In a country where political power easily makes or breaks a company,
it is rare to see a private-sector business at loggerheads with a
state-level government entity. That’s why the latest brawl between
Alibaba, which is China’s biggest e-commerce company and is run by the country’s second richest person, and the State Administration for Industry and Commerce well deserves the intense spotlights that it’s getting.
For those who missed the earlier part of the show, here’s a quick recap: On Jan. 23 the SAIC
announced that in a sampling inspection, 63% of the products sold on
Alibaba online Taobao marketplace were found to be “unauthentic” –
meaning they were fake, discredited or came through unauthorized
channels. Four days later, Taobao published a sardonic rebuff on its
Chinese twitter account, calling into question the small sampling size
and pointing fingers directly at the SAIC internet regulations director.
Alibaba founder and chairman Jack Ma. (Johannes Eisele/AFP/Getty Images)
In response to the accusations, the SAIC then released a White Paper
detailing 19 issues with Alibaba retail platforms, some of the more
serious ones being the alleged preponderance of fake products and
commercial bribery. The investigation and White Paper were apparently
completed months ago, but intentionally held back so as not to affect
Alibaba massive IPO in the U.S. Alibaba, while reiterating that the
director’s law enforcement was “emotionally charged,” responded by
casting itself as a victim of counterfeits in China’s problematic
business environment. Shares of the company tumbled 4.4% on Wednesday,
closing below $100.
By Thursday both sides backed down a little, with the SAIC quietly
removing the White Paper from its website and Alibaba taking down the
initial rebuff directed at the director. Yet this gesture doesn’t mean
Alibaba is giving in – during the earnings call on Thursday, executive
vice chairman Joe Tsai said that the company was preparing to file a
formal complaint. Alibaba shares plunged 8.8% in the aftermath due to investors’ concerns over slowed growth, political risks and lack of information transparency.
As an article reprinted by Xinhua News Agency stated, this incident
is “the most heated confrontation between the government and an
enterprise in the era of Internet economy” and may prove to “have
milestone implications.” Alibaba, with its prominence in China’s
internet ecosystem, global status and not the least, politically connected investors, may be uniquely positioned to challenge even a state-level government entity.
As rare as the case is, though, this is certainly not the first time
that a Chinese billionaire or a high-profile entrepreneur has gone head
to head with the government in the public spotlight. Here are some of
China’s well-known money-vs.-power tugs-of-war that have taken place in
the past.
Li Jingwei
In 1984 Li took over a state-owned liquor factory with 100 employees
in Sanshui, Guangdong Province. Within a decade he turned it into an empire
with close to RMB 2 billion in annual revenue and was China’s king of
soft drinks. Ask any Chinese city dweller who lived through that time
and they’d recognize “Jian Li Bao,” an orange-flavored, bubbly drink and
the hit product of Li’s company. From 1991 to 1996 the company
consistently ranked No.1 in sales and profits in the soft-drink
business, and recorded RMB 5 billion in annual revenue at its peak. One
moment of glory came in 1994 when the company took over an entire floor
of the Empire State Building in New York to open its Americas office.
But Li began running into foes with the municipal government when he
attempted a management buyout and moved the company’s headquarters out
of its hometown, allegedly without notifying local officials. In a
high-profile bid that resembled an open challenge, Li offered RMB 450
million for the still state-owned company and mobilized the media to
scrutinize the government’s choices of qualified buyers. Sensing that he
was breaking away from its grip, the government rejected Li’s bid
without giving a good reason. The company was hastily sold to another
state-owned enterprise, giving him only a day’s notice before the
signing ceremony.
Li suffered a cerebral hemorrhage days after the ceremony, where he
sat without speaking a word and was caught on camera holding back his
tears. Months later he received a notice while on his sickbed from the
prosecutor’s office for suspected embezzlement of national assets.
Yang Rong
Yang Rong ranked No.3 on Forbes’ China Rich List in 2001 with a net
worth of RMB 7 billion. A legend in China’s auto industry, he engineered
the first IPO of a Chinese company, Shenyang-based Brilliance Auto, on
the New York Stock Exchange. The holding company once had a total market
value of RMB 24.6 billion, 5 publicly listed companies and 158 related
companies, according to The Dashing 30 Years, a book by former Chinese
business reporter Wu Xiaobo.
Trouble came when Yang negotiated a joint venture for Brilliance Auto
with British manufacturer Rover Co. in 2001. He insisted on building a
factory outside of the home province against the will of the provincial
government. Soon after, Yang also tried to disentangle the ownership
structure of Brilliance, which had started as a state-owned company, and
assert his own control over it. The negotiations fell through in 2002,
with Yang fleeing to the U.S. He made various attempts to sue the state
entity for property torts from overseas. The provincial prosecutor’s
office responded with an arrest warrant for him on the basis of
“suspected economic crime.”
Dong Mingzhu
Dong is credited with turning Gree Appliances from “a sleepy domestic
company” in Guangzhou into the world’s largest residential
air-conditioner marker, with a 30% global market share in 2013. Forbes Asia named Dong one of Asia’s 50 Power Businesswomen in 2014.
In the year 2010, Gree paid RMB 2.6 billion in taxes, ranking first
among all Chinese home-appliance companies for the 9th year straight,
according to Dong. But it was also that year that this model taxpayer
decided to sue the Guangzhou treasury department for canceling a deal
that Gree originally won, and opting instead for a bidder with a worse
price offer. The government cited Gree failure to comply with a
certain procedure as the reason for the cancellation.
The lawsuit was widely publicized by the media. The outspoken Dong
criticized the procurement party for “being irresponsible to the
national fiscal budget and assets,” and even brought the complaint in
person to the Party Secretary of Guangdong Province. In an online public
opinion poll, 76% of the 80,000 respondents believed that the
government was to be blamed, and an overwhelming 91% thought that some
black-box operation went on behind the other bid.
Yet the lawsuit was rejected twice by the local court on the grounds
that the accused was “not the appropriate defendant.” In a surprising
twist, Gree decided to withdraw the lawsuit “without conditions,” which
its lawyer described as a result that “made everyone happy,” Chinese
media reported. What exactly transpired between the two parties remains a
mystery.
Yan Jiehe
Yan Jiehe runs China’s largest non-state-owned construction company,
China Pacific Construction Group, which had revenue of $60 billion last
year. Yan made the news this week when the company decided to sue six
municipal and county governments in four different provinces for unpaid
debt. Two of the smaller lawsuits alleged that CPCG was owed RMB 178
million, the Financial Times reported. Yan said before filing the
lawsuits, the company has had “multiple exchanges with the government
but has not received a satisfactory response,” according to Chinese
media reports.
