Alibaba's battle with regulators threatens to damage brand China
E-commerce giant's feud with regulator could damage not just the firm's reputation, but also other Chinese companies and the country itself
"Open sesame" was the codeword used in the Ali Baba children's folktale to reveal the treasure cave. But "open season" seems to be the more apt phrase as regulators and executives of the Chinese e-commerce giant Alibaba sniped away this week in a war of words over its handling of operations that allegedly sell counterfeit goods.
The row yesterday took a more conciliatory tone, but analysts warned that, if it continues, it could threaten to damage the reputation of not just China's biggest internet company but also that of other Chinese companies and China itself.
In hindsight, the group's IPO prospectus last year was prophetic in predicting this week's fallout. It warned: "We may increasingly become a target for public scrutiny, including complaints to regulatory agencies, negative media coverage, including social media and malicious reports, all of which could severely damage our reputation and materially and adversely affect our business and prospects."
When Alibaba listed on the New York Stock Exchange last September, raising US$25 billion in the world's biggest IPO, many Chinese cheered. They saw it as the strongest sign yet that corporate China had arrived on the world stage and that the juggernaut was unstoppable. Despite its stocks tumbling 10 per cent on news of its weaker-than-expected sales growth in the last quarter, as of Thursday, the company had a massive market capitalisation of US$223 billion.
Last week in Davos, Switzerland, Alibaba executive chairman Jack Ma Yun was a speaker at the World Economic Forum. As he hobnobbed with the global elite, he made his ambition plain: to expand Alibaba's customer base six-fold to two billion.
Such statements, which made headlines a week ago, have now been replaced by speculation on what exactly is playing out between the corporate behemoth and China's opaque state machinery. On Wednesday, the State Administration for Industry and Commerce (SAIC) posted online a white paper - since expunged from its site - alleging that the giant's Taobao Marketplace sold counterfeit goods as merchants without business licences were allowed to operate unauthorised stores. Alibaba hit back swiftly, accusing the regulator of bias and misconduct. What could provide dangerous ammunition for litigators and regulators in the US against Alibaba were allegations that SAIC already had concerns over Taobao before the firm's IPO but did not raise them to avoid disrupting the highly-anticipated public listing on the world's largest stock market.