

The Bottom Line

In the end, Alibaba’s moves could be a godsend to American companies like Amazon (NASDAQ:AMZN), Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google, and Facebook (NASDAQ:FB), which face calls in Europe and America to be broken up.

Alibaba’s market cap, at $435 billion, is a little over $100 billion short of Facebook. Breaking up the American czars would leave the market open to BABA stock. Cloud investors hope that fact will stay any trust-busting hands.

Dana Blankenhorn is a financial and technology journalist. He is the author of a new environmental story, Bridget O’Flynn and the Bear , available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN and MSFT.

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