In wild turnabout, Jack Ma backs-off Alibaba divestiture, plus new sodium-ion 'break-through' could end China's EV battery dominance -- China Boss News 11.24.23
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What happened
In a crazy turnaround, CNN yesterday reported that Alibaba’s founder Jack Ma has backed off plans to sell 10 million shares, worth nearly $871 million, in the company because its “stock price has fallen below the billionaire’s expectations.”
Jack Ma's family trust had announced the divestiture with its SEC filings last week, as Reuters here reported.
On the same day, Alibaba "stunned investors" by canceling "plans to spin off its cloud business." It also "paused the listing of its supermarket unit amid waning investor enthusiasm for the Chinese ecommerce group's radical restructuring plan," Financial Times said.
The company’s official reasons for the disappointing news were related to regulatory uncertainty stemming from geopolitical tensions.
“Alibaba blamed U.S. export controls for the reversal, and said the Biden administration’s expanding restrictions on selling advanced chips to China have created uncertainties for its cloud computing unit,” Forbes analysts wrote.
But Shen Meng, managing director at boutique investment bank Chanson & Co., told Forbes that “China’s tightening laws governing the protection of data might prevent the unit from pursuing an offering in HongKong,” which could deny it, according to recent valuations, a much needed $55 billion cash injection.
Alibaba has been posting losses for the last few quarters after economic recovery from China's covid curbs failed to materialize and management was reshuffled.
And shifting the blame for the ditched cloud business plans may have been a propaganda spin coming from the firm’s tightly-controlled publicity department in an effort to mitigate a drop on Hong Kong’s key stock index.
In August, FT revealed that "well-regarded" economists have been strictly instructed "to avoid discussing negative trends" in China's economy.
“You’ve got an economic slowdown that would worry any country, coupled with a China that always likes to put on a brave face to the world and a leadership that is particularly image-conscious. Put those three factors together and it’s the recipe for a very non-transparent economy,” Andrew Collier, managing director of Orient Capital Research in Hong Kong, said.
Why it matters
A hard knock for investors
The optics of Jack Ma’s decision - at this point, we might call it an attempt - to walk away from Alibaba are terrible.
Ma’s divestiture as majority shareholder of the firm he founded and scaled to such heights - especially when the company had recently announced grand plans to expand into new areas - was a significant blow to the confidence of investors, who also dropped ‘Baba shares after the announcement.
Management’s efforts to stop them leaving with new paid annual dividends failed, and billions were shaved off the company's value in a single day, according to Bloomberg's Shuli Ren.
“Investors are left wondering who will be held accountable for all the checks Alibaba will need to write. In China, it is rare for such a big corporation to attempt ground-breaking transformations without a major stakeholder. In fact, a few that tried ended up bankrupt,” she wrote.
FT analysts hinted that the timing of the “ditched” cloud business and supermarket spin-off plans might have adverse effects on the firm’s other entities.
”Thursday’s announcement came as Alibaba’s third-quarter financial results fell below analyst estimates, in a blow to the company’s bid to drum up investor enthusiasm for its upcoming IPO of logistics business Cainiao,” they said.
And Bernstein analyst Robin Zhu told FT that the cancellation ended “hopes that the restructuring of Alibaba creates value for shareholders."
Piercing the veil of Alibaba’s ‘restructuring’
In China’s Age of Malaise, a long-read published in October by The New Yorker, Evan Osnos said the political jousting between private and public power under Xi Jinping "has shaken China's private sector."
“When Xi first became President, he revealed little of his view of the private sector. ‘Nobody was sure what we were getting,’ Desmond Shum, a real-estate developer based in Beijing at the time, recalled.. . . it was only in 2020 that the risks became truly evident.”
That was when “Jack Ma—the founder of Alibaba, China’s richest man, and a role model to younger entrepreneurs” made publicly disparaging remarks about “the Party’s handling of financial reform,” before promptly disappearing for months.
“Regulators postponed the I.P.O. for Ant Group, another of Ma’s companies, and fined Alibaba a record $2.8 billion for antitrust violations. Similar disappearances and penalties swept through one industry after another: education, real estate, health care. The Party explained that it was targeting inequality, monopoly, and excessive financial risks, but some of the arrests seemed personal,” Osnos said.
In other words, Ma’s rough treatment for simply criticizing the Party, is a harsh reality check for global investors that Beijing can charge - forgive the pun - like a bull in a China shop with a petty vindictiveness more characteristic of soap opera plots than of competent leadership.
And, as the real-life and international drama of Alibaba so markedly illustrates - that’s a problem.
But the optics of China’s most renown corporate rock-star planning to sell his way out, then suddenly changing his mind as Xi stumbles with investors abroad - given the history - work decidedly against Beijing.
On that point, there’s also speculation about the political timing of the Jack Ma’s announcement. Xi was lobbying America’s business elite on the sidelines of the APEC summit when the news hit the wires.
And while his speech drew a series of “cringeworthy” standing ovations from a crew of “America’s corporate chieftains,” as Reuters analysts described it, it ultimately failed to impress, according to Politico, who said “investor concerns about the potential dangers of operating in China” muffled Xi’s “siren call.”
“In the run-up to the meeting, Xi’s team tried to move his meeting with U.S. CEOs before his meeting with Biden — a clear indication of his priorities in California . . . Biden’s team wasn’t having that, and eventually they agreed to meet on the same day, but with Biden’s bilateral first,” Politico staff noted.
In China, Ma waited until the following day to tell the world he would exit.
But this is the People’s Republic of China, and, so, that could hardly be where things ended.
Even if Ma’s PR department was not tightly leashed to the Chinese Communist Party - which it almost certainly is - the optics of China’s most renown corporate rock-star planning to sell his way out, then suddenly changing his mind as Xi stumbles with investors abroad - given the history - work decidedly against Beijing.
“In China, money may be power, but might is always right,” they shout. A great show for all, but investors.
This Week’s China News
The Big Story in China Business
SODIUM-ION ‘BREAKTHROUGH’ COULD DECREASE CHINA RELIANCE: Swedish start-up Northvolt announced it has made “a breakthrough” in sodium-ion battery technology that is expected to provide a viable alternative to lithium-ion batteries.
Although cheaper and safer, sodium-ion batteries had until now produced lower amounts of energy in proportion to their size, making them impractical for use in most electric vehicles.
But Northvolt's sodium-ion battery has passed an energy storage validation of 160 watt hours per kilogram, the amount needed to compete with batteries, like China's, which are made with critical minerals.
The battery is made with Prussian blue pigment “used in the 18th century to make blue paint and whose potential for batteries was first spotted by Nobel chemistry prize winner John Goodenough,” Financial Times reported.
FT furthered described it as "Europe's biggest hope” to reduce China’s stranglehold over vital elements needed for the green energy transition.
Expansion of renewables now urgent: Russia’s war in Ukraine exposed the dangers of Europe’s over-dependence authoritarian dictatorships for critical fuels, in that instance, oil and gas, and the expansion of renewables has taken precedence as a solution.
“Critical raw materials including lithium and rare earths are likely to soon be more important than oil and gas, as Europe aims for a zero-carbon future,” Euronews’ Andrea Bolitho said.
The EU is currently dependent on a very small group of third countries, especially China, which supplies most of its critical raw materials and nearly all its rare earths.
But a recent corruption scandal involving Portugal's Prime Minister António Costa - who stepped down after police confirmed his implication in lithium mining schemes - "dealt another blow to Brussels' ambitions to diversify its supply of raw minerals," according to Politico.
“Portugal’s lithium deposits are seen as central to the bloc’s efforts to secure its own reserves. But while countries rely on investment to tap their domestic resources, the bloc’s lack of preparedness for its own mining push means investors risk pouring money into projects that never see the light of day,” news staff wrote.
In other China business news
CHINA CLAIMS BUILT WORLD'S FASTEST INTERNET: “In a press conference [last week], Huawei and China Mobile officially launched the country’s next-generation backbone network, in partnership with Beijing’s Tsinghua University and Cernet, an education and research network funded by the Chinese government,” CNN Business reported.
A professor at Tsinghua University who is involved in the project said that the software and hardware were made in China, and that the system is the "most advanced network in the world."
The network, which "can travel at about 1.2 terabits (or 1,200 gigabits) each second," will not be available to consumers for long time yet. But, assuming the speeds are as claimed, the new network will have "broad implications for businesses, faster information transfers, stock trading advantages and other national security implications," CNN news staff said.
STARBUCKS LOSES PRIME CHINA SPOT TO LUCKIN: Starbucks has lost its prime position in China’s beverage market to local rival Luckin Coffee, who made "a comeback" after an explosive accounting scandal "that stalled its growth," Wall Street Journal said last week.
“Flush with capital and under new leadership, Luckin now operates about 13,300 stores, with all but a handful located in China. That is roughly double Starbucks’s 6,800 locations in the country. To fuel its growth, Luckin has tapped rapid delivery services, mobile payment options and offerings such as a cheese-flavored latte that has been a hit with Chinese taste buds,” WSJ staff wrote.
Marketing executive Kiki Pang told reporters that “[s]he often orders a Luckin latte for delivery to her office in the afternoon while working, and pays through the WeChat app.”
“Starbucks used to be quite popular among young Chinese consumers. Now that young people in China have more beverage options, the dynamics have changed,” she said.
Read about Luckin Coffee’s SEC accounting fraud here and here.
Law and International Xi
DEAL UNITING PRO-CHINA TAIWAN OPPOSITION PARTIES COLLAPSES: It was a close call - or, maybe not so close, after all - for front-runner DPP’s William Lai as Taiwan opposition parties failed to agree on who would lead them in a cooperation effort to defeat him in the next presidential election.
Last week, Financial Times reported that the deal had already hit “rocky ground” only three days after it was announced when “[t]he Kuomintang, Taiwan’s largest opposition party, and the Taiwan People’s party failed to agree in overnight talks on a formula to determine whether the KMT’s Hou Yu-ih or TPP founder Ko Wen-je is the stronger candidate to head the campaign.”
The parties had until today to register as one or separate entities. South China Morning Post earlier this morning said they registered separately.
“The Taiwan People’s Party’s Ko Wen-je registered his run for president on Friday, closely followed by KMT candidate Hou Yu-ih, ending the two main opposition parties’ attempt to form a joint ticket for January’s presidential election, and giving the ruling Democratic Progressive Party an easier path to victory,” news staff wrote.
Washington and Beijing are watching: The news won’t go down well in Beijing, who considers Lai a staunch supporter of Taiwan independence, even "more than his boss, President Tsai Ing-wen," Wall Street Journal staff said.
“Washington and Beijing are watching the election closely. If a more China-friendly president is elected, analysts said that could further complicate relations between the U.S. and China, given the sensitivities over Taiwan,” they added.
Geopolitics
CHINA FIRST STOP ON ARAB LEADERS' 'GAZA CEASE-FIRE' TOUR: "A delegation of Arab and Muslim officials have called for a ceasefire in Gaza after arriving in Beijing Monday and being welcomed by China’s top diplomat, Foreign Minister Wang Yi," Time Magazine reported earlier this week.
Foreign ministers from Saudi Arabia, Egypt, Jordan, the Palestinian Authority, Indonesia and the secretary general of the Organisation of Islamic Cooperation made China their first stop on "a tour of world capitals with the aim of ending Israel’s bombardment of Gaza,” news staff said.
As he welcomed the group, Wang said that “China is a good friend and brother of Arab and Islamic countries.”
“We have always firmly safeguarded the legitimate rights and interests of Arab (and) Islamic countries and have always firmly supported the just cause of the Palestinian people,” he added.
Whoa, cowboy . . . not so fast: But that doesn't square up with how Galia Lavi, researcher and deputy director of the Israel-China Policy Centre in Tel Aviv, Israel measures China's “friendship” with the region.
Lavi told The Diplomat's Duncan Bartlett that "China has put itself in a difficult spot” in the Middle East, and that "there are limits.”
“Over the years, it has offered the Palestinians little genuine assistance. China has no investments in the Palestinian Authority areas, trade is very low, and humanitarian aid to the Palestinians falls considerably behind aid from other countries. But rhetorically, China made sure to pay lip service to the Palestinians, mainly to please the Arab countries.”
Lavi also noted that "since the war began . . . Wang has not visited and China's top leader, Xi Jinping, has not held a single phone call with any regional leader.”
“Arab countries can now see who can be trusted in times of need. And it is not China, which has made itself almost irrelevant,” she said.
Best Reads
Is China Ready for Combat? Putin’s War Shines Light on Xi’s Military Weakness: (Peter Martin, Bloomberg): Martin explores the question that perplexes, both, Beijing and the West: Can China’s untested military wage war?
China’s Heavy Economic Legacy of State Ownership and Central Planning (Itzhak Goldberg) Despite its rather unsexy title, Goldberg's analytical piece on China's economic troubles is a great primer on how economic reforms failed.
Fleets of Force (Agnes Chang and Hannah Beech, New York Times): With brilliant graphics showing Chinese ships' movements, Chang and Beech paint a clear picture of "[h]ow China strong-armed its way into dominating the South China Sea."
Middle Kingdom Surreal
ALBANESE BLASTS CHINESE NAVY FOR HITTING DIVERS WITH SONAR: Australian Prime Minister Anthony Albanese has called the PLA Navy out for "dangerous, unsafe, and unprofessional" behavior after a Chinese destroyer targeted Australian divers with its military sonar device.
“Australian divers aboard the long-range frigate HMAS Toowoomba were trying to clear fishing nets from its propellers on November 14 when a Chinese destroyer approached . . . Despite being warned that a diving operation was underway, the Chinese destroyer operated its sonar in a manner that posed a risk to the safety of the Australian divers who were forced to exit the water . . . Medical assessments found the divers had sustained minor injuries,” Alabanese’s statement said.
The incident caused an uproar in Australia, and the Labor Government’s tepid response was lambasted as “pro-China” by critics.
Senior Forbes Contributor Craig Hooper said that China’s provocation may threaten the fragile Australia-China detente that has developed in recent months, and argued “the optics [of] appeasement” could “even bring down Albanese’s government.”
“The Australian Prime Minister didn’t let the incident derail—or even influence—pro-China diplomacy. A day before news of China’s maritime provocation broke, the Australian Prime Minister compounded his potential exposure to an enraged Australian public, hailing improving relations with China and announcing he had invited China’s Premier, Li Qiang, to visit,” Hooper said.
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The Portuguese sun has returned in all its wonderful glory. Have a great weekend.
Thank you !