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William Pesek

Three Reasons to be Terrified of Alibaba

Before you get too excited about owning Alibaba shares, think about how dependent its success is on the whims of the Communist Party.
Jack Ma's company is burning bright, for now.
Jack Ma's company is burning bright, for now.

Jack Ma isn't exaggerating when he sells his e-commerce colossus Alibaba as the "everything company." The ever-expanding technology giant, which is on track this week for one of the largest initial public offerings in history, has so many tentacles in so many industries that it can easily strangle small-to-midsize competitors. You'd think Chinese antitrust regulators -- who have recently targeted foreign companies such as Microsoft and Toyota -- would be sniffing around homegrown Alibaba, too.

Fat chance. The Communist Party loves a Chinese success story, and Ma's tale has global investors asking, "Mark Zuckerberg, who?" That, however, illustrates the problem with all the Alibaba hype. Ma's been allowed to build a near-monopoly online only because the regime has allowed him to do so. When Ma describes Alibaba's priorities as "customers first, employees second, and investors third," one can't help but assume the first group includes his party benefactors in Beijing. Here's my question to all those hedge funds and institutional investors lining up to throw money at Ma in exchange for precious shares: How can they trust Chairman Ma's pledges when the spirit of Chairman Mao so obviously dominates the room?