Public-private

Alibaba's 'public-private' model key to its value

Alibaba is one of China's largest private companies. Yet, its success depends on keeping the state sweet. From e-commerce to online finance, the internet giant's senior executives argue its strategy is in line with government policy. While that can at times make them sound like bureaucrats, it's a reminder that official support is a key asset for China's technology giants.

Over the past decade, Alibaba has led a shopping revolution in China with its online market places. Now it is stirring up the financial sector by offering online payment services and wealth management products. In just eight months, its Yu'e Bao money market fund has attracted assets greater than the deposits of China's five smallest listed banks.

Alibaba's private status has allowed it to quickly exploit new opportunities. But as it goes head to head with entrenched interests like China's large state-owned banks, Alibaba is making an effort to emphasise the broader benefits of its business. E-commerce helps sustain small businesses and create jobs, while its push into online finance is helping to liberalise China's interest rates. Those measures, executives say, are consistent with the larger policy objectives of China's senior leadership.

Such soothing words may help protect Alibaba and rivals such as Baidu and Tencent from government intervention at a time when opponents are pushing back. Earlier this year, Beijing and Shanghai restricted the use of mobile apps that allow travelers to summon taxis on their phones.

Meanwhile, financial regulators are taking steps to tame online finance.

Western internet giants like Amazon, Google and Facebook also face increased government scrutiny as they grow larger. But in China it's even more important for internet companies to keep on the right side of the ruling Communist party. The state not only owns the giant banks they are increasingly competing against, but also turns a blind eye to the semi-legal "variable interest entity" structures that they use to list their shares abroad.

Alibaba's rise owes much to its private status. But the state still has a big say in its continued to success. That makes cozying up to the authorities all the more important.