Thumbs up -- for now.

Photographer: Andrew Burton/Getty Images

Alibaba's Hollow Victory Over China

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Jack Ma, 1. China, 0. That seems to be the score in the unusually public tussle between the Alibaba billionaire and Beijing. Rarely does a mainland magnate push back when the Communist Party questions its business practices and ethics, and certainly not in the glare of the global news media. But Ma is standing his ground, and the government has dialed back its criticism of Alibaba selling fake goods on its e-commerce site.

This is not a sign that life is generally improving for private business in China, however. Abibaba is unique. Beijing loves a homegrown success story, and there's none better than Ma's fabled rise from schoolteacher to Asia's richest man. Since pulling off history's biggest IPO, Alibaba has become the standard bearer of President Xi Jinping's pledge to embrace capitalism, empower entrepreneurship and level the corporate playing field. Also, Ma is producing jobs at thousands of small-to-midsize companies and helping to accelerate Xi's shift to an economy led by consumer demand. Many countries obsess over companies that are too big to fail. For China, Ma is betting Alibaba is too important to hassle.

Yet there are many reasons why his juggernaut faces a difficult few years ahead. Here are the two most immediate challenges.

One, political risk is rising. True, this confrontation had a happy ending for Alibaba. What no one knows, however, is whether the company's troubles are a dispute with one agency, the State Administration for Industry and Commerce, or a broader quarrel with the Chinese government. If it's the latter, Ma and his investors haven't heard the last from China's opaque and unpredictable regulatory system. Alibaba's predicament is emblematic of how, for all Xi's promises to the contrary, political risk for businesses in China is increasing.

Alibaba operates at the pleasure of Xi's Communist Party, a secretive body that can turn on any corporate titan for any reason at any moment. Consider the irony of China going after Microsoft and chipmaker Qualcomm for alleged monopolistic practices, while enabling Ma to corner virtually every online market. One misstep or slight toward a Communist Party bigwig and Alibaba could easily face its own anti-monopoly case.

Ma's push into online banking also could put him at odds with party leaders looking to protect the turf of state-owned banks. Investors won't know until it's too late whether Alibaba's rival Tencent, which runs the ubiquitous WeChat instant messaging service, will suddenly have more friends than Ma in Beijing.

The second big risk is China's economy. News today that manufacturing contracted for the first time in more than two years has markets crying out for more stimulus. Even after the government's recent $1.1 trillion spending package, investors worry Beijing isn’t doing enough to keep growth at about 7 percent (it grew 7.4 percent in 2014). The Purchasing Managers’ Index falling below 49.8 in January from 50.1 in December is sure to add to pressure for Xi and China's central bank to do more.

The weakest industrial-output growth since the 2008 global crisis is a clear and present danger to Alibaba's performance in its first few years as a public company. If you think Alibaba's revenue miss in the third quarter (it came in at $4.2 billion) disappointed global investors, just wait until growth slows to 6 percent or even less. Alibaba's promise has always been one-stop shopping for those looking to ride the emergence of China's middle class (it has more than 500 million subscribers already). For investors around the globe, it's a way to harness the meteoric growth in Chinese industries from retail to banking to travel to entertainment. But Alibaba's September IPO came at the top of China's economic boom. Around that same time, data on trade, oil and retail sales began to weaken appreciably.

Aside from weathering difficult global economics -- including deflation in Europe -- Xi is trying to clamp down on excessive investment and credit in ways that will hit Ma's profits. China's economic uncertainty and its unpredictable regulators make it hard to keep score on where China's splashiest company is headed. 

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Willie Pesek at wpesek@bloomberg.net

To contact the editor on this story:
Mary Duenwald at mduenwald@bloomberg.net