Text size

Of all the things Jack Ma thought he’d confront in 2017, a Donald Trump presidency wasn’t among them.

Much has been made of risks emanating from Trump’s anti-China worldview. It’s a particular concern for investors in Alibaba (BABA), the e-commerce juggernaut aiming to generate 50% of its revenue outside China. While Trump’s shocking win is slamming technology shares from the U.S. to China, the colossus Ma created is uniquely in harm’s way. Its scale, level of mainland penetration and global ambitions put Alibaba on the frontline of Trump’s whims. That makes Alibaba a singularly telling indicator of both Chinese growth shifts and Beijing-Washington relations.

First, the GDP angle. Arguably no Chinese name has more intimately tapped - and tied its fortunes to - the mainland’s nascent middle class. Alibaba’s grasp of the demographic that most excites Apple, Volkswagen and Uniqlo is firm and growing. On Nov. 11, China’s annual “Singles Day,” Alibaba raked in an astounding $18 billion in a 24-hour period. Amazon, who? Alibaba’s one-stop shop for everything from retailing to finance to travel to auctioneering to payments arguably makes its quarterly reports more useful than Beijing’s official gross domestic product figures.

As of now, the signs are decent for Chinese GDP. Alibaba exceeded Wall Street expectations for top and bottom-line growth in the most recent quarter, with revenue jumping 55% to roughly $5 billion from a year earlier. Yet there are hints Alibaba isn’t as immune to China’s downshift as many believe. The average value of goods across its platforms, for example, is plateauing. And finding growth through new customers is proving harder as 2015’s 6.9% GDP pace slows toward 6.5% (if not much lower).

The real chill in the air, though, is emanating from Trump Tower in New York, where President-elect Trump is figuring out which campaign promises to carry out. His charge that China is “killing us” on trade, threats of 45% tariffs and desire to brand Beijing a currency manipulator could slam economic growth in the short run. Longer term, his “America first” platform could morph Ma’s American dream into a nightmare.

Trump’s victory three days before Ma’s Singles Day milestone raises myriad questions - and more than a few imponderables. While mainland web giants Tencent Holdings and Baidu face their own Trump traumas, both are domestically focused. Alibaba’s businesses are far more tied to the U.S. Analysts’ don’t-worry talking points - including how international sales are just 10% of revenues - gloss over how trade tensions would devastate Alibaba’s AliExpress site, where mainlanders sell to American households. The same goes for Tmall, where U.S. brands sell to Chinese ones.

“ Longer term, Trump’s isolationist doctrine could imperil Alibaba’s plans to be the bridge between overseas retailers and China. Beijing, it stands to reason, would retaliate with levies of its own. ”

And then there’s Alibaba’s variable-interest entity structure, a common one among U.S.-listed Chinese tech companies. Trump has talked about tax holidays aimed at getting executives to repatriate overseas cash. Questions abound about what that means for shareholder return policies.

All this explains Ma lieutenant Joseph Tsai’s pleas to the Trump White House. “The relationship between China and the U.S. will define our century,” says the Alibaba vice chairman. “If you don’t have Chinese consumers being engaged and buying American products, and Chinese investors can’t invest in the U.S. and create more American jobs, then you’d be in trouble.” And Tsai’s right; Trump’s tariffs, trade wars and bellicosity are as big a threat to America’s middle class as China’s.

Will cooler heads in Washington prevail? It’s anyone’s guess. For now, Ma’s team is focused on building share in faster-growing developing markets. Longer term, Trump’s isolationist doctrine could imperil Alibaba’s plans to be the bridge between overseas retailers and China. Beijing, it stands to reason, would retaliate with levies of its own.

Such uncertainty comes at a sensitive moment. Even before Trump, many investors were doubtful about Alibaba’s designs on serving 2 billion customers worldwide and helping to create 10 million new business and 100 million jobs. Ma also must navigate the mounting chaos in Beijing, where Xi Jinping’s government is scrambling to keep growth from cratering. Ma owns the South China Morning Post at a moment when Xi is clamping down on Hong Kong’s autonomy and democratic ambitions. It could make for an unexpected flashpoint between Ma and Beijing as Trump does his worst.

As outgoing President Barack Obama likes to say, Americans have much more to fear from a threatened and weakened China than a stable and successful power. Trump is about to test that thesis as he threatens to knock Beijing off balance. Sitting at the nexus of domestic demand and a coming U.S. assault on trade, Alibaba may just be the best microcosm of China we have in the Trump era.

Email: william.pesek@barrons.com

@WilliamPesek

Comments? E-mail us at asia.editors@barrons.com

Like Barron’s Asia on Facebook

Follow Barron’s Asia on Twitter