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JD.com

JD.com CEO Richard Liu cleared in US but Chinese e-commerce giant still faces challenges ahead

  • JD.com faces challenges on several fronts and it will take time to win back the confidence of investors
PUBLISHED : Saturday, 22 December, 2018, 10:43am
UPDATED : Monday, 24 December, 2018, 1:35pm

Although Chinese billionaire and JD.com chief executive Richard Liu Qiangdong has been cleared of felony rape charges in the US, many analysts say China’s second-biggest e-commerce company faces a challenge to win back the trust and confidence of investors after its shares nearly halved in value in 2018.

US prosecutors announced last Friday that their investigation turned up insufficient evidence to follow through with charges against the 45-year-old founder of Beijing-based JD.com. Liu was arrested in Minneapolis, Minnesota, on August 31 after a woman accused him of rape while he was attending a university business programme in August. Liu was released the next day and returned to China hours later.

“It was determined there were profound evidentiary problems which would have made it highly unlikely that any criminal charge could be proven beyond a reasonable doubt,” according to a statement released by Minnesota’s Hennepin County Attorney’s office.

JD.com CEO Richard Liu will not face sexual assault charges in Minnesota

Liu would have faced a prison sentence of up to 30 years if he was charged and convicted. JD.com has said Liu was falsely accused. The company’s shares plunged nearly 16 per cent in two days of trading on the NASDAQ exchange after Liu’s arrest before falling further.

“We are pleased to see this decision,” JD.com said in a statement on its website.

Liu made the first direct response to the decision on Saturday morning.

“This proves I broke no law. My interactions with this woman, however, have hurt my family greatly, especially my wife,” said Liu in a post on his Chinese social media account. “I feel deep regret and remorse and I hope she can accept my sincere apology. I will continue to try in every possible way to repair the impact on my family and to fulfil my responsibility as a husband.”

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Jill Brisbois, a US-based attorney for Richard Liu, said in a statement that “this confirms our strong belief from the very beginning that my client is innocent.”

“Even though the prosecutor determined no criminal charges were warranted, Mr Liu’s reputation has been damaged like anyone falsely accused of a crime,” said Brisbois.

The comments by Liu’s attorney reflect the reality that even though Liu has been cleared and a long period of uncertainty brought to an end – JD.com faces challenges on several fronts and it will take time to win back the confidence of investors.

JD.com reported lower-than-projected revenues in November and its first sequential fall in annual active customers since listing in New York in 2014. Sales for the third quarter of 2018 were 104.8 billion yuan (US$15.3 billion), a year on year increase of 25 per cent.

“JD is facing increased competition in the e-commerce industry where new players, like Pinduoduo, are posing threats,” William Li, a senior analyst at Beijing-based data research company Context Lab, said on Monday. “JD is still struggling to turn a profit ... its growth has started to decelerate and it is investing heavily in artificial intelligence, an area that will not immediately contribute a profit.”

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The number of customers who bought products or services on JD.com, a statistic referred to as “annual active customers”, fell by 8.6 million between June and September to 305.2 million.

JD.com, which is backed by Walmart, Alphabet’s Google and China’s Tencent Holdings, has already lost nearly half of its market value this year as it fights intense competition for Chinese online consumers.

Executives said slower sales in its core e-commerce business, particularly big ticket items, dented its third-quarter performance. The company forecast fourth quarter sales growth between 18 and 23 percent, below an average analyst estimate of 23.5 percent.

Chief financial officer Sidney Huang said the “relatively soft” sales forecast was linked to an ongoing consumption slowdown in China, which is currently in talks with the US to de-escalate a damaging trade war.

Meanwhile, the control exerted by founder Liu over China’s second largest e-commerce player was thrown into sharp relief by his US arrest, exposing corporate governance risks at the Beijing-based company, according to some analysts.

Liu receives almost all of his compensation in the form of equity – he has a stake of 16 per cent in JD.com stock, but controls 80 per cent of the voting rights.

“Mr Liu has considerable influence over matters such as electing directors and approving material mergers, acquisitions or other business combination transactions," according to the company’s official by-laws,

Moreover, under the current rules of JD.com, “the board of directors will not be able to form a quorum without Mr. Liu for so long as Mr. Liu remains a director”.

Although many of China’s biggest tech firms tend to be headed by powerful leaders, running elevated levels of “key man risk” in general compared with international peers, JD.com has a very unusual set of rules, according to industry experts.

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Liu acknowledged some of the pressures the company has been under since his arrest in his statement.

“During these difficult days, my colleagues at JD.com have been working under pressure. I would like to deeply thank them for remaining focused on our business,” said Liu. “I sincerely ask you not to blame the many fine and dedicated employees of JD for my personal matters.”

However, at least in the short term, analysts say JD’s share price should receive a boost.

“The announcement [of no charges] means at least JD’s management structure will remain stable,” said Context Lab’s Li. “JD’s shares may continue to rise in the coming days as the sexual misconduct [allegations] had previously almost halved the company’s market valuation.”

JD.com shares jumped 5.9 per cent to close at US$21.1 in US trading on Friday.

Additional reporting by Rob Delaney