Did Alibaba’s Jack Ma Keep Prized Asset for Himself?

After a blockbuster US listing, Jack Ma's best asset may be Alipay, the online payment service not included in the Alibaba offering

Posted on 09/21/14
(Photo by Ian Fogg, Creative Commons License)
(Photo by Ian Fogg, Creative Commons License)

Alibaba has clocked up some spectacular achievements in its 15-year history and its visionary leader, Jack Ma Yun, is undoubtedly a one-of-a-kind figurehead in the mainland’s corporate world.


But while the 50-year-old former English teacher has said that its US listing will allow his company to be more transparent and open to public supervision, Ma has yet to properly address lingering concerns over key issues such as the spin-off of his tightly controlled online payment processor Alipay.


And while Ma may be willing to be more transparent, it is also clear that he wants to play by his own rules, with Alibaba’s complex governance structure allowing him to be selective about such openness.


Alibaba has more than 80 per cent market share in China’s online retail market, and some have argued that its dominant position gives it little scope for growth.


And that makes Alipay, a “golden goose” business not included in the offering, Ma’s most important asset.


Alipay handles about half of all online transactions in China, giving Alibaba a favorable position from which to oversee personal credit histories and capital flows in the mainland’s rapidly growing internet finance sector, where traditional, state-owned lenders have failed to compete.


Before the birth of Alipay, making payments was a huge challenge for many e-retailers because of the time-consuming process of wiring money through the undeveloped channels provided by retail banks.


Jack Ma Yum. (davemc500hats, Creative Commons License)
Jack Ma Yum. (davemc500hats, Creative Commons License)

How many of those buying into Alibaba’s IPO were more focused on establishing a relationship with the company, which has control over Alipay and other finance units that are much more difficult to replicate than its successful online retail sites such as Taobao and Tmall?


As the mainland’s economy becomes more consumer-driven, Alibaba.com an online trade platform that links Chinese manufacturers and overseas buyers, has lost its glory.


In response to doubts about its corporate governance, Ma essentially told investors to trust in his leadership and vision.


Benchmark stock market indices have reached record highs in the US before the US Federal Reserve’s exit from its long-running bond-buying program next month.


But no one can guarantee that newly listed Alibaba will be able to withstand any major market correction.


Alibaba shares popped in their New York debut, but whether the stock price – which closed at US93.89, up 38 per cent from its US$68 IPO price – represents short-lived euphoria or is a long-term bull is beyond our ability to guess.


History will tell if the company has correctly timed the peak of the market for a second time.


Alibaba was first listed in Hong Kong in 2007 and subsequently delisted from the exchange after bad performance of the stock price, partly due to a sharp pullback in the global stock market.


Ma has repeatedly said he felt blessed by the trust of investors and that his decision to remove Alipay from Alibaba was one of the toughest in his life.


However, it was unquestionably a wise move to cash in when the markets were still enthralled by its consumer-internet play.


Alibaba raised US$21.8 billion last week in its New York Stock Exchange listing, giving it a bigger market capitalization than US technology giant Amazon or even traditional blue-chip companies JP Morgan and Wal-Mart.


The high-flying Chinese tech firm broke numerous records in its mammoth IPO and has ignited a new debate on whether the rising tide of Chinese companies listing in the US should be a wake-up call for their American counterparts.


Another question that needs answering is whether Alibaba’s second listing in seven years will be another wake-up call for investors too.


The writer can be reached at ray.chan@scmp.com.

This article appeared in the South China Morning Post print edition. Click here to go to the original.


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