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Can you supply more color on why BABA doesn't represent an ownership interest in Alibaba? I am totally confused by that.

Under Chinese law, it's illegal for a non-Chinese citizen to own shares in a Chinese corporation.
You can't buy shares in Alibaba.

So, to get around this yet raise money in western markets, what some Chinese firms have done is create a new
corporation in a "neutral" destination like the Cayman Islands, and sign a contract between that new shell
and the actual Chinese firm that states that the offshore firm gets all (or some of) the profits of the Chinese firm, subject to certain conditions.
This offshore holding company, called a "Variable Interest Entity", or VIE, then goes public in (for example) New York.

Alibaba is a company in China, but BABA represents holdings in the offshore VIE they've signed contracts with, which in turn is listed in the US.
This structure has never been tested under Chinese law, and obviously has issues with enforceability.
Viewed in one light, it is not unreasonably viewed a straight-up end run around the Chinese restriction on foreign ownership.
The CCP could simply declare all such contracts null and void, if they saw it in their interest to do so.
And, surprisingly, this might even match Chinese law.

There are other effects with many Chinese domiciled western-listed firms.
For example, the audits are frequently kind of a joke, done by local Chinese "affiliates" of the titular international auditing firm/network.
Yet if the non-Chinese parent of the audit firm asks for details, they're denied as being state secrets.
(not an Alibaba specific comment)

A randomly selected article on the subject from a couple of years ago, saying more or less the same thing.
https://money.usnews.com/investing/articles/2017-01-26/the-c...


Jim
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