China Briefing

Alibaba's mega IPO signals rise of China's new wave of tech giants

Monumental IPO underscores sector's vital role in creating jobs and economic growth

PUBLISHED : Monday, 22 September, 2014, 8:18am
UPDATED : Monday, 29 February, 2016, 12:18pm

As Alibaba, China's e-commerce giant, made its monumental debut with a 38 per cent jump in value on its first day of trading on the New York Stock Exchange on Friday, it is hard not to be awed by the enormous wealth its chairman, Jack Ma Yun, has created for himself, his employees and investors - the focus of intensive media frenzy.

Founded by the former English teacher in his Hangzhou flat 15 years ago, the company raised US$21.8 billion in one of the largest initial public offerings the world has seen, valuing the company at US$231 billion, surpassing Facebook and Amazon and becoming the world's second largest internet company after Google.

Based on Friday's closing price of US$93.89, Ma's remaining stake of 7.8 per cent was worth more than US$18 billion, easily making him the mainland's richest man and among the wealthiest in Asia. As fireworks went off at Alibaba's headquarters in Hangzhou to celebrate the listing, it has also made many of its young employees US dollar millionaires.

But wealth creation is only one of many far-reaching implications of the Alibaba IPO as foreign investors bet on the company as the latest vehicle to tap China's explosive growth of e-commerce and internet use despite the concerns over the firm's management structure and government interference.

The listing has firmly placed Alibaba, which until now was not well known outside China, on the global stage for future expansion in overseas markets, even though Ma said the company would continue to focus on the market at home.

More importantly, it also reflects the rise of a new wave of technology giants to propel the Chinese economy forward as the government seeks greater reliance on innovation and domestic consumption.

Alibaba is the latest e-commerce giant to gain attention abroad following the rise of Lenovo, the world's largest maker of personal computers; Baidu, China's largest search engine company; Huawei Technologies, the world's largest maker of networking equipment; and Tencent, owner of the popular WeChat messaging service.

Another important feature one can't fail to notice is that all these tech giants are privately owned in an economy dominated by state-owned enterprises with monopolies or cartels in banking, energy, telecoms and infrastructure.

Entrepreneurs like Alibaba's Ma, Tencent's Pony Ma and Robin Li of Baidu reflect the fact that the private sector is not only a jobs creator, but contributes more than 60 per cent to China's overall economic growth.

Alibaba's trading platforms have helped create millions of jobs on the mainland as self-employed entrepreneurs set up online shops to tap a user base of several hundred million people.

At the same time, Alibaba's blockbuster success is set to trigger deep soul-searching for mainland regulators and investors alike.

Most Chinese tech giants have sought their primary listings in New York, except Tencent and Lenovo, which listed in Hong Kong. Regulatory hurdles and the low-risk appetite of investors on the mainland have driven the best tech firms away from its stock markets, depriving small investors of the chance to buy into those high-growth companies directly even though they contribute to the bulk of their profits as users and consumers.

Indeed, Hong Kong was the preferred choice for Alibaba's IPO but it was forced to choose New York because Hong Kong does not offer dual-class share structures - a move local regulators are now reviewing.

The fact that foreign investors are the biggest winners from Alibaba's IPO has also shown that China still has a long way to go in building up its own venture capital markets and financing its own hi-tech development and innovation.

It is true that the sovereign fund China Investment Corporation and several private investment firms linked to relatives of former government leaders will reap generous payouts from Alibaba's listing, but their stakes in the company are tiny compared to those of Yahoo and Japan's Softbank, which earned much more as the firm's biggest shareholders.

Yahoo and Softbank placed their faith in Ma by investing in Alibaba in its early days at a time when he was spurned by investors at home and abroad.

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