Established in Hangzhou in 1999, China’s Alibaba Group began as a trading company importing foreign goods for Chinese firms. It has since diversified into four core businesses – “e-commerce, digital media and entertainment, innovation initiatives and cloud computing” – employing over 50,000 staff in 200 countries. Valued at US$470 billion, Alibaba is also the world’s sixth largest company based on market capitalisation. This paper underscores the Chinese government’s role in Alibaba’s development. Following which, it discusses Alibaba’s political importance.
2. Alibaba’s growth and the role of the state
Alibaba’s importance is underscored by its scale and, more specifically, the extensiveness of state efforts that ultimately provided conditions for Alibaba’s market expansion. Notably, Alibaba benefits from the ruling Chinese Communist Party’s (CCP) developmental authoritarian model rejecting neoliberal prescriptions of minimal state intervention in the economy. Instead, China saw extensive state support for domestic firms that contributed towards both domestic and international competitiveness. Therein, state support for Alibaba comprised three main aspects.
Firstly, China’s regulations facilitate Alibaba’s business expansion by undercutting foreign competitors. For example, the state introduced cyber-security laws that limit data storage to the mainland, thereby favouring local firms such as Alibaba with greater local server capacity. Consequently, while Alibaba’s operations remain unscathed, US-based Amazon had to sell $301.2 million of cloud assets in 2017 to comply with Chinese laws. The censorship of foreign tech giants (e.g. Facebook, Youtube, Google) has also sustained the domestic market dominance of Alibaba’s media affiliates Weibo and Youku Tudou.
Secondly, the CCP has provided financial support. In some cases, it encompassed public-private partnerships (PPP) that helped to expand Alibaba’s rural presence. For one, backed by $300 million from the Finance and Commerce ministries, Alibaba partnered local governments to launch Rural Taobao service centres in 2016. This initiative has since brought ecommerce training and infrastructure to 30,000 villages across 29 provinces. An additional state investment of $170 billion was also pledged to improve mobile networks in rural areas, effectively advancing the PPP’s efforts to facilitate ecommerce accessibility. More interestingly, unofficial financial support includes capital contributions from sovereign wealth funds (SWF) and Chinese investment firms with substantial party connections. In 2012, when Alibaba needed to finance a share buyback exceeding $7 billion in lieu of its initial public offering, Boyu Capital, New Horizon Capital (NHC) and the SWF China Investment Corp were some of the firm’s major contributors. Notably, the son of ex-Premier Wen Jiabao had co-founded NHC, while ex-President Jiang Zemin’s grandson was a partner in Boyu, whose subsidiary had contributed $400 million. Such instances of private financing are unlikely to be solely profit-driven and independent of political directives, given the CCP’s will and capacity to dictate private sector business decisions.
Thirdly, the state has extensively patronised Alibaba’s e-commerce platforms. Its mobile payment platform, Alipay, has been adopted as a channel for e-government service delivery, reaching out to over 320 million, or 32.7% of China’s netizens. The “Red Taobao” initiative has even seen manpower deployment and changes in institutional functions, as when grassroots-level party branches were mobilised to exhort party members to become Taobao merchants.
In enabling Alibaba’s market expansion, the CCP effectively facilitated Alibaba’s vertical integration and expansion of an online-to-offline model, via strategies such as aggressive acquisitions, investments and research (R&D). Between 2016 and 2017, Alibaba spent $29 billion on 70 investment deals. Its diversified investment portfolio includes prominent US start-ups such as Uber, China’s logistics company Cainiao, and a controlling stake in Lazada Group, Southeast Asia’s largest ecommerce site. Meanwhile, R&D expenditure took up 11% of 2017’s revenue ($2 billion), before Alibaba pledged another US$15 billion to establishing seven research labs internationally. These voluminous overseas deals are exceptional and underscore significant state assent, given the CCP’s ongoing efforts to curb “overseas investment sprees” in the private sector. Summarily, the extent of state involvement in Alibaba’s development and the firm’s current market presence underscores Alibaba’s national importance.
Indeed, the CCP’s extensive backing of Alibaba, coupled with Alibaba’s employment of well-ordered business strategies afforded by such patronage, has contributed to the firm’s astounding growth. Annual revenue grew 63.9% on average since 2010, with top-line reaching $158.2 billion in 2017 (see Figure 1). Closing in on specific sectors, Alibaba’s ecommerce platforms boast over 500 million users worldwide. One such platform, Tmall, commanded 56.6% of China’s ecommerce business-to-consumer (B2C) market share. Contrastingly, after 12 years in China, Amazon only accounted for 0.8% of China’s B2C sales in 2016 despite having significant capital and networks, it being the world’s largest e-commerce company. This enduring disparity attests to Alibaba’s substantial brand loyalty and, by extension domestic competitiveness. Meanwhile, a United Nations-affiliated (UN) study found that Alipay’s 450 million active users collectively made 175 million transactions daily in 2016, totalling $1.7 trillion. Although Alipay’s share of China’s mobile payment market fell from nearly 80% in 2015 to approximately 50% in 2017, Alipay remains dominant given its extensive overseas presence in 28 countries. Tenpay, its biggest rival, is only present in 15. Meanwhile, Alibaba Cloud, Alibaba’s cloud computing subsidiary, covers four continents and registered nearly 127% growth in 2016.
Figure 1: Group annual revenue from 2010 to 2017 (in millions of yuan)
3. Alibaba’s political importance
Alibaba’s burgeoning market power has been accompanied by corresponding growth in terms of its political value to the CCP, and its international influence.
3.1 Contributions and challenges to China’s authoritarian resilience
The Communist Party of China (CCP)’s “resilient authoritarianism” largely hinges on performance legitimacy, thereby leading the party to prioritise the establishment of xiaokangshehui (moderately prosperous society) since Jiang’s era. However, as the benefits of China’s economic development are unevenly distributed, socio-economic inequality and poverty has served to drive rural social unrest – “mass incidents” of public protest that threaten party control grew from 8,700 in 1994 to 127,000 in 2008.
Therein, on the one hand, the economic contributions of Alibaba’s ecommerce potentially enhance performance legitimacy and, by extension, regime stability. The CCP’s recognition of Alibaba’s utility can be inferred from separate reports published by the party and the Ministry of Commerce in 2015. The reports identified the promotion of rural e-commerce – also one of Alibaba’s current priorities – as a key poverty alleviation strategy, with poverty alleviation being intrinsically tied to the larger aim of regime stability. Indeed, Alibaba has stimulated rural entrepreneurship, employment and consumption. Firstly, the rise of over 1,300 Taobao Villages housing some 300,000 merchants, coupled with 30,000 Rural Taobao centres, have improved market accessibility and reduced barriers to entry to ecommerce. Village and town-based businesses already comprise 22% (1.5 million) of Tmall’s merchants. A million rural entrepreneurs are already expected to emerge from Alibaba’s planned $154 million investment in e-commerce training. Secondly, rural consumption has escalated. In 2017, rural expenditure for Singles Day sales reached US$500 million, an eight-fold increase from 2016. Promulgating ecommerce has also fuelled complementary demand for kuaidi (express delivery) services, thus creating employment – China’s kuaidi workforce, largely sourced from rural regions, grew five-fold since 2010 to exceed 2.3 million.
Moreover, Alibaba facilitates economic rejuvenation in cities and state-owned enterprises (SOEs). For one, its $2.8 billion tax contribution financed almost 15% of the Hangzhou government’s budget for 2015. Its Hangzhou headquarters have also attracted new talent to the city’s ecommerce industry, thereby driving the city’s development into an ecommerce hub now hosting one-third of China’s ecommerce ventures. Furthermore, the state has leveraged on Alibaba’s capital and expertise in its SOE reforms. Following enduring criticism about the inefficiency of SOEs, China Unicom, a telecommunications SOE, sold minority shares to online giants such as Alibaba so as to improve accountability and acquire best practices. Collectively, these instances attest to Alibaba’s political utility – in driving economic development and reform, Alibaba demonstrates its potential to alleviate the economic dissatisfaction undermining performance legitimacy.
Furthermore, Alibaba enhances CCP’s ideological legitimacy. The firm has deployed discursive power to advance a pro-Beijing public discourse following its acquisition of Hong Kong’s South China Morning Post (SCMP) in 2016, for $266 million. A paper renowned for its anti-CCP rhetoric, SCMP bypasses mainland censorship bodies, whereas China’s intensified crackdown on VPNs remains unable to control information access for Chinese citizens abroad. Therein, Alibaba’s acquisition effectively addresses the “blind spot” of Chinese regulators – it introduced changes that substitute for the censorship that the CCP remains unable to administer. For one, despite Alibaba’s earlier pledges to retain SCMP’s editorial independence, the takeover saw SCMP adopt an increasingly pro-Beijing editorial stance and over 40 staff resignations within seven months. Another inconsistency lies in SCMP’s termination of its Chinese editions without a given reason five months after completing the takeover. By effectively excluding the predominantly monolingual Chinese population, this move runs contrary to Alibaba’s aforementioned aim to increase SCMP’s readership. Admittedly, these changes to SCMP’s operations are not definite proof of CCP influence in Alibaba’s corporate decisions, since Alibaba’s co-founder, Jack Ma, had expressed aspirations for SCMP to reflect an “objective” Chinese narrative that is neither pro-Western nor pro-CCP, while Chinese state media had not celebrated the acquisition. One may then argue that the lack of evidence denoting party influence could affirm the party’s minimal involvement in decision-making. However, SCMP’s developments nevertheless reflect Alibaba’s utility in minimising dissenting voices in public discourse, which further safeguards regime legitimacy.
Admittedly, Alibaba does not consistently challenge the CCP’s authority. On the contrary, it welcomes party presence within the firm – in 2008, Alibaba elevated its party branch to a “Group party committee.” Additionally, although only 2,094 (out of 50,000) Alibaba employees are party members, they receive 60% of annual “Outstanding Employee” awards, rendering the prevalence of patronage networks plausible. That said, the extent to which Alibaba facilitates authoritarian resilience must be qualified – the firm’s informational advantage, market size and extensive social presence render it a potential challenge to largely unrivalled state control. The fact that authorities have engaged Alibaba to provide data for criminal prosecutions reveals that Alibaba holds more data on Chinese citizens – including CCP members – than Beijing itself, which has consistently struggled with obtaining accurate data from local governments. As briefly mentioned earlier, China’s recent SOE reform also looked to Alibaba’s investment and transfer of managerial expertise to enable SOEs’ transition to an efficient, mixed ownership scheme. In short, Alibaba’s scale and informational advantage accord it with potential bargaining power.
Indeed, Alibaba has exercised agency to publicly defy official directives in cases where the advancement of party aims potentially undermines corporate interests. For example, when a 2014 state report criticised Alibaba for doing little to rid e-commerce platforms of “illegal business activities,” Alibaba disputed its validity and accused regulators of “procedural misconduct.” Additionally, co-founder Joseph Tsai commented that Alibaba opposes state overtures to obtain unrestricted access to the firm’s private data. Alibaba’s rebuffs are anomalous because most Chinese firms comply with the state, especially since the CCP previously threatened to close several Chinese Internet companies should they fail to censor “politically-sensitive” content. Notably, the CCP assented to Alibaba management’s open criticism of law enforcement, as when Ma published an open letter addressed to various political representatives that criticised anti-counterfeit laws as having “no bite,” and demanded harsher penalties. The fact that Alibaba was not punished for non-compliance and criticism attests to its relative immunity. In other words, there exists an interdependent – as opposed to principal-agent – relationship between both parties. Alibaba’s importance is not merely derived from its politico-economic value, but from its capacity to challenge authoritarian resilience by questioning party competency.
3.2 “Alibaba diplomacy?” Influence over China’s foreign policy
Alibaba plays a leading role in China’s private sector diplomacy, having been accorded opportunities to enhance China’s international reputation. The state facilitated and endorsed Alibaba’s participation in the annual World Internet Conference and 2016’s G-20 summit by hosting the events in Zhejiang Province, where Alibaba is headquartered. The state has assented to Alibaba’s unilateral diplomatic overtures, as when Alibaba representatives could sign a strategic partnership with New Zealand to promote e-commerce. Further, Ma was one of two trade representatives that accompanied President Xi in 2014’s Korea-China summit.
Alongside domestic endorsement, Alibaba is internationally recognised for its entrepreneurial achievements. Heads of state from Canada and Ireland, amongst others, requested to meet Ma when they visited China. Most notably, Ma was elected to the World Economic Forum’s Foundation Board in 2014, before assuming an advisory role in the UN Conference on Trade and Development. Alibaba’s international reputation conceivably enhances China’s reputation because of Alibaba’s positioning as a national brand. Indeed, although foreign entities form Alibaba’s largest shareholders, Ma consistently deems Alibaba a “state enterprise” representing Chinese talent and innovation, similar to how Samsung and Apple represent Korean and US technology respectively. Such branding is affirmed by state-controlled media, which articulate Alibaba’s symbolic value as a Chinese success story.
More notably, Alibaba’s developments have both positive and negative ramifications for Sino-US relations. Foremost, amidst prevailing Sino-US “strategic distrust,” Alibaba’s aforementioned CCP affiliations have rendered its dealings a source of political anxiety for the US. This became apparent when the US government blocked Alibaba’s attempted acquisition of US money transfer firm MoneyGram International on the grounds of “national security” – the US feared that China would gain access to US citizens’ data via Alibaba. Meanwhile, from China’s perspective, the US decision exacerbated “flaring” trade tensions, for it entailed an “ear-piercing” manifestation of the US’ “hawkish” anti-China policy. Similarly, when the US Trade Representative placed Taobao on its counterfeits blacklist in 2016, Chinese state media affirmed Ma’s claims that the decision was politically motivated. Given that China had previously criticised Alibaba’s e-commerce platforms on similar grounds, its defence of Alibaba can conceivably be interpreted as a political reaction as well. Overall, these incidents reveal the potential for Alibaba’s developments to be politicised and exacerbate bilateral tensions.
On another note, Alibaba’s consistent efforts to develop bilateral goodwill with US presidents Obama and Trump contribute to diffusing focal points in Sino-US tensions particularly that of trade. Indeed, both presidents were amicable to Ma, with Obama choosing to interview him at 2015’s APEC summit, and Trump professing to be “very happy” to do “great things" with Ma. Alibaba’s substantial commitment to climate change research (investing 0.3% of its six-year revenue), which Ma highlighted to Obama, Ma promised Trump a million US jobs through facilitating small US firms’ entry into Chinese ecommerce, and followed through with an educational summit for Michigan’s small-time businesses. Obama interviews alibaba and they talk about climate change issues.
Ma secretly visited Obama
4. Conclusion
Summarily, state patronage not only contributes to Alibaba’s scale, but also attests to the firm’s national – even strategic – importance. However, Alibaba’s resistance towards certain party directives render Alibaba a potential challenge to CCP authority. Moreover, Alibaba’s international dealings demonstrate that the firm is beyond just a “taker” of foreign relations. Rather, Alibaba has become an important political actor influencing China’s foreign and trade policy.