It was an interesting week last week. For one thing, Chinese company Alibaba debuted as the largest IPO in the history of the world. Larger than the Initial Public Offerings of Facebook, Twitter, Google, Apple, and Microsoft combined. At the same time, there was a Senate report indicating that China hacked U.S. military contractors in a significant way at least twenty times in the past year. In America, we celebrated the success of Wall Street, earning $300 million or so in underwriter fees. In China, they celebrated finding a path to dethrone American technology dominance (from the official Chinese News Agency):
LONDON, Sept. 18 (Xinhua) — Alibaba’s IPO could well be the end of U.S. dominance in the world technology sector, a professor from a Britain’s business school told Xinhua on Thursday.
“Alibaba’s annual growth rate of more than 30 percent shows that the gap between the Chinese companies, Alibaba and Tencent, and U.S. companies is getting ever closer,” said Qing Wang, professor from Warwick Business School, one of the most prestigious and highly selective business schools in the world.
“The ability to understand customers intimately and continuously innovate should enable them to expand overseas with US dominance in the world technology sector gradually being broken,” said professor Wang . . .
Americans seemed undisturbed by the nature of the IPO even though the Hong Kong Stock Exchange rejected it because it did not protect shareholders voting rights. And, Americans ignored a number of alarming issues raised by a Congressional agency staff report. From The Wall Street Journal:
U.S. Report Casts Doubt on Legal Structure of Alibaba, Other Chinese Firms
Structure Used by Alibaba, Other Chinese Internet Companies Seeking U.S. Investors
A U.S. government commission warned that investors face “major risks” if they buy shares in Chinese companies like e-commerce firm Alibaba Group Holding Ltd.
June 20, 2014
A report released this week by a commission that advises Congress on U.S.-China economic issues took aim at the legal structure underpinning Alibaba as well as a host of other Chinese Internet firms, calling it “a complex and highly risky scheme of legal arrangements.” It warned that the structure could lead to losses by shareholders in the U.S.
“U.S. shareholders face major risks from the complexity and purpose” of the structure, said the report, released on Wednesday by the U.S.-China Economic and Security Review Commission.
In essence, American buyers of Alibaba received shares in a Cayman-islands corporation that does not have any real ownership or even control in the Chinese company. They get shares in a scheme that might share profits if 1) the company makes money, 2) the accounting shows the profit, 3) the CEO decides to share the profits, and 4) the Chinese government allows it.
Other issues that should have been raised about the largest IPO in history include wondering “What do they intend to do with the money?” and “Will they protect American consumer data?” The reality is that they intend to use a good deal of this money to acquire other American technology. They also intend to grow their American business and learn as much as they can about American consumers. And, if China was able to pressure Google, we can assume they will outright control Alibaba. They’ve already demonstrated that control over Jack Ma, Alibaba’s charismatic founder. As The Wall Street Journal noted, you don’t become China’s richest man without the Chinese government.
All of these issues were raised at a Press Club event hosted by The Center for Security Policy. I voiced similar concerns in a Fox Business segment as well:
But who cares as long as we are making money? China is our friend, right?
We can believe that if we just ignore the reality that China is preparing for “infowar.” The problem is that they are planning :”infowar” as part of all-out economic warfare capabilities according to Bill Gertz:
by Bill Gertz, September 10, 2014
Chinese President Xi Jinping is urging the People’s Liberation Army to shift its focus from preparing solely for a future conventional and nuclear conflict to developing “information warfare” capabilities as part of Beijing’s military buildup.
Mr. Xi called for developing advanced military capabilities, including information warfare, as part of what he termed the global revolution in military affairs — a term coined by the Soviet Union’s military and later adopted by the U.S. military for what is now high-technology and intelligence-driven warfare.
The military reforms were discussed during a meeting Aug. 29 of the ruling Communist Party’s Central Committee. In addition to being Chinese president, Mr. Xi is chairman of the Central Military Commission — the ultimate power organ in China that directs all military activities.
“Faced with the severe challenges to our national security and stability and the deep-seated contradictions and problems with reform, it is even more pressing that we greatly liberate our ideas and concepts, have the courage to change our fixed mindsets of mechanized warfare, and establish the ideological concept of information warfare,” Mr. Xi was quoted as saying in state media.
State-run China National Television, the Internet propaganda broadcaster, reported Sept. 2 that “apart from safeguarding the country’s sovereignty and territory, Mr. Xi emphasized strategic interests and the ability to counter non-traditional security threats including economic threats” — an indication China is preparing to wage economic warfare in the future.
China currently holds $1.28 trillion worth of U.S. government bonds, and Chinese military leaders in the past have threatened to use the debt holdings to punish the United States for arms sales to Taiwan.
The directive to build information warfare capabilities follows disclosure in a Pentagon report earlier this year that China is engaged in information warfare.
The report produced for the Pentagon’s Office of Net Assessment, an internal think tank, identified China’s “three warfares” as psychological, media and legal warfare used as surrogates for conventional and nuclear war.
The report warned that the U.S. government and military are ill-prepared for countering Chinese information warfare since military academies and service schools do not teach the subject.
“The Three Warfares is a dynamic, three-dimensional war-fighting process that constitutes war by other means,” said Cambridge University professor Stefan Halper, who directed the study. “It is China’s weapon of choice in the South China Sea.”
The report said China uses information warfare to counter U.S. power projection.
“The United States is one of four key audiences targeted by the campaign, as part of China’s broader military strategy of ‘anti-access/area denial’ in the South China Sea,” the report said.
According to the report, China will employ information warfare on issues ranging from its dispute with Japan over control of the East China Sea’s Senkaku Islands, to political posturing in the South China Sea with Vietnam and Philippines.
“If the Three Warfares is not a ‘game changer,’ it certainly has the capacity to modify the game in substantial ways,” the report concludes.
Rick Fisher, a China military affairs analyst, said the disclosure is a sign China is increasing its military power.
Mr. Xi has ordered the Communist Party to place a high priority on developing cutting-edge doctrine for joint war fighting forces, said Mr. Fisher of the International Assessment and Strategy Center.
“This will likely accelerate changes in military culture, procurement and training,” he said. “In the U.S., ‘jointness’ in part became a necessity to help compensate for declining military size, whereas for China, this will ensure that an ever-increasing military force has an even greater effect.”
Maybe we should ignore that China is conducting joint naval exercises with Iran. Or naval exercises with Russia. Or planned naval bases near the U.S. Or called for a de-Americanized world. Or, has been extremely aggressive in the South and East China Seas. Or has broken its word with Hong Kong. Despite this, the Brits seem willing to push the Yuan as a new reserve currency. And Russia has been teaming with China to attack the dollar.
China has hacked virtually everything we own and stolen technology. They’ve even perfected fake IDs. And, they have developed complex strategies to beat the United States such as the “Three Warfares” and “Unrestricted Warfare.” And, of course the Chinese have bought off much of Washington so we ignore the threat. Still, there is ample evidence that an economic war is underway now.
Is it really good news that Alibaba captured Wall Street? We don’t think so. Just another front in the war we are ignoring.