Yahoo, which is considered by some a holding company for Chinese internet companies, learned in late March that Alibaba Group (they own 43% of the company) sold one of the company’s most valuable assets Alipay without notifying or seeking approval from Alibaba’s board of directors. The CEO, Jack Ma, of Alibaba owns the company that acquired Alipay. Alipay is much bigger than PayPal and for the CEO to transfer the company to himself would be illegal and potentially land him in jail here in the US. But in China, well it is China. This is a VERY bad signal for China to send to foreign investors, especially American investors.
Ever wonder how relatively small nations like Great Britain and the United States have prospered over the last few hundred years? I would argue that our respective legal systems have allowed individuals and corporations to accumulate wealth and provide a framework for reinvestment. Back in 2008 Daniel Kaufmann was able to show a casual link between GDP per person and the rule of law. He showed, “The better a government upholds the rule of law, the more likely its people are to be richer: every rich country, with the exception of Italy and Greece, scores well on rule-of-law measures.”
If China continues to ignore the rule of law; ignore intellectual property theft; ignore securities fraud; and generally thumb their noses at foreign investors they will not prosper.
