Alibaba

Alibaba has been actively participated in the China reform. Telecom and banking licenses seems its focus...

DJ Alibaba Unit to Offer Telecom Services in China
By Paul Mozur

BEIJING--China will allow arms of e-commerce giant Alibaba and its closest rival to offer telecommunications services there, as Beijing looks to give private businesses a greater role in state-run industries such as telecom and banking.

China's telecom regulator said on Thursday that it awarded licenses to 11 private companies to run mobile telecom businesses based on services leased from China's state-run carriers. Analysts have long said the creation of the new businesses, known in the industry as virtual telecom service providers, could offer a first step to breaking up the monopoly held by China's three state-run telecom service providers-- China Mobile Ltd., China Unicom (Hong Kong) Ltd. and China Telecom Corp.

The companies that won licenses include a subsidiary of closely held Alibaba Group Holding Ltd., which dominates e-commerce in China in terms of sales volume, and rival Beijing Jingdong Century Trading Co., which runs the popular JD.com e-commerce service.

Wealth Management Product continue to be popular in China. It works similar as bond, with 7% coupon. It is much higher than the 4-5% with bank deposit...

DJ Alibaba to Roll Out Wealth Management Product Via Alipay, Payment Affiliate Says

By WSJ Staff
China e-commerce company Alibaba Group Holding Ltd. is set to roll out its first wealth management product Friday after launching its popular Yu'E Bao investment service, according to Alibaba's payment affiliate.

The fixed-term investment product to be launched by the company and affiliate Alipay is expected to offer investors an annualized return of 7%, while its principal is also guaranteed, according to the payment company.

In China, wealth-management products are deposit-like investment products offering higher returns than bank deposits for a fixed period.

The latest product marks the continuing proliferation and evolution of financial services offered by China's large Internet companies. In June, Alibaba began offering Yu'e Bao, a money-market-like fund that allows investors to withdraw money instantly.

China's Tencent Holdings Ltd. and Baidu Inc. have since launched similar products.

Ref: Dow Jones Newswires

I may be biased as I am vested in both ICBC and Bank of China, but WMPs such as this seems like a very risky proposition for potential investors. 7% annualized return, RMB denominated, guaranteed, seems too good be true.

And Alibaba being a new player in this industry seems to have little to no moat. If there is indeed good profit to be made, I can't see why established financial institution can't introduce their own competing product. If there is no profit to be made, I can't see how this is sustainable.

Edit: Also, this seems to be at the risk of adverse change in government policies. The Chinese government is clamping down on the Chinese shadow banking industry very tightly this year.

Strength: First mover advantage (?), a network of existing Alibaba users.
Weakness: Easily copied by competitors. High interest rate = high cost of capital.
Opportunities: Additional "float" provided by subscribers can be reinvested into existing business or other opportunities (not sure about Alibaba's business model, so can't comment much).
Threat: Financial institutions, Chinese government policy change, other competitors. Mass withdrawal in times of panic.

My 2c.

Regulator, the China central bank is taking notice on the new yet popular WMP...

DJ China Seeks To Corral Budding Online Investment Products

BEIJING -- China's technology giants are marching onto the turf of the country's state-controlled banks, soaking up tens of billions of dollars' of investor money.

Now, regulators are taking notice.

China's central bank is leading a government effort to stem potential risk from a new generation of popular online investment products, according to people with direct knowledge of the matter. Officials are looking to develop regulations aimed squarely at products offered by an affiliate of e-commerce giant Alibaba Group Holding Ltd. as well as by rivals Tencent Holdings Ltd. and Baidu Inc.

The products offer higher yields than bank deposits and are easy to access with smartphones and other gadgets. But some Chinese officials worry that investors often don't know where their money is being placed and are vulnerable to theft of personal information. The worries come amid broader concerns about potential disruptions in China's vast but opaque shadow-banking system, an array of lenders such as so-called trust firms, leasing companies and insurers.

Officials stressed that they hope the Internet companies could still play a role in making China's creaky financial system more competitive, improving the flow of lending to small businesses and encouraging greater competition from stodgy state-run banks. "The goal is not to crack down on the sector, but to foster its healthy development," said an official at the People's Bank of China, China's central bank.

How tightly the government regulates tech firms' financial offerings could indicate how willing Beijing is to relax its decadeslong hold on China's banking system.
...
Ref: Dow Jones Newswires

I happened to watch this program last week : 解码财商 2014：阿里金融的最重一步:银行 140207

It gave a good background on what is the existing problems with the current banking system in China, on how this new development challenges the existing banking system and explains how Alibaba already started to give the China banks a good run for their money. It seems to be a game changer.

http://v.youku.com/v_show/id_XNjcwMzA2NDA4.html

(12-02-2014, 12:37 PM)gutman Wrote: I happened to watch this program last week : 解码财商 2014：阿里金融的最重一步:银行 140207

It gave a good background on what is the existing problems with the current banking system in China, on how this new development challenges the existing banking system and explains how Alibaba already started to give the China banks a good run for their money. It seems to be a game changer.

http://v.youku.com/v_show/id_XNjcwMzA2NDA4.html

It is indeed game changer, and probably addresses some real world problem in the financial system. But whether they will emerge as the ultimate winner in this "game" is far from certain.

(11-02-2014, 04:19 PM)Wildreamz Wrote: I may be biased as I am vested in both ICBC and Bank of China, but WMPs such as this seems like a very risky proposition for potential investors. 7% annualized return, RMB denominated, guaranteed, seems too good be true.

And Alibaba being a new player in this industry seems to have little to no moat. If there is indeed good profit to be made, I can't see why established financial institution can't introduce their own competing product. If there is no profit to be made, I can't see how this is sustainable.

Edit: Also, this seems to be at the risk of adverse change in government policies. The Chinese government is clamping down on the Chinese shadow banking industry very tightly this year.

Strength: First mover advantage (?), a network of existing Alibaba users.
Weakness: Easily copied by competitors. High interest rate = high cost of capital.
Opportunities: Additional "float" provided by subscribers can be reinvested into existing business or other opportunities (not sure about Alibaba's business model, so can't comment much).
Threat: Financial institutions, Chinese government policy change, other competitors. Mass withdrawal in times of panic.

My 2c.

i tihnk you are not marrying the habits and acceptance of the mobile platform with the behavior of a new group of people that have a different set of values.

(12-02-2014, 01:17 PM)Drizzt Wrote: i tihnk you are not marrying the habits and acceptance of the mobile platform with the behavior of a new group of people that have a different set of values.

I just think that the service/product they provide can be easily copied by any competitor or even national banks, if they put their mind it; and, it is easily threatened by changes in PRC monetary policy. It also doesn't seem to be something only Alibaba is good at/can do, per se.

It has potential, but a simple SWOT analysis shows significant weakness in their strategy.

Don't get me wrong, if I am a Chinese national, I may put some of my free cash in there if I could, provided there is indeed no withdrawal fees etc, while the party last. However, once a renown national bank comes up with a similar product, I would transfer my cash to the bank instead in a heartbeat.

(12-02-2014, 01:25 PM)Wildreamz Wrote:

(12-02-2014, 01:17 PM)Drizzt Wrote: i tihnk you are not marrying the habits and acceptance of the mobile platform with the behavior of a new group of people that have a different set of values.

I just think that the service/product they provide can be easily copied by any competitor or even national banks, if they put their mind it; and, it is easily threatened by changes in PRC monetary policy. It also doesn't seem to be something only Alibaba is good at/can do, per se.

It has potential, but a simple SWOT analysis shows significant weakness in their strategy.

Don't get me wrong, if I am a Chinese national, I may put some of my free cash in there if I could, provided there is indeed no withdrawal fees etc, while the party last. However, once a renown national bank comes up with a similar product, I would transfer my cash to the bank instead in a heartbeat.

You are probably right.

It was also mentioned in the video that others like Baidu or Tencent might also move into this business. And the Chinese local banks would probably react by having their own online platforms.

This probably also means that margins for these local banks are likely to come under pressure with increasing competition, and they might not enjoy the type of profits they are enjoying currently without all those additional fees.

Unless the Chinese Government intervenes, the trend seems to be against the local banks.

I was looking at these banks at one point: BOC, CCB, ICBC etc, and most of them are trading at a low PE of 5+. However, I am not sure how this new development would impact their bottomline.

On a separate note, I think Alibaba under Jack Ma (Ma Yun) is worth keeping a close watch. Just that I don't think its price, upon IPO, is going to be cheap.

Alipay is not providing a financial service(deposit or lending) like the banks, it merely provides a cheaper and easy-to-use platform for higher return of fund(to invest into some financial product provided by other financial firms). It does not have the responsibility to compensate the customers as it is just a channel provider.

As for WMP, if you would like, you can think it as a not so different product from subprime MBS. Before 2006, subprime MBS was providing high return with almost no loss of capital. I believe everybody knows what happened subsequently.

I can't say the same will happen to the vast WMPs and trust products in China. But no doubt that there is a misprice of risk in WMPs and trust products. How much the damage will be is anyone's guess.