Opened, Sesame! Alibaba Files for IPO in the U.S.

Papers were filed May 8 for what is being called the biggest initial public offering in U.S. history. The catch? The IPO is for a Chinese company.

Alibaba – no, not the character from One Thousand and One Arabian Nights – but the Chinese company specialized in online and mobile sale, has suddenly emerged as the talk of the money town.

The IPO announced by Alibaba Group was for $1 billion. Analysts argue that much more will be raised. Specifically, it is expected that, in the upcoming process extending from three to four months, the company could raise over $16 billion. This sum would beat what Facebook raised in its IPO two years ago.

Information on Alibaba Group

Reuters reported that Alibaba currently makes up four fifths of all online commerce. It is the largest Chinese corporation to have sought a home on U.S. exchanges. While Yahoo Inc and Softbank own 22.6 percent and 34.4 percent of it respectively, Jack Ma owns 8.9 percent.

This former English teacher turned third richest man in China, founded the online retailer in 1999. Just twenty years earlier, China required its citizens to use ration tickets to buy supermarket items. Today, Ma’s creation allows costumers to buy and sell products online through Taobao (similar to eBay), to buy items from major brands through Tmall and make transactions through Alipay (similar to PayPal).

Alibaba broke sales on China’s Singles Day (November 11) last year, generating over $5.75 billion on Alibaba-owned platforms

USA Today described Alibaba as an Internet middleman, charging sellers for marketing and advertising. Such a business scheme will be continue to be lucrative as the online market continues to grow in China. Chinese consumers are increasingly turning to the Internet for purchases, with the growing popularity of smartphones facilitating such transactions. According to Alibaba, about 618 million Chinese used the Internet in 2013, but the number will rise to 790 million by 2016.

The news about the Alibaba IPO once again helps turn heads towards the East.

Western-based companies are often taken for granted as the example to follow or watch, but it is time to start looking a different way.

Before last week, Amazon and eBay were regarded as the heads in online retail. This IPO has shed light on the fact that Alibaba made $240 billion in sales last year. Guess what? That’s more than Amazon and eBay combined. Yet the world is still taken aback.

The Economist released a conclusion at the end of last month that did not seem to get enough attention. It announced an important verdict: China will overcome the U.S. and become the world’s largest economy by the end of 2014. You read that right. Not by the end of 2020 or the end of 2017, but by the end of this year. At least according to The Economist.

Maybe we should start reading up on other Chinese companies before the next one yells “open sesame”.

Interpreting the World Bank’s Latest “East Asia and Pacific Economic Update”

The economic development in the East Asia Pacific region will continue to make other regions jealous this upcoming year. The region, however, still needs to be wary of changes in the global economic climate.

The World Bank announced April 7 that it projects continued stable economic growth for the East Asia Pacific region in 2014. The region is expected to remain the fastest growing in the world.

The diverse countries and economies in the East Asia and Pacific region

Growth in the region, however, will be at a slightly lower rate. China’s growth rate will decrease from 7.7 percent in 2013 to 7.6 percent this year. The rest of the region will grow by 5.0 percent, down from 5.2 percent last year.

The World Bank also points out that economic climates are not equal throughout the region. Southeast Asian economies are more at risk, facing tougher global financial conditions and higher levels of household debt. Smaller economies are expected to grow steadily, but face overheating risks.

A garbage collector walks past residential and office buildings in construction, in Hefei, Anhui province

(Reuters)

Even the all-mighty China is not free from trouble. A slower-than-expected recovery of advanced economies, rise in global interest rates and increased volatility in commodity prices on account of the Crimean crisis are factors that could potentially hurt all of East Asia, according to Bert Hofman, Chief Economist of the World Bank’s East Asia and Pacific Region.

He recommends that East Asia redouble efforts to pursue structural reforms to increase their underlying growth potential and enhance market confidence. Such reforms are already taking place in China and are helping boost demand and growth. If done right, rebalancing could give boost to regional trade partners, but if the rebalancing is disorderly, the opposite could happen.

Possibly the most surprising feature of the report was its conclusions of 4 countries: Cambodia, Laos, Myanmar and Vietnam. Their exports have grown 19 percent annually, exceeding even China. These countries’ low wages, favorable demography and advantageous geography have been attractive enough to draw significant investments. While these are mostly in the textile industries, in the case of Vietnam, this has increasingly included electronics and telecommunications.

Vietnam’s exports have shifted from clothing and textiles to electronics

(AP/Richard Vogel)

Despite its warnings of the instability of economic trends, the report was generally positive about the state of the economy of the East Asia Pacific region. It continues to be a region to watch because for its sustained growth.

The report did provide some explanation for the region’s success, but it was not nearly comprehensive enough. At a time when other regions struggle to keep up, it is important to monitor why and how this region has been able to have such sustained, successful growth.