I received some push-back on my recent article that highlights the risks of Alibaba's ownership structure if US-China relations deteriorate. I understand that sentiment, but thought I should add some follow up data points that I found in an excellent recent article on Bloomberg.
In the article the author argues that China is Nationalizing Its Tech Sector. In the article the author quotes Wang Xiaochuan, the CEO of Sogou (SOGO), which is 42% owned by Tencent.
"We're entering an era in which we'll be fused together. It might be that there will be a request to establish a Party committee within your company, or that you should let state investors take a stake, you know, as a form of mixed ownership. If you think clearly about this, you really can resonate together with the state. You can receive massive support. But if it's your nature to want to go your own way, to think that your interests differ from what the state is advocating, then you'll probably find that things are painful, more painful than in the past."
The point behind my article is that investors in the US-listed securities (I used BABA & BIDU as examples) should not assume that they're getting US-style corporate governance or the same laser focus on "creating shareholder value" as is the case with most US companies. I believe that Alibaba & Baidu are high-quality firms that have created excellent businesses, but that there is a risk that some of the profits the businesses generate will ultimately be used to serve China's national interests, rather than paid out to foreign shareholders.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.