Alibaba (BABA), the business empire built on China’s digitalization and fast-growth consumer markets, is trying to persuade investors it could benefit from the ongoing U.S.-China trade negotiations.
Joe Tsai, Alibaba vice chairman, made the case on Alibaba’s earnings call after the company reported strong revenue growth on Wednesday. He emphasized Alibaba’s role in connecting Chinese consumers with more foreign foods and speeding up the structural reform of the world’s second largest economy, as well as its efforts to deepen intellectual property protection.
Tsai’s comments come amid a tumultuous time for U.S.-China relations, as a highly-anticipated trade deal didn’t close in the latest round of negotiations, instead tit-for-tat tariffs were put in place. President Donald Trump’s tough stance on China first stemmed from the huge trade imbalance between the two countries, and he later expanded the feud to include non-tariff barriers such as IP theft and restrictions on market access.
Alibaba said it’s “on the right side of all these issues” and could benefit from any U.S.-China trade agreement that is made, including China buying more U.S. goods, protecting IP and further opening up its economy.
“China's commitment to purchase more American products means China will over the next several years become a net importing country. Consumers in China would benefit from the availability of quality imported products from all over the world, including from American farmers, brand and small businesses,” said Tsai. “Alibaba is set up to benefit from the secular trend of growing imports into China.”
Alibaba has programs that help U.S. small businesses sell products to China through its platform. The company hosted a conference in Detroit in June 2017, calling small businesses to tap into China’s growing middle-class. Chairman Jack Ma had famously told Trump he would create 1 million jobs in the U.S., but walked away from that promise last September, citing the trade war.
Tsai said trade negotiations with the U.S. could lead China to further open its market to foreign businesses, bringing in more options for consumers on Alibaba’s platforms.
“We're not concerned about slowing China exports affecting GDP growth because the Chinese economy is shifting from an export economy to a domestic consumption economy,” said Tsai. Consumption contributed 76% to China’s GDP growth in 2018.
Trade tension looms over economic recovery
The Hangzhou-based e-commerce giant expects to rake in 500 billion yuan ($72.69 billion) in revenue in fiscal year 2020, citing more opportunities from less-developed cities in China, which could fuel the growth of the middle-class.
China’s domestic stock market and currency have been hit by the trade uncertainties, which loom over the Chinese economy, which just showed some positive signs of bottoming out this year.
But Alibaba believes it plays a critical role in digitizing once state-dominated industries by working with traditional malls through its New Retail strategy and offering cloud services to enterprises.
“The vexing issues in the trade negotiations will resolve themselves as the Chinese economy is already evolving to close the gap between the interest of the United States and China,” Tsai said. “I cannot think of another company that is better equipped to drive these secular changes and participate in the ensuing long-term benefits.”
Note: Alibaba’s revenue guidance for the fiscal year 2020 is 500 billion yuan. An earlier version of the story stated $500 billion.