China’s e-Commerce Market Booming

As Chinese e-commerce company Alibaba prepares for its IPO through the New York Stock Exchange, the Dalian Wanda group in China announced on Friday that it would be entering into an e-commerce joint venture with Baidu and Tencent Holdings to be registered in Hong Kong. Wanda will own 70 percent of the new venture with Baidu and Tencent each holding 15 percent. The aim is to tap into China’s e-commerce market, which is reportedly the largest in the world and currently dominated by Alibaba. The collaboration between the three companies will create the world’s biggest online-to-offline (O2O) e-commerce platform, where people use their mobile devises to locate and buy goods and services, often while they are in or nearby the physical store.

The joint venture, currently referred to as Wanda e-commerce, is reportedly structured over three years with the initial investment being 1 billion yuan. Located in Beijing, Dalian Wanda Group Corporation Limited is a conglomerate with interest in tourism, hotels, real estate and entertainment. With headquarters in Nanshan District, Shenzhen, Tencent Holdings Limited has interests in mass media, internet and mobile phone value-added services, internet and online advertising, while Baidu is an internet service provider located in the Haidian District of Beijing.

As China’s largest e-commerce company, Alibaba generates sales exceeding those of Amazon and eBay combined. Categorized as a ‘special-purpose entity’ or ‘variable-interest entity’ Alibaba operates through an agency in the Cayman Islands to sidestep Chinese law prohibiting foreigners from direct investment in Chinese companies. But this also means that investors have no say in the corporate decision making process, as founder of Alibaba, Jack Ma, and selected partners appointment more than half of the company’s supervisory board members. Nevertheless, with China’s e-commerce market valued at around $300 billion a year and growing, it is anticipated that Alibaba’s IPO through the NYSE will attract significant investor attention.