Photograph by Jewel Samad/AFP/Getty

After the excitement of Friday’s initial public offering, shares in Alibaba, China’s biggest e-commerce company, slipped back a bit on Monday. At the closing bell on Wall Street, the stock was trading just below ninety dollars, down more than four per cent from its closing price on Friday. But that still left Alibaba’s market capitalization above two hundred and twenty billion dollars, which means the market reckons that the company is more valuable than Facebook or Amazon.

An obvious question is whether Alibaba’s stock is inflated, and, if it is, whether this overvaluation indicates that the stock market, or at least parts of it, is now in another bubble. I’ll touch on these issues. First, though, a few larger points about the I.P.O., which was the biggest seen anywhere yet. (It raised twenty-five billion dollars.)

Alibaba’s mega-I.P.O. confirms that globalization, and the integration of the world economy, continues apace. Everyone knows that Chinese companies sell a lot of their products in the United States and other Western countries. What’s less widely appreciated is how tightly enmeshed China, Inc., is in Western capital markets. Over the past few years, the New York Stock Exchange and the Nasdaq have emerged as favorite spots for Chinese enterprises of all shapes and sizes to raise money and get some international exposure. In addition to Alibaba, there are now almost two hundred Chinese companies with shares listed in the United States, as well as a number of exchange-traded funds that enable U.S. investors to buy a basket of Chinese stocks.

This phenomenon harkens back to the nineteenth century, when the industrialization of the Americas and other underdeveloped continents was partly financed in London. In recent months, as the Russian bear has emerged from hibernation, the Chinese government has made threatening noises toward its neighbors, and parts of the Middle East have descended into turmoil, there has been talk of our era of globalization meeting the same fate as its nineteenth-century precursor—or, at least, of it going into retreat. That could still happen, of course. We learned in 1914 that a liberal trading system and surging international capital flows are no guarantee of peace and prosperity. In the worst-case scenario, Xi Jinping, the increasingly strident leader of China, could yet turn out to be the twenty-first-century equivalent of Kaiser Wilhelm II.

But will that happen? The Alibaba I.P.O. confirms that China’s leadership, which is only nominally Communist, now has a huge incentive not to do anything that might upend a global capitalist system that is greatly enriching them and their families. Sunday’s Times Magazine featured a memorable picture of dozens of newly built McMansions near Shanghai. Ordinary Chinese know who’s buying many of these luxury homes, and ones like them in other cities: the local nomenklatura and their associates, who reserve many of the most lucrative business opportunities for themselves. The Alibaba I.P.O. demonstrated this process at work. According to the Financial Times, “Some of the sons and daughters of China’ ruling elite managed shareholding stakes [in Alibaba] via a team of banks and investment banks that took small stakes in 2012 that are now worth billions of dollars.”

Of course, the biggest beneficiary of the I.P.O. is Jack Ma, the former English teacher who founded Alibaba in 1999. For his foresight, entrepreneurship, and steadfastness, the market has rewarded Ma incredibly handsomely: according to some accounts, he is now China’s richest man, with a fortune of more than fifteen billion dollars.

From an economic perspective, this is defensible. Wage growth and material progress depend on productivity growth, which, in turn, depends on innovation and investment. For a long time, the Wall Street I.P.O. market has provided an incentive for entrepreneurs and inventors to get out of bed in the morning. These days, it appears, the American I.P.O. market is serving the same purpose on a global level. It may largely be a lottery. But in order to enter this lottery you have to buy a ticket, which involves founding a new company. That’s what Ma did in Hangzhou, back in 1999.

Go one step deeper, though, and it’s clear that Ma and his colleagues at Alibaba didn’t really create all, or even most, of the economic value—however large it is—that underpins the firm’s huge market capitalization. As far as I am aware, Alibaba hasn’t developed any breakthrough technology, or created any fabulous new products. Instead, the company has cleverly exploited the underlying technology of the Internet, and the favorable network effects that it bestows on early entrants and market leaders.

Alibaba is a holding company. It owns Taobao.com, China’s version of eBay, and Tmall.com, another popular shopping destination where major international brands like Nike and Samsung have online stores. It also owns a business-to-business commerce site, and it developed a fast-growing cashless-payments system, Alipay, which is a Chinese version of Pay-pal. (As Vauhini Vara notes, the company has also been compared to Walmart.) In short, Alibaba has done a better job than its Chinese competitors in mimicking the American pacesetters that first demonstrated the power of these network effects.

Ma and his American investment bankers are well aware of this. In its prospectus, Alibaba noted, “The interaction between buyers and sellers create network effects in that more merchants attract more consumers, and more consumers attract more merchants. In addition, our marketplaces are interconnected in that many buyers and sellers in one marketplace also participate in the activities on our other marketplaces, thereby creating a second-order network effect that further strengthens our ecosystem.”

But what creates these network effects, which are the ultimate source of much of the company’s value? It is the technology of the Internet—a manifestation of scientific progress that was financed at public expense. In an article for the Observer this weekend, John Naughton, the author of a first-rate history of the Internet, emphasized the essential point:

The current wave of innovation and economic development enabled by the internet has only come about because 60 years ago the US government funded the project that produced first the arpanet and then the internet. Private enterprise would undoubtedly have produced computer networks, but it would not have created the free and open platform for “permissionless innovation” that we got as a result of public investment. And we would have all been poorer as a result.

Finally, as promised, a word or two about valuation. Evidently, Alibaba isn’t a nineteen-nineties-style bubble stock: in its latest quarter, it had about two and a half billion dollars in revenues, and it generated about two billion in profits. Assuming that its numbers are accurate—and some of them have been questioned—this is a powerful company. But is it worth two hundred and twenty billion dollars? At ninety dollars a share, Alibaba is trading at about forty times analysts’ estimates of its 2015 earnings. That’s a higher multiple than the ones attached to some of its rivals in the Chinese Internet sector, such as Baidu, a search company, and Tencent, a social-media company. More to the point: Alibaba’s market capitalization is more than three times the capitalization of eBay, the American company that it most resembles.