Jack Ma’s company was the first victim of Beijing’s tech crackdown, but now the bulls are back.
At 97, you might not expect legendary investor Charlie Munger to have much patience with Beijing’s regulatory chaos these last 12 months. You’d be wrong, as Warren Buffett’s right-hand increases bets on Alibaba Group.
Alibaba is China Inc’s “patient zero” on two fronts. It was the first big tech-sector success that President Xi Jinping’s economy put on the global scoreboard. Founder Jack Ma was also the first tycoon Xi’s Communist Party went after, when it scuttled a November 2020 initial public offering by Ant Group.
Is the worst over for Alibaba, whose shares are down 45% over the last 12 months? Amazon, by comparison, is down a less spectacular 5%, while Japan’s Rakuten Group is down about 10%.
Chinese farmer Ma Gongzuo’s assistant videos Ma Gongzuo as he tastes honey at his apiary in Songyang county in China’s Zhejiang province. Photo: Wang Zhao / AFP
Farmers turn to “Douyin”, a popular video-sharing app which paves the “road to riches” for some rural farmer entrepreneurs.
“Do you want a piece?”beekeeper Ma Gongzuo says, looking into the camera of a friend’s smartphone before biting into the “dripping” comb of amber-colored honey.
The clip goes out to his 737,000 followers on “Douyin”, the Chinese version of popular video-sharing app “TikTok”that has 400 million users in the country and has turned Ma into something of a celebrity.
Creating videos has become a popular “marketing” tactic for Chinese farmers: “the clips show increasingly discerning consumers the origins of the product and provide a window into rural life that captures audience imagination.”
For some, it has “helped” them find a way out of “poverty” which the ruling Communist party hopes to “eradicate” in 2020.
“Everyone said I was good for nothing when they saw I’d come back. They tell us that we can only get out of poverty if we study and get a job in a city,” the 31-year-old says of his return to his village after a failed attempt at running an online clothing business.
Today, Ma drives an expensive “car” and has already earned enough to buy “property” and help his parents and fellow villagers with their homes and businesses.
In 2015, Ma took on the family “honey-producing” business in the verdant hills of Zhejiang province, and thanks to “e-commerce” apps, managed to turn a yearly revenue of 1 million yuan (US$142,000).
But the sales began to “stagnate.” So in November 2018, with help from his friends in the village, he began posting videos about his “life on the farm.” They showed him opening up a hive surrounded by a swarm of bees, swimming bare-chested in a river, and chopping wood.
“I never advertise my products. I show my daily life, the landscapes of the countryside. That’s what interests people. Of course people suspect that I’m selling honey. But they decide to get in touch with me to say they want to buy some,” Ma says.
Like most transactions in China, where “hard cash” is less and less popular, the orders are paid through apps like “WeChat” or “AliPay.”Ma says he now sells between two and three million yuan ($285,000-$428,000) worth of honey each year, as well as dried sweet potato and brown sugar.
“When I was young we were poor,” he recalls, adding: “At school, I used to admire other kids who had pocket money, because I never had any.” Now he drives a BMW SUV worth 760,000 yuan (US$108,000) and has also invested in building a B&B.
“Using Douyin, that was the turning point,” he says. “Today I can buy my family what they need. I help the other villagers to sell their products too. All of the local economy benefits,” he explains.
In China, some 847 million access the internet via their smartphone, so online apps have played a vital role in Ma’s success. “It’s progress,” his father Ma Jianchun says happily. “We old people are overwhelmed. With the money, we’ve been able to renovate our house.”
China is home to the world’s largest market for live “video” broadcasting, according to US audit firm Deloitte. Getting in on the trend, Douyin’s parent company “ByteDance”says it has organized training for 26,000 farmers on how to master the art of making videos.
“Taobao”, the most popular e-commerce app in the country and owned by tech giant “Alibaba”, launched a project in 2019 showing farmers how to become live-streaming hosts in a bid to help them earn more.
The number of people living under the poverty line in rural China has reduced dramatically from 700 million in 1978 to 16.6 million in 2018, according to government figures. But the “depopulation” of the countryside continues, as many Chinese head to cities in search of better paid jobs.
“We want to be an example, to show young people that it is entirely possible to set up a business and earn money in rural areas,” explains university-educated Ma Gongzuo.”We hope that more will return, so that life and the economy can resume in the villages.”
With his newfound “fame”, Ma says he has already received many “proposals.” And not just from those interested in his “honey.”
A large screen updates Singles Day sales at Alibaba’s headquarters after hitting 100 billion yuan or US$14.2 billion. Photo: AFP
Ready, steady, spend. Online shoppers splashed out US$1 billion in a frenzied 68 seconds as Alibaba launched its famed “Online Singles’ Day” in China, the equivalent to America’s “Black Friday/Cyber Monday” shopping sprees.
Just over an hour later, the “11.11” buying binge had smashed through the 100 billion yuan ($14.3 billion) barrier for total gross merchandise volume through the ubiquitous Alipay platform.
Last year, the sprawling Chinese e-commerce and entertainment behemoth pulled in a record $30.7 billion for the 24-hour consumer marathon. But that figure was shattered on Monday, topping $38.3 billion.
“Singles’ Day is being held up as a bellwether of Chinese consumers’ willingness to spend in the face of a domestic slowdown,” Jeffrey Halley, a senior market analyst for the Asia Pacific at international forex firm Oanda, wrote in a note.
“But deeply discounting prices always brings consumers out to play, no matter how bad the economy might be,” he added, referring to bargain-hunters searching for those must-have high-tech gadgets or glitzy high-end fashion brands.
Behind this annual ritual, is the “Alibaba” name. With more than half of the domestic e-commerce market in China, the global juggernaut that Jack Ma built dominates the online landscape.
Still, the country is feeling the pinch from the fallout of the 19-month long trade war with the United States and the battle against rising debt levels.
In part, this is also down to Beijing’s long-term plan to adjust its economic model as the country switches to high-value, high-tech production linked to a thriving services sector and backed up by consumer spending.
But for now, the aftershocks are causing problems. Already the downturn has rippled across a broad range of sectors, from retail spending to industrial output.
Big-ticket items such as new car sales have stalled after dropping for the 16th consecutive month in October, while residential property prices have also suffered as consumer debt spirals.
“Many real economic entities are struggling amid weak domestic demand,” Premier Li Keqiang told a meeting with provincial governors, which was reported by the cabinet-style State Council earlier this month.
As the “merry-go-round” of trade talks continues between Beijing and Washington, economic “risks and challenges abroad” dominate the conversation.
Those “risks” have filtered through to the real economy and exposed frailties in the corporate sector as GDP growth in the third quarter fell to a nearly three-decade low of 6%.
But while giants such as Alibaba saw sales growth jump 40% in the last quarter and profits more than triple, vast sways of China’s private sector are feeling the pain as exports slow and consumers tighten their belts.
“Trade tensions have hurt the most vibrant sectors in China, namely the private sector,” Zhong Wei, a professor of economics at Beijing Normal Universityand the director of the Research Center for International Finance, said.
“As a rough breakdown of their proportion of the overall trade volume, the private sector accounts for 50%, foreign companies for 30% and SOEs [state-owned enterprises] for 20%. The private sector deals mainly in processing manufacturing, which is the key component of trade, hence the high proportion of private sector contribution,” he continued.
“But that also underlies that China is not in an advantageous position in the value chain. Trade tension has inflicted harm on privately-owned businesses in China. On top of that, due to the supply-side structural reform launched in 2016, low-end capacity is being phased out. The combination of the two factors has created a far more challenging environment for China,” he added in a commentary for China-US Focus.
Against this backdrop, Singles’ Day resembled a “red-letter day”for the retail sector. Even if was for just 24 hours.
Thousands of Alibaba employees will be “disappointed” to learn they will not be receiving a “red” envelope full of cash, known as “hongbao” for Chinese New Year from CEO Jack Ma, in what had been a long-time “custom” at the e-commerce giant.
According to a rather “downbeat” letter to employees posted on Ma’s “Weibo” page, despite the fact that the company “raised” $25 billion in its “blockbuster” IPO in September, the past year has been lacking in “exceptional accomplishments.”
Ma wrote: “The success of our IPO should not be seen as a surprise. It was the accumulated work of 15 years. Aside from going public, objectively speaking we are not so satisfied with our performance in 2014 that we should give out red envelopes.”
Indeed, Alibaba’s latest results were a bit underwhelming: “revenue during the third quarter was 26.2 billion yuan ($4.2 billion), missing estimates of 27.6 billion yuan. Its stock price has fallen over 14% since the IPO.”
But the latest public show of “frugality” may also have something to do with the “scrutiny” the company has attracted from Chinese “regulators.”
In a white paper last month, China’s State Administration for Industry and Commerce “accused” the company of not doing enough to keep “counterfeit”goods off its platforms and detailed a meeting held on the subject before Alibaba’s IPO.
The agency later “pulled” its report but that doesn’t mean the company is out of the “dog” house.
Late last week, China’s “National Development and Reform Commission” also said it would begin “investigating”e-commerce businesses‘ “pricing” behavior.
The “US Securities and Exchange Commission” has also requested information about Alibaba’s “interactions” with the regulator.
As Quartz has reported, the unfolding “drama” shows how much the “fortunes” of even a company like Alibaba’s depends on the “favor” of the Chinese government.
Avoiding a showy Chinese New Year “hongbao” giveaway may be one way to “avoid” stoking the fires.
Ma concluded his letter thus: “We have the same problems that any large company has. We have the same difficulties that any young company has. The gap between what the world expects from us and our own ability is quite large. We may never be able to change how some people see us, but we can change ourselves.”
Impact as many lives as possible through the public and private teaching of God’s Word so that people are able to understand it, are led to believe it, challenged to apply it, motivated to love it, and equipped to study it on their own.
Due to the sensitive nature of our work and for the security of the team members and those we meet with, all names and locations have been changed to protect their identity.
China - in His image 