Alibaba is teaching its shareholders a useful lesson about Chinese business: there’s no such thing as having a good relationship with the government. The company’s shares fell 4.4 percent on Jan. 28 after a regulator lambasted its sales habits. Alibaba says the State Administration for Industry and Commerce (SAIC) is being irrational. That is little comfort to investors who are now $11 billion worse off on paper.
China’s biggest e-commerce group got that way partly by managing its government connections. Founder Jack Ma dutifully throws around political buzzwords like “reform” and “new normal”, while emphasising how the company supports millions of jobs. Without skillful handling of China’s favour-based system Alibaba could never have grown to its current $245 billion size. Premier Li Keqiang has praised Alibaba’s “Singles Day” sales festival – an event SAIC now claims misled consumers.
While SAIC doesn’t seem to be threatening penalties, Alibaba has two battles to fight. First, it must convince investors that it did not know the regulator was planning to criticise it publicly after the two sides met last summer. Failing to disclose such price-sensitive information ahead of last September’s initial public offering could provide grounds for shareholders to sue. Making public the details of recordings Alibaba made of the meetings might help.
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