China Emerges from the Ruins of Globalization
For decades, political leaders all over the globe have been committed to globalization. Then, the trade war with China and the pandemic changed all of that.
Today, the world is a bunch of silos of economic activity. Ironically, one of those containers, China, is now clearly growing fastest. It’s time for investors to look East.
And I’m seeing Alibaba (NYSE: BABA, Rated “B-”) on my radar again.
Globalization was a cool economic idea. Localize economies of scale in engineering, natural resources and labor, then coordinate to arrive at the cheapest price, while simultaneously shipping globally.
China had a lock on cheap labor. Its abundant workforce and slack environmental regulation were magnets for most of world’s factories. It was good for China. Countless millions of agrarian workers were lifted from poverty into the middle class. China’s high single digit gross domestic product growth became the envy of the developed world.
Then, in 2015, President Xi announced a new vision for the country: “Made in China 2025” was dedicated to moving the country up the value chain in 10 key sectors.
The plan was for the government to focus all its efforts on becoming a global leader in engineering connected robotics, biotechnology, self-driving vehicles, semiconductors, aerospace, renewable power generation and advanced agriculture.
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These plans didn’t sit well with the rest of the world. The North American and European trading blocs had become dependent on the status quo. Over time, trade tensions escalated, especially at the White House.
The pandemic escalated frictions even further. As western countries tried to stock up on healthcare supplies — like surgical masks, gowns and the reagents needed for viral testing kits — it became clear the bulk of that manufacturing supply was domiciled in China.
The search for low prices came at a terrible cost to national security.
But China was getting stronger. Domestic wages, according to data collected from the National Bureau of Statistics of China, have more than doubled since 2010. The new Chinese economy has all the consumerism earmarks of the West. And it is growing, fast.
That’s a key reason why I think the sky’s the limit for Alibaba.
Alibaba Group was founded in 1999. The Chinese multinational was early to e-commerce, business supply chains and the Chinese version of the internet. When wages began to surge in 2010, founder Jack Ma invested heavily in electronic payment services, cloud computing and artificial intelligence.
Eventually, he built the world’s largest ecommerce company.
Last year, on Nov. 11, a national shopping holiday called Singles Day, Alibaba reported $38.4 billion in sales. This astonishing figure was 2.5 times the total combined sales of Black Friday and Cyber Monday in the United States.
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Alibaba is a cultural phenomenon with impenetrable competitive advantages. The world is retreating into geographic silos. American brands are fading from China, even as consumers there become wealthier and spend more. It is all there for the taking.
Shares have run up 17% this month on news Alibaba is close to floating shares of Ant Financial, its wholly owned financial services division. Ant might fetch $200 billion.
Alibaba is looking at a lot of good news. Investors should keep a weather eye on this Chinese e-commerce giant.
Jon D. Markman