Sunday, September 07, 2014

The China Boom Story: Alibaba and the 40 Thieves

I suspect the Alibaba IPO may well prove to be the high water mark of the China Boom Story in more ways than one.

We all know the story of Ali Baba and the 40 Thieves. Poor woodcutter Ali Baba discovers the 40 Thieves' secret cave where they stashed all their ill-gotten wealth. Various adventures follow, with the loyal slave girl being the heroine who repeatedly saves Ali Baba from death at the hands of the Thieves and their resourceful, cunning leader.

My favorite filmic depiction of the story is the 1934 film Chu Chin Chow starring Chinese-American actress Anna Mae Wong as the heroic slave girl. (Another Arabian Nights' inspired fantasy also stars Wong as a loyal slave girl: the 1924 silent film The Thief of Bagdad with Douglas Fairbanks and Anna Mae Wong. Clearly, Hollywood's favored role for Miss Wong was loyal "exotic" slave.)

On the current stage, the drama being played out is that of Chinese Internet company Alibaba, which is set to go public on the U.S. stock market next week in a staggering $21 billion IPO (initial public offering). Many market pundits expect the current rally in stocks to continue through next week, if for no other reason than to insure the investment banks dump all the Alibaba shares on a credulous public at full pop. Alibaba To Raise $21 Billion In Historic IPO.

The IPO share price of between $60 and $66 would peg Alibaba's value around $160 billion.

Behind the rah-rah, Alibaba's fair market value is problematic: What's an accounting puzzle like Alibaba (really) worth?
As the world’s largest e-commerce company prepares to go public, its murky financials don’t make it any easier for investors to figure out the company’s value.

In the bigger picture, the same can be said of the entire China Boom Story, which has supported the global expansion of trade, commodities and stocks for the past two decades: is it for real, or is it fundamentally an elaborate facade of carefully designed props, borrowed money and opaque accounting?

Let's start by stipulating that the great wealth created by China has been generated by the hard work of its enormous workforce, many millions of whom have toiled back-breaking hours in mind-numbing factory jobs to better the prospects of their children, many of whom were left behind in the rural villages the parents left as migrant workers.

This story has been told in two documentaries: China Blue and Last Train Home.

The largely untold story of the China Boom is the vast thievery that has siphoned off much of the wealth into the hands of a crony-Communist Party-state few:

-- peasants' land stolen by local governments and their crony developers

-- wages stolen from workers by unscrupulous factory owners and their thoroughly corrupt government cronies

-- value stolen from consumers via the substitution of shoddy or even poisoned ingredients for the product being advertised (top Party officials get all their food from secret organic farms)

-- product design and intellectual property stolen by copycat manufacturers who pirate everything under the sun without paying a yuan of royalties

-- corrupt officials stealing from everyone via bribes, illicit partnerships, shares in land development deals, etc. etc. etc.

-- last but not least, the European, American, Japanese and Korean corporations that are complicit in all these layers of officially sanctioned theft to lower the wholesale cost of their $40 jeans (retail) to $4 from $5 to maximize their gargantuan profits at the expense of the officially exploited. (Interesting how that reduction didn't result in any corresponding reduction in the retail price.)

Few dare ask if the Alibaba IPO isn't just the latest in an unending string of officially sanctioned thievery of the credulous or powerless. Is Alibaba worth $160 billion as advertised? Based on what earnings? By what accounting standards? How much of these net earnings will actually flow to shareholders?

Or is the Alibaba IPO just another snatch-and-grab by U.S. investment banks anxious to skim their share of the China Boom Story before the whole flimsy backstage set implodes in the collapse of shadow banking and shoddy real estate development?

I suspect the Alibaba IPO may well prove to be the high water mark of the China Boom Story in more ways than one: the apex of Wall Street's greedy complicity in selling the fantasy, the apex of "China's real estate bubble is not a bubble, and no, it will never pop," and the apex of the wealth divide between the handful of thieves who are busy transferring their wealth out of China and the reach of those they ripped off, and the exploited mired in a polluted factory to the world that cannot possibly prosper without a permanently expanding real estate bubble and an equally permanent global expansion.

The Chinese thieves are busy stashing their ill-gotten wealth in the West. Perhaps it's just a matter of time before the modern-day equivalent of loyal slaves arise to take back what was stolen from them.

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Laura Y.

Gordon Long and I discuss The New Nature of Work: Jobs, Occupations & Careers(25 minutes, YouTube) 

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