Alibaba’s HK Listing, Digital Platforms Are Indominus Rex (Asia Tech Class Daily Update 11.26.19)

Hi everyone,

My apologies for being silent for a couple of days. I was teaching my digital strategy class at CEIBS (China Europe International Business School) in Shanghai. And I have been running around to various speaking engagements. I was wiped out. I spent all afternoon watching Netflix and ordering food delivery.

FYI: Watching Netflix in China is actually a bit tricky. You need a VPN that can get out of China – but that also evades Netflix’s blocks on VPNs. ExpressVPN through Mexico seems to work right now.

So back to our subject. I have two topics for this Daily Update.

Alibaba Lists on the Hong Kong Stock Exchange. An Example of Sensible Political Hedging.

Right after Singles’ Day, with the media frenzy still in full swing, Alibaba announced they would be listing immediately in Hong Kong. That was a pretty cool one-two punch. What a great month Alibaba is having.

They raised about $11B, with the stock popping about 7% on the first day. And they have some follow-on possibilities that could increase their raise to $13B or so.

All very cool. But this is not really a big deal financially. It is a good example of sensible political hedging.

Financially, they added to their already big +$30B cash pile. Pushing it above $40B. That will help them in their ever-increasing list of initiatives. Such as fighting Meituan in food delivery. Expanding internationally. Funding content for Youku-Tudou. Continuing to build out their increasingly intelligent and automated logistics system.

That’s all fine but not terribly interesting. They don’t urgently need the money and they can raise pretty easily. But it’s generally good to raise money before you need it.

The political side of the listing is much more interesting.

Listing in Hong Kong hedges them against moves by the US government against Chinese listed firms. And there are enough rumblings in this to make one concerned:

  • Institutional investors (especially the pension funds of government or other employees) could start avoiding Chinese companies. There are have been some recent reports of this as a possibility (another here). Although at least some US pension funds have been taking advantage of the blacklisting of some Chinese companies to buy in at a good price.
  • There is also the continued accounting stand-off between US and Chinese regulators. SEC rules require accounting firms have access to work papers as part of their audits. But Chinese regulators forbid this on security and secrets grounds. The situation has been in a standoff for several years – with the big four accounting firms stuck in the middle. We could see actions by the SEC that push this situation to a head.
  • And, of course, the surprise US govt actions against ZTE, Huawei, Sensetime, Megvii and others. Placing companies on a US tech blacklist is not a big concern for Alibaba. But it is a reminder that things are much less predictable that in the past. And Chinese companies just don’t want to be too dependent on the US for funding, technology, or market access.

And there are similar political rumblings, or at least possibilities, on the China side:

  • The VIE (variable interest entity) structure. To get around the rules against foreign ownership in the internet sector in China, Chinese companies have been using the variable interest entity structure to list in the USA. Shareholders buying on the NYSE or Nasdaq technically own shares of a Cayman Island company that has contractual rights to the Chinese company. This is not clearly legal in China, but the government has never taken actions (to my knowledge) against. Paul Gillis, my boss at Peking University, is the real expert on VIEs. His explanation of VIE’s is here.
  • There is also the possibility that the same accounting issue mentioned could flare up on the China side.
  • And then there is the issue that the Chinese government would probably prefer for all these companies to list back in Shanghai, Shenzhen or Hong Kong.

I will leave the political issues to those who are the real experts on this (Bill Bishop is awesome at this stuff). But for lots of reasons, a dual-listing in the US and Hong Kong is a sensible political hedge.


Why Digital Platforms are the Indominus Rex of the Business Ecosystem

Over the first 3-4 weeks of this class, I’ve teed up a couple of big categories of ideas:

1) Digital tools can enable new use cases, services, products and sometimes business models.

I talked about Mobike (episode 2 here, lecture on iTunes podcast 2 here) and Luckin Coffee (episode 3 here) for this. Both are pretty straight forward companies (rent bikes, sell coffee). And neither are platforms (despite what they may claim). But they were both very innovative in applying digital tools to service and product businesses. And both came up with clever new business modes.

This is a big bucket of companies we are going to look at.

2) Digital tools can sometimes enable digital platforms to emerge.

This second bucket is a huge subject as digital platforms are the super-predators of the business world. They are like the Indominus Rex from Jurassic World (created by combining a T rex with a velociraptor. It broke free and then ran around the island eating everything, as nothing could stop it.

I spoke about Alibaba and some basic platform theory in episode 4. Lecture on iTunes podcast 2 here.


These two big categories of topics are related. Digitization of a business or industry can often lead to the emergence of a digital platform. And so you always want to be on the lookout for this. Has an Indominus Rex been loosed in your industry?

Some examples:

  • Alibaba originally created virtual bulletin boards where buyers and sellers could meet online. This “digitization” of market information led to a B2B marketplace platform ( And then later to B2C marketplace platforms (Taobao, Tmall).
  • In the late 1990’s, information was digitized and put into webpages. This enabled Google and Baidu to create digital platforms to connect viewers with these pages (Google was basically a digital phonebook).
  • GPS fell in cost and was added to smartphones. This “digitized” location and enabled the emergence of Uber and Didi – digital platforms for connecting riders and drivers.
  • Identity and social interactions were “digitized” by Facebook – a social transaction platform (sort of).
  • Airbnb used Facebook to “digitize” trust and it enabled the emergence of home-sharing platforms – connecting home-owners and renters

You always want to be on guard against a digital platform emerging in your business. It’s one of my “6 digital superpowers” that I keep an eye on.


That’s it for the Daily Update. Lots more on the way.

Thanks for subscribing and happy Thanksgiving,


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