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Getting To Know The Man Who Did The Most To Nourish Free Enterprise In China: Jack Ma

Most everyone has probably heard of Jack Ma and Alibaba. But, few understand the true immensity—and importance—of what Ma, the co-founder and former executive chairman of Alibaba Group, has done. We had a fascinating conversation at the Forbes Global CEO Summit in Singapore, where we discussed what he did at Alibaba, one of the most formidable e-commerce companies in the world, and his future plans and aspirations.

By providing people in China with a powerful online platform to market their products and services with Alibaba, he nourished millions of small businesses — and the cause of free enterprise. Thanks to Ma, countless numbers of Chinese businesses and individuals can obtain loans and other financial services that would otherwise be unavailable from traditional institutions within China. He also enabled small enterprises everywhere, including the US, to easily trade with entities in China.

Having recently stepped down from Alibaba, Ma is moving into philanthropy, big time, to promote entrepreneurship and education, among other things.

Struggling students will take heart at the fact that Ma was a poor student, frequently flunking his exams. Furthermore, his success was not immediate; numerous employers turned him down when he first entered the workforce.

Ma’s story validates Adam Smith’s truth that commerce benefits us all, and free markets are the best poverty fighters ever created.

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Steve Forbes is Chairman and Editor-in-Chief of Forbes Media.
Steve’s newest project is the podcast “What’s Ahead,” where he engages the world’s top newsmakers, politicians and pioneers in business and economics in honest conversations meant to challenge traditional conventions as well as featuring Steve’s signature views on the intersection of society, economic and policy.

Steve helped create the recently released and highly acclaimed public television documentary, In Money We Trust?, which was produced under the auspices of Maryland Public television. The film was inspired by the book he co-authored, Money: How the Destruction of the Dollar Threatens the Global Economy – and What We Can Do About It.

Source: Getting To Know The Man Who Did The Most To Nourish Free Enterprise In China: Jack Ma

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China Growth Nowhere Near Official Estimates, Says Morningstar

China’s third quarter growth rate has fallen to 6%, says Beijing. No it hasn’t. It’s more like 3%, says Morningstar’s China economics team led by Preston Caldwell in a report dated October 29.

While Donald Trump and his economic advisor Larry Kudlow try to convince Wall Street today that trade talks are going well and the two sides will still ink their so-called Phase 1 mini-deal this year, investors are noticing something awry in China. Companies are sourcing product elsewhere in modest, yet increasing numbers. China’s usual high fixed asset investment numbers are falling. Economic policy makers could be afraid of debt burdens and don’t want to overstimulate the economy. Growth is slowing. Industrial production is contracting.

To make matters worse, the full brunt of tariffs hasn’t quite been felt fully by China. The average incremental tariff rate increased to about 12% in the third quarter from about 9% in the second quarter. If Phase 1 talks result in no signed agreement anytime soon, Morningstar predicts it would send the average U.S. tariff rate on Chinese imports to over 20% by the first quarter of 2020.

The dollar/yuan exchange rate has helped offset some of the tariff costs. The yuan has weakened by about 5% since the end of the first quarter. For exporters, China is still cheap.

Today In: Money

The bulk of the third quarter decline was due to the consumer durables index component of the Morningstar proxy for measuring GDP. It contracted 4.1% from 3.8% growth in the second quarter. Morningstar analysts believe there is a chance that the locals may be temporarily pulling back on spending in anticipation for new government subsidies. Still, slowing durables consumption matches the trend in place since early 2017. And stimulus has been trickling in since.

Two of the other Morningstar proxy components that brought them to the 3% figure also saw a marked decline in the third quarter. Their power proxy index is now in line with the other index components after being a positive growth outlier for about two years.

But it appears the real drag that brought Morningstar’s number down to 3% is industrial production. Industrial profits are down 5.3% year over year versus August’s contraction of 2%.

“Neither a surprise nor a market mover,” says Brendan Ahern, CIO of KraneShares in New York. “U.S. tariffs are still exacting their toll on export-focused manufacturers.”

The industrial sector slowdown might also be understated, especially if China is over-estimating inflation, Morningstar report authors warned.

Meanwhile, China’s dependence on credit to sustain economic growth has so far thwarted Xi Jinping’s attempts to convince the provincial governments to deleverage. Debt growth remains above nominal GDP growth rates.

“We’re not surprised that China’s economy has failed to recover, given that credit growth stalled after a slight rebound in the first quarter,” Morningstar analysts wrote.

China-bound investors will be watching for solid Singles Day sales on November 11. If they disappoint, emerging market funds who are mostly overweight China could finally start shifting positions.

China’s A-shares have been outperforming the MSCI Emerging Markets Index all year. Only Russia, as measured by the VanEck Russia (RSX) exchange traded fund, is beating the CSI-300, an index tracking mainland China equities listed on Shanghai and Shenzhen exchanges.

Official consumer spending showed a mixed picture in the third quarter. Nominal retail sales grew 7.8% year over year in September versus a high of 9.8% growth back in June. Real retail sales fell only 30 basis points from August.

China’s National Bureau of Statistics’ household survey data suggests that most of the spending went towards education, entertainment, and “miscellaneous services.”

Morningstar said that their own sampling of alternative consumer sales data such as box office revenue, telecom revenue, and air passenger volume suggests tepid consumer services growth. China’s number crunchers are more upbeat on that and Morningstar’s team is not, which brings their forecast so much lower than official figures.

E-commerce giant Alibaba – the company behind Singles Day – announced this week that Taylor Swift will be performing at the Mercedes Benz Arena in Shanghai where the shopping spree will have their telethon-like tally of sales. If Swift can hype Singles Day shoppers to spend, the China consumer bull narrative will remain in tact. If she fails, and Singles Day ends up being mediocre, all bets are on for more stimulus in the months ahead out of Beijing.

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Spent 20 years as a reporter for the best in the business, including as a Brazil-based staffer for WSJ. Since 2011, I focus on business and investing in the big emerging markets exclusively for Forbes. My work has appeared in The Boston Globe, The Nation, Salon and USA Today. Occasional BBC guest. Former holder of the FINRA Series 7 and 66. Doesn’t follow the herd.

Source: China Growth Nowhere Near Official Estimates, Says Morningstar

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China released third-quarter GDP figures on Friday showing the economy grew 6.0% from a year ago — the lowest in at least 27-1/2 years, according to Reuters records. CNBC’s Eunice Yoon reports.

5 Reasons Alibaba Is Just Going to Go Up From Here – Natalie Walters

Alibaba founder Jack Ma celebrate onstage during Alibaba's annual party

Alibaba (NYSE: BABA) has reported over 50% revenue growth in the past eight quarters. The Chinese e-commerce giant just won’t stop growing, and investors are taking notice. Alibaba’s stock has gone up about 122% in the past two years, including a 63% climb in just the past year to a still relatively cheap $196.61.

But despite the run-up, Alibaba still has plenty more room to run. For the upcoming fiscal year, the company is guiding for another impressive year of revenue growth of 60%. And while Alibaba still relies on its e-commerce platforms for the bulk of its revenue, its other projects are showing healthy growth and will contribute more and more in the coming years.

1. Alibaba’s revenue growth is strong

Alibaba’s revenue growth has been the highlight of the past two years, with each of the eight quarters showing over 50% growth.

Its annual revenue gives a better picture of how the company’s growth has really taken off in the past two years. For the past four fiscal years ended in March, Alibaba has reported revenue growth of 45%, 33%, 56%, and 58%, respectively. As you can see in the chart below, that means Alibaba’s revenue has more than doubled since 2015 from $19.5 billion to $40 billion.

 Fiscal Year  BABA Revenue Growth  BABA Revenue
 2015  45%  $19.5 billion
 2016  33%  $15.7 billion
 2017  56%  $23 billion
 2018  58%  $40 billion
 2019 (expected)  60%  TBA

Data source: Quarterly earnings press releases.

And Alibaba is expecting revenue growth to continue this exciting trend with 60% growth for fiscal 2019. If you were to exclude the consolidation of food delivery platform Ele.me and logistics network Cainiao, revenue growth is still expected to be over 50%.

But even 50% growth might be a low estimate, because Alibaba tends to be cautious with forecasts. For the 2018 fiscal year, Alibaba originally guided for 45% to 49% revenue growth before revising it to between 55% and 56% growth and, ultimately, hitting 58% growth. And for the 2017 fiscal year, Alibaba originally guided for 48% growth but ended up hitting 56% growth. So as high as 60% and even 50% revenue growth might seem for 2019, they may actually be low estimates.

2. Alibaba’s New Retail initiatives are taking off

Alibaba executive chairman Jack Ma believes he can help save brick-and-mortar stores by giving them a “New Retail” makeover that combines the best of offline and online shopping. This is important for Alibaba’s growth because e-commerce still only accounts for 20% of shopping in China, while offline accounts for the other 80%, according to eMarketer. So Alibaba needed a way to gain access to those brick-and-mortar sales it had been missing out on.

By helping physical stores move online, Alibaba is attempting to digitize all of China’s retail market, Alibaba executive vice chairman Joe Tsai said on the latest earnings call. If the project continues as planned, Alibaba’s total addressable market (TAM) will one day be all of China’s $5 trillion retail market, according to Tsai. This presents a huge growth opportunity for Alibaba to expand its TAM.

Right now, Alibaba’s main New Retail projects include Hema supermarkets, Intime department stores, and Tmall Import. For the last quarter, Alibaba said its China commerce retail segment’s 56% revenue growth to $6.4 billion was largely a reflection of the growth in its New Retail projects.

3. Alibaba’s international growth is heating up

Another area that holds huge growth potential for Alibaba is international markets. For the past fiscal year ended in March, Alibaba’s international commerce retail revenue shot up 94% year over year to $2.3 billion.

Alibaba is using its Lazada business to aggressively pursue the Southeast Asia e-commerce market. In the past quarter, Alibaba announced that it would invest $2 billion in the business, bringing its total investment into Lazada to about $4 billion. And Alibaba’s other main international business, Tmall Global, is the top cross-border e-commerce platform in China, according to Analysys.

4. Alibaba still has plenty of room to run in China

With a population of 1.4 billion people who are still gradually moving to online shopping, China still holds big potential for Alibaba. Last year, China as a whole saw an increase of 32.3% in online sales to $1.1 billion, according to the China Ministry of Commerce. And Alibaba’s Tmall platform that operates in China already claims 51.3% of all those online sales in China, according to eMarketer.

But with New Retail, Alibaba stands to benefit even more from China’s retail economy. The country’s total retail sales are expected to grow 10% annually to reach $7.2 trillion by 2020, according to the Ministry of Commerce. If Alibaba believes that whole market — both online and offline — can become its TAM, then that’s a lot of growth potential in the near future.

5. Alibaba’s cloud segment is on fire

Alibaba’s cloud segment has shown year-over-year revenue growth of over 100% in 10 of the past 12 quarters. For the year ended this past March, Alibaba Cloud’s revenue was up 101% to $2.1 billion.

Alibaba is currently the IaaS market leader in China, claiming 47.6% market share, but it’s also expanding internationally. This past quarter, Alibaba added a cloud data center in Indonesia, which brought its global cloud-computing presence to a total of 18 countries and regions.

The company has plenty of room to run here as well. Alibaba Cloud is the No. 3 worldwide IaaS provider but has just 3% of the market, compared to Amazon‘s (NASDAQ: AMZN) 44.2% and Microsoft‘s (NASDAQ: MSFT) 7.1%, according to Gartner estimates. But Alibaba Cloud is crushing both companies in revenue growth, which is a good indication that it’s working on taking away market share from these two leaders.

 

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