Jack Ma’s company will be nationalized in China, what does it mean?

Teknoku.me – In 1999, Jack Ma started a company called Alibaba, which is now touted as one of the largest e-commerce sites in China.

Not only e-commerce, but Alibaba also penetrates into other businesses, such as the internet (Alibaba Cloud), entertainment (AliMusic), payments (Alipay), and many more.

Alibaba’s move to expand to various services seems to be under the spotlight by the Chinese government.

They, through the Chinese Communist Party (CCP), are reportedly planning to carry out an investigation into allegations of monopolistic practices by Alibaba and Ant Group, the company that provides Alipay.

However, recently it was rumored that this investigation was actually aimed at accelerating the nationalization process of Alibaba and Ant Group. Then, what does nationalization really mean?

Taking over a company

Nationalization is the process of taking something, usually a private company, into state property. Usually, this nationalization process is followed by compensation, in which the government will provide “compensation” to the investors or shareholders in the company concerned.

An online encyclopedia about investment, Investopedia also defines nationalization as the process of taking over companies by the government.

Investopedia explains that nationalization is usually carried out by the government to consolidate power or help companies that are not performing well.

In addition, the sentiment towards company ownership by foreign investors is also said to be a factor driving the government to nationalize.

However, it was stated that shareholders usually received little or no compensation at all.

So, what about Alibaba and Ant Group? Will the shareholders do not get their money back if it is taken over by China?

What will happen?

There are various speculations about what exactly will happen if Alibaba is truly nationalized by China. These various opinions are contained in the Reddit forum which discusses investment.

Most users think that the Chinese government will buy (buyout) Alibaba so that the shareholders will likely get compensation. However, it is predicted that the buyout number will not be of great value.

“The Chinese government (maybe) will send a tender offer to the company as it should. The company (Alibaba) will then approve it and all shareholders will get a portion,” said a Reddit member.

However, there are a number of community members who think that Alibaba’s nationalization will not happen. Because, if it is true, then it will significantly affect market movements and the price of shares of companies originating from China.

“The nationalization of Alibaba will have a huge impact on the share prices of Chinese companies and foreign investors,” added the Memjong account.

Before there were rumors of Alibaba’s nationalization, it seems that the Chinese government has recently nationalized dozens of companies.

In fact, according to the NikkeiAsia report, there were approximately 44 companies that were taken over by China in 2019. All these companies, if accumulated, are said to be worth around US $ 36 billion.

Most of these nationalized companies are engaged in various strategic fields, such as surveillance systems, technology, and information systems.

Have but don’t have

Apart from nationalization, it is important to know that there is a set of rules regarding the business operations of Chinese companies outside the region (offshore).

This rule is commonly called a variable interest entity (VIE) and actually prevents foreign investors from obtaining a share of ownership of domestic companies.

So, if someone living outside of China buys Alibaba stock, they don’t actually have ownership rights in the company, at least according to a report from Marketwatch.

Instead of getting a portion of Alibaba’s ownership, these foreign stock buyers will buy a portion of the ownership of a company entity registered in the Cayman Islands, a British colony in the Caribbean Sea.

This company is listed as having an official contract with Alibaba, where they are entitled to a portion of the revenue earned by the Jack Ma startup.

Later, the offshore company’s profits will be divided equally among shareholders, based on the value of their ownership.

However, it is not yet certain whether Alibaba and Ant Group will be taken over by China or not, as will the fate of shareholders, if nationalization occurs.

One thing is certain, Jack Ma, who is the founder of the two companies, is now reportedly still “missing” from the public.

Jack Ma is still missing

As previously reported, Ma suddenly “disappeared” after criticizing China’s financial and banking regulators in a speech in Shanghai, October 24 last.

He accused banks in China of operating with a “pawnshop” mentality regarding guarantees for credit, while the current banking regulations hinder innovation and must be reformed to boost economic growth.

Ma’s statement seems to have heated the ears of the Chinese government which then tightened the fintech business regulations so that the Ant Group company from Alibaba failed to take the floor on the stock exchange.