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Businesses China The Almighty Buck

Is Alibaba Comparable To a US Company? 126

Posted by timothy 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?
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Is Alibaba Comparable To a US Company? More

Is Alibaba Comparable To a US Company?

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  • What a question? (Score:5, Interesting)

    by bogaboga ( 793279 ) on Saturday September 20, 2014 @10:30PM (#47957009)

    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.

    • 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.

    • Re:What a question? (Score:5, Informative)

      by Nemyst ( 1383049 ) on Saturday September 20, 2014 @11:17PM (#47957121) Homepage
      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.

      • state-blessed corporation with heavy state support.

        Yep. Socialist.

        And yes, as sad as it may be, the same is true, to a lesser extent, of some US corporations these days.

        The "Communist" party isn't Communist. It's just bad Socialism, just like every other regime in history that called itself Communist.

        Just calling yourself that doesn't make it so.

        • Re:What a question? (Score:4, Insightful)

          by Zontar The Mindless ( 9002 ) <plasticfish@info.gmail@com> on Sunday September 21, 2014 @01:37AM (#47957511) Homepage

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

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

          • 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 fa

          • Re: (Score:3, Insightful)

            by liquid_schwartz ( 530085 )
            Unless you are from Tibet or practice Falun Gong, then it's fascism heavy

      • The communist party has a hand in pretty much every large Chinese corporation these days, and in the end they have the final call

        I think you do not rightly know what socialism means.

    • US investors don't have shares in Alibaba ... (Score:5, Insightful)

      by perpenso ( 1613749 ) on Sunday September 21, 2014 @12:56AM (#47957401)
      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... [marketwatch.com]

      • Re:US investors don't have shares in Alibaba ... (Score:5, Interesting)

        by khallow ( 566160 ) on Sunday September 21, 2014 @02:58AM (#47957731)
        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.

        • Re: (Score:2)

          by lpress ( 707742 )

          I agree. Asking the question indicates ignorance of this arrangement.

          I am asking about the nature of Chinese corporations, not the structure of this stock deal.

      • 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 t

    • Re: (Score:2)

      by hey! ( 33014 )

      You are confusing "state capitalism" with "socialism".

    • Re: (Score:2)

      by NoKaOi ( 1415755 )

      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?

      • Re: (Score:3)

        by Rich0 ( 548339 )

        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 ow

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

          Not quite. There are minority shareholder laws which prevent such things as creating a new company and selling all your assets to them for a dollar.
          Those laws only go so far though. They don't prevent you from creating a new company and selling all your assets to them for their fair market value.
          So basically, minority shareholder laws don't prevent majority shareholders from screwing over the minority shareholders but they do prevent majority
          shareholders from COMPLETELY screwing over minority shareholders

  • Is Alibaba Comparable To a US Company? (Score:1)

    by Anonymous Coward
    Uh, no. - - - In the story, Ali Baba is a poor woodcutter who discovers the secret of a thieves' den, entered with the phrase "Open Sesame". The thieves learn this, and try to kill Ali Baba. But Ali Baba's faithful slave-girl foils their plots; Ali Baba gives his son to her in marriage and keeps the secret of the treasure. http://en.wikipedia.org/wiki/A... [wikipedia.org]

  • Comparable? Not really. (Score:5, Insightful)

    by caladine ( 1290184 ) on Saturday September 20, 2014 @11:00PM (#47957073)
    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.

    • Re:Comparable? Not really. (Score:5, Interesting)

      by phantomfive ( 622387 ) on Saturday September 20, 2014 @11:25PM (#47957139) Journal
      I read an article [wsj.com] 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.

      • Alibaba is probably as good as any stock.

        Heh, I would not consider that a high recommendation. The small timer might get lucky, if they know when to cut and run. The rest are washing their money.

        • Sure, it's a lot of luck to day trade stocks, you might as well go to Vegas. However, over time the US economy and stock market has consistently gone up. Just buying and holding a broad spectrum of stocks or a good mutual fund has long been a way for average investors to make a pretty good return, just for doing nothing with their money.

          If you simply bought an incredibly boring total market mutual fund 5 years ago [vanguard.com] and held on to it, your money would have doubled already.

          • Re: (Score:2)

            by khallow ( 566160 )
            Alibaba isn't a boring mutual fund. Instead, it's more exciting. Just make sure you count your fingers and toes when it's over.

      • Re: (Score:2)

        by ponos ( 122721 )

        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........

        You are right of course. Personally, I'm a bit bothered by stocks that don't give dividends (as a rule!) or voting rights. I know it's common and Alibaba is not the only example. Investing without any kind of control and without expecting dividends (I don't know if it's the case for Alibaba) only seems to reinforce the perception that stocks are some sort of casino. I prefer the vision of stock ownership as holding a small piece of a real business: contributing to decision-making and getting a part of the p

      • Re: (Score:2)

        by khallow ( 566160 )

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

        Only if you ignore risk. One could say the same of getting out of bed and sky-diving. Things could go very wrong in either case, but getting out of bed is far less likely to leave you a pancake.

    • Re:Comparable? Not really. (Score:5, Informative)

      by Animats ( 122034 ) on Saturday September 20, 2014 @11:45PM (#47957187) Homepage

      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.

      • Re: (Score:2, Interesting)

        by Anonymous Coward

        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

      • Re: (Score:2)

        by ponos ( 122721 )

        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.)

        Thanks for sharing this information. This explains some things.

      • 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.

        It also matters when someone has built something of value, and then becomes publicly traded, since it keeps the financial vampires from descending on the company and sucking the blood out of it, leaving a husk which dies in 6 months. That's what's currently going on with the OliveGarden proxy fight, where a funds group has acquired a large position in the company, and now wants to spin off the real estate holdings to a separate company (taking about $1B in the $2.5B value portfolio as a one time dividend,

      • Re: (Score:2)

        by lpress ( 707742 )
        The post discusses the nature of Chinese corporations, not the structure of this particular stock deal.

    • Given how much say you have in the running of a company as a shareholder who didn't invest $billions into said company, I'd say the experience is quite comparable.

    • Re: (Score:2)

      by lpress ( 707742 )

      It's not the same thing as share of Apple at all.

      The post discusses the nature of Chinese corporations, not the structure of this particular stock deal.

  • Not a smart investment (Score:1)

    by Anonymous Coward

    I wouldn't buy shares in Alibaba in the US. You aren't getting actual shares in the company, you are getting shares in a shell company that has a contract with the real one to share profits. China prohibits directly spinning a portion off to the US markets.

  • a lot of fraudulent mainland C trading companies use Ali-B to rip newbies off
  • 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 read your paragraph twice and I literally have no idea what you are talking about
    • I understand completely. Theft is blatantly encouraged. At least with a US company theft is the exeption rather than the rule and the thieves are a bit less direct about it or try to purvey some sort of legitimacy.

  • It all went wrong when government tax policies caused companies to stop giving dividends and rely on growth in price to reward investors. It makes it tricky to judge value and means you're relying on "greater fool" strategies instead of sound investment practices. Throw in inflation, pushing prices up and you have a recipe for disaster (in fact, valuing stocks that way allows for much more inflation than they'd otherwise be able to get away with since they can just keep dumping money into the stock market a

  • Really? (Score:4, Interesting)

    by InfiniteZero ( 587028 ) on Sunday September 21, 2014 @12:45AM (#47957369)

    > 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.

    • And if we are now at the point at which a failure of the economy in China would trash the American economic system what can we do about it?

    • Re: (Score:2)

      by AmiMoJo ( 196126 ) *

      It just seems like sour grapes to me. Some people are upset that a Chinese company with a real business now holds a fairly arbitrary record instead of Facebook which doesn't even know how to make money without annoying and selling its user's personal data.

      More over China seems to have become the new Big Bad for America. The USSR went down the tubes, bin Laden is dead... But China is another easy target and handily also communist.

    • Re: (Score:2)

      by lpress ( 707742 )

      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.

      For sure, but are there differences in degree? For example, in Chinese dominated Singapore, the government is an explicit shareholder. I wonder if anyone has done a study of explicit ownership of stock by US companies --- e. g., does Haliburton own stock in Standard Oil?

  • 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.
    • Haven't dealt with Alibaba, or its smaller subsidiaries... though I was tempted quite a few times. Ebay is probably fine for physical goods, but a crap-shoot for software. Ebay prices really don't impress me, as once you factor in shipping, bidding or even insta-buy - it's almost always been a better deal to just buy from Amazon and get it in 1-2 days. Just wish we could buy from Amazon.uk for a few things.

      Amazon customer service is the best I've encountered ever, anywhere. They respond to inquiries and s

  • China builds the world's largest washing machine.

  • so yes it might be comparable to a us company

    if you want to sell 50 cent trinkets in a mall kiosk they are the way to go, but they are not a serious company IMO

  • No. Alibaba is fascistic.

  • It is a great fucking company. I use it for sourcing all kinds of things. The biggest problem is that their clients quite often have a poor grasp of English. Example, I'm currently looking for a small fan. I need it to ATTACH to a T8 LED and maintain roughly the same profile.

    All I get are either quotes for 80mm computer fans, or T8 LED tubes. I even include a picture of the device I have in operation, with a rigged 80mm fan and plastic ducting strapped to the end of the T8 LED tube. It's like they ignore th

  • many companies all over the world hear as their business goes down the drain.

    Traders in the distant past found good far far away, in distant lands and imported them to USA/Europe etc and often made huge profits. By control over sources by distance or contractual right or a royal decree, these traders became the huge mercantile traders of the olden days, when stuff went by camel or sailing ship etc.

    Fast forward to the era of the container ship, computerized customs clearing and full information via the web.

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