Alibaba

[CY09]

This is why I am worried for the privately owned corporates for China.

They can still grow under CCP but they must not grow too big that they eclipse CCP. Effectively, they are like trees which we see in Singapore's roadside- regularly pruned so that they do not grow too big to block off the roads. While in USA, corporate America is allowed to grow into a concrete jungle

What makes a country great is not just a political system but the innovation and creation of products which build great companies- Alphabet, Apple, Amazon, Tesla. Whereas in China, a great product may be dismantled by regulations. This is why I dont think China will ever grow into the World Number 1 under XJP, despite how USA has not been firing at all cylinders

[Wildreamz]

Thank you CY09, 100% agree.

Another example, TSMC (now a 576.45B company) was able to grow large enough to influence global geopolitics. Western capitalists will never let China invade/annex/reclaim Taiwan by force as TSMC manufacture >50% of global chips and >90% of advanced chips (https://time.com/6102879/semiconductor-c...tage-tsmc/).

You can't engineer innovative, revolutional companies of global importance like this through regulations and government incentives, like what China is attempting right now (https://fortune.com/2021/11/15/china-tec...rt-hofman/).

[Choon]

This is why I am worried for the privately owned corporates for China.

They can still grow under CCP but they must not grow too big that they eclipse CCP. Effectively, they are like trees which we see in Singapore's roadside- regularly pruned so that they do not grow too big to block off the roads. While in USA, corporate America is allowed to grow into a concrete jungle

What makes a country great is not just a political system but the innovation and creation of products which build great companies- Alphabet, Apple, Amazon, Tesla. Whereas in China, a great product may be dismantled by regulations. This is why I dont think China will ever grow into the World Number 1 under XJP, despite how USA has not been firing at all cylinders

In my view, as private enterprises develop and each aim for dominance, government intervention may be necessary in certain aspects. And such interventions do not necessarily cripple the core entrepreneurial drive of such private enterprises but are instead a force for good, creating an environment for more sustainable growth.   

Much as the CCP prizes control, I do not think it is incognisant that control/intervention will impede progress and innovation. 

Take for example Cainiao. 

Is it an original idea and a great service? I think so - a platform uniting different courier companies in order to efficiently serve a large and under-developed country. 

Is it much larger and have greater influence in people's lives than China Post? I guess so. 

Is the CCP then going to curtail the further expansion of Cainiao? Why? - when Cainiao's proven model is contributing so much to society and the economy.

Would the CCP ever intervene in certain aspects of Cainiao e.g. low wages to deliverymen, poor driving records of deliverymen. I think it should if these problems indeed become too large one day.

But would such interventions hamper Cainiao to become great companies? Maybe in the short-term. But I think it also forces the company to look for longer-term structural solutions.

So I think the narrative about CCP wanting and pursuing to have control over private enterprises and the proclaimed negative impact on private enterprises as too one-dimensional and over-simplified. I see the CCP more as 对症下药， injecting medicine to the required areas, and such medicine would not necessarily mean that business growth and entreprenurial drive will be stymied.

[Wildreamz]

Hi Choon,

I think in your reply you are assuming a perfectly rational and just CCP, that goes through a complex, nuanced thought process to serve the greater good of the people beyond themselves, as they lay out their minimally invasive policies ("对症下药").

Yet, as we can see from the frequent disappearance of people in the country (without trial; here is another recent example: https://en.wikipedia.org/wiki/Chen_Qiushi) that "just" is probably not the word I would use to describe them. If this happens in any other developed country, every single one of such cases (not just the international celebrities) would have sparked international outrage. 

In the past, I also thought the same thing (perhaps not as idealistic), that they just wanted to impose regulations that punishes bad-actors that abuses their monopoly power. Yet Alibaba, that is basically the infrastructure company of Chinese commerce, whose Cloud business serves the IT backbone of China, whose Ant Financial serves the financial backbone of China, who provide more value to Chinese society than they extract (IMHO), gets rapidly unfairly defanged and penalized by regulations.

At this rate, it would appear that Alibaba will be out-competed by their smaller competitors (JD and PDD; Huawei, Tencent and Baidu in Cloud), but that's the only possible outcome, if every innovative initiatives they try, acquisition they make get scrutinized to oblivion by new regulations. Death by a thousand cuts.

I could be wrong (as I frequently am), but that's my observation and honest view. Peace.

(ex-investor)

[karlmarx]

CCP behaves like PAP in the 60s to 90s; absolute control at any expense. That style of governance has often been criticised as the reason for SG's general lack of creativity in business, and I agree. Perhaps due to a realisation that absolute control is not possible in the open digital world, and that the future economy will depend more on innovation than assembly-line attitudes towards work, they have now shed most of their old ways. And even embraced the people's desire for a two party system. I give them credit for being wise enough to adjust their sails as the winds are changing. People forget that SG used to detain political opponents as well.

China will probably maintain its absolute control style of governance for the next 30 years. But I don't think it is ignorant of the effects that a totalitarian regime has on innovation. Will China's innovation suffer a major/permanent setback because of the recent crackdown, and will they continue to inflict more pain on tech/businesses? Maybe. Who knows what they're thinking. But I still interpret most of the regulatory changes as a parent disciplining a child; things will go back to normal (except for those activities banned, of course) but businesses shall always remember the pain wrought upon them when they misbehaved, and think twice before doing anything that might contradict the long-term vision of CCP/XJP.

JD and PDD are eager competitors who will continue to be in the market for sometime, even though PDD is the weakest (in terms of moat) of the 3 players. It is amusing that the apps of TB, JD, PDD (and even XHS, but to a lesser extent) not only look almost identical, but also function in largely the same way. As they compete with each other along different product categories and cities, over the longer term, they will gradually find their own market positions. The e-commerce market is big with many more years of growth, no single company can (well) satisfy all of the market's needs.

In the US social media market, there is Twitter, FB, IG, Snap, and Tik Tok. As much as you may enjoy watching TV, you may not only want to watch the same channel everyday. So in terms of China e-commerce, I don't think TB and TM is starting on the road of eventual demise.

The key difference in BABA vs JD, PDD, and even those perceived as less direct competitors like Meituan, is in their long-term objective. For now, JD and PDD are still China-centric e-commerce companies. But BABA is already well on its way to doing business globally. Alibaba Cloud, Cainiao, Aliexpress/Lazada, and Alipay have the potential to be significant global players in their respective businesses. Globally, e-commerce will also grow for many years, and BABA has a head start building its toll booths around Asia, Eastern Europe, and Africa.

The acquisition and subsequent management change of Lazada is now widely understood to be the catalyst for Shopee's strengthening market performance. Even as Lazada has given up much market share to its competitor, the e-commerce game in Asia Pacific is the same as the one in China; the one offering the lowest price, with the fastest delivery, and best customer service, wins. There's not much secret to these things, so it all comes down to the size of their war chest, and the endurance/execution of their employees.

Everyone knows that Shopee depends on its sister Garena for most of its survival, but investors seem to have a very strong belief in Garena's ability to continue producing hit/addictive games. The history of video game development/publishing tells us that it is a risky business which very few can survive for very long. The safest genre is probably sports-related games, which Electronic Arts has dominated in, and prospered from, for I think 40 to 50 years. There's always another game in development intending to take away the attention of current gamers. Even Blizzard which for the past 20 odd years has developed popular IP and titles are seen to be losing relevance (but Diablo Immortal is coming to mobile next year, so that may be interesting). CS and DOTA were also hugely popular for a very long period of time (5-8 years?), and then better iterations of them came out on mobile.

Garena developers have done a fantastic job in hooking its gamers thus far. But developing games is the same as developing music, movies, fiction, or any other form of entertainment; sooner or later, the lead creative talents will run out of original ideas (as with Disney pre-Pixar acquisition), and sooner or later, the audiences will get tired of the same old thing (time for a Super Mario remake?). Lately, Garena's results have not been inspiring. Given such odds, it is hard to tell if Shopee will be able to survive a continuing price war in the very long-term. Maybe SEA's digital bank is the lasting cure that will support Shopee's growth, it own capital needs notwithstanding.

I think we are still seeing the early periods of e-commerce growth in China and globally. So this is a long show to watch (e.g. Is the Amazon/PDD model or the Alibaba model better?), and we will probably see many more disruptions along the way.

[Choon]

CCP behaves like PAP in the 60s to 90s; absolute control at any expense. That style of governance has often been criticised as the reason for SG's general lack of creativity in business, and I agree. Perhaps due to a realisation that absolute control is not possible in the open digital world, and that the future economy will depend more on innovation than assembly-line attitudes towards work, they have now shed most of their old ways. And even embraced the people's desire for a two party system. I give them credit for being wise enough to adjust their sails as the winds are changing. People forget that SG used to detain political opponents as well.

China will probably maintain its absolute control style of governance for the next 30 years. But I don't think it is ignorant of the effects that a totalitarian regime has on innovation. Will China's innovation suffer a major/permanent setback because of the recent crackdown, and will they continue to inflict more pain on tech/businesses? Maybe. Who knows what they're thinking. But I still interpret most of the regulatory changes as a parent disciplining a child; things will go back to normal (except for those activities banned, of course) but businesses shall always remember the pain wrought upon them when they misbehaved, and think twice before doing anything that might contradict the long-term vision of CCP/XJP.

JD and PDD are eager competitors who will continue to be in the market for sometime, even though PDD is the weakest (in terms of moat) of the 3 players. It is amusing that the apps of TB, JD,  PDD (and even XHS, but to a lesser extent) not only look almost identical, but also function in largely the same way. As they compete with each other along different product categories and cities, over the longer term, they will gradually find their own market positions. The e-commerce market is big with many more years of growth, no single company can (well) satisfy all of the market's needs.

In the US social media market, there is Twitter, FB, IG, Snap, and Tik Tok. As much as you may enjoy watching TV, you may not only want to watch the same channel everyday. So in terms of China e-commerce, I don't think TB and TM is starting on the road of eventual demise.

The key difference in BABA vs JD, PDD, and even those perceived as less direct competitors like Meituan, is in their long-term objective. For now, JD and PDD are still China-centric e-commerce companies. But BABA is already well on its way to doing business globally. Alibaba Cloud, Cainiao, Aliexpress/Lazada, and Alipay have the potential to be significant global players in their respective businesses. Globally, e-commerce will also grow for many years, and BABA has a head start building its toll booths around Asia, Eastern Europe, and Africa.

The acquisition and subsequent management change of Lazada is now widely understood to be the catalyst for Shopee's strengthening market performance. Even as Lazada has given up much market share to its competitor, the e-commerce game in Asia Pacific is the same as the one in China; the one offering the lowest price, with the fastest delivery, and best customer service, wins. There's not much secret to these things, so it all comes down to the size of their war chest, and the endurance/execution of their employees.

Everyone knows that Shopee depends on its sister Garena for most of its survival, but investors seem to have a very strong belief in Garena's ability to continue producing hit/addictive games. The history of video game development/publishing tells us that it is a risky business which very few can survive for very long. The safest genre is probably sports-related games, which Electronic Arts has dominated in, and prospered from, for I think 40 to 50 years. There's always another game in development intending to take away the attention of current gamers. Even Blizzard which for the past 20 odd years has developed popular IP and titles are seen to be losing relevance (but Diablo Immortal is coming to mobile next year, so that may be interesting). CS and DOTA were also hugely popular for a very long period of time (5-8 years?), and then better iterations of them came out on mobile.

Garena developers have done a fantastic job in hooking its gamers thus far. But developing games is the same as developing music, movies, fiction, or any other form of entertainment; sooner or later, the lead creative talents will run out of original ideas (as with Disney pre-Pixar acquisition), and sooner or later, the audiences will get tired of the same old thing (time for a Super Mario remake?). Lately, Garena's results have not been inspiring. Given such odds, it is hard to tell if Shopee will be able to survive a continuing price war in the very long-term. Maybe SEA's digital bank is the lasting cure that will support Shopee's growth, it own capital needs notwithstanding.

I think we are still seeing the early periods of e-commerce growth in China and globally. So this is a long show to watch (e.g. Is the Amazon/PDD model or the Alibaba model better?), and we will probably see many more disruptions along the way.

Thanks for an insightful analysis. Could you elaborate your views on the two points below?

even though PDD is the weakest (in terms of moat) of the 3 players. How so?

(e.g. Is the Amazon/PDD model or the Alibaba model better?) Fundamentally, are they different (Amazon/PDD vs Alibaba)? In my understanding they are all marketplaces connecting buyers and sellers (even though Amazon also sell its own inventory).

I thought one major positive out of the competition posed by PDD, Meituan and others is that it has kept Ali on its toes and forced it to strengthened its business model for the longer-term. For example in order to compete with PDD, Ali is forced to launch 淘特。While much expenses/investments/subsidies are required to build 淘特 now, but 淘特 would provide Ali with the platform to access consumers in China's poorer regions for the longer-term. Perhaps (and I am guessing), would Ali be so big and powerful today if not for the competition posed by JD previously. Ali is a huge company so it is surely easy for bureaucracy to set in - the Day2 / stasis / demise words of Bezos. So I feel that PDD, Meituan and others have helped to delay stasis from setting in at Ali. And I thought that's the investment thesis for Ali - a giant that is still hungry and entrepreneurial. 

[karlmarx]

There is no product or service which PDD provides, and yet its competitors does not, or could not.

Snapchat was the first to pioneer ‘stories,’ and at that time IG did not have this feature. This feature was popular with users so Snap had a competitive advantage. Until IG caught up. And now TT. So what makes Snap special to a user/advertiser?

To turn the question on its head, what moat or lasting competitive advantage does PDD have? I will be glad to be enlightened.

===

I do think that fundamentally, Alibaba is different from Amazon. Even as their business is the same (e-commerce), the risks assumed, and expertise required, is different.

What if Grab decided to own all the cars of its drivers, and have all its drivers as employees instead of freelancers. Is that the same as its current arrangement? And will that affect its ability to deliver on its growth targets? Obviously, some people think they do, which is why Grab is what it is and not another ComfortDelGro.

[Wildreamz]

Alibaba-led group nears Unigroup deal
https://www.taipeitimes.com/News/biz/arc...2003768053

A consortium led by Alibaba Group Holding Ltd (阿里巴巴) has emerged as the frontrunner to take over Tsinghua Unigroup Co (清華紫光), a deal that could fetch more than 50 billion yuan (US$7.8 billion) to help keep China’s indebted chip champion afloat.

---

Strategic acquisition or National Service?

[CY09]

This leans towards national service while ppl will say there is synergy.

IMO the price paid is too high but it has to be sufficient so that China State Banks do not take too much impairments.

<Vested in Alibaba and China State Banks>

[gzbkel]

What do VBs think about the VIE structure under which Alibaba is traded in HKEX?
My layman understanding is that under VIE, shareholders don't own shares in the company, but rather have an interest in the earnings. Therefore things are fine while the company is profitable, but you get nothing in a liquidation scenario.

Some websites, such as the one below speaks of a small but real possibility that VIE can be outlawed by the Chinese government, which would be somewhat alike to the CLOB situation in the 90s.
https://archive.fo/2SMzU

I don't know much about laws in China, so I can't tell how real this risk is. What do you think?