China’s ‘Billionaires’ Are Fake

Jack Ma, founder of Alibaba, speaks at the Bloomberg Global Business Forum in New York City on Sept. 20, 2017. (John Moore/Getty Images)

Commentary

Alibaba’s Jack Ma and Joseph Tsai apparently can’t afford their own private jets. They had to borrow money from Credit Suisse to get them, despite each having cashed out over $5 billion in stock since 2017. Where’s all that cash gone? Is it even real? Do they keep it in banks for which they have to get Chinese Communist Party (CCP) permission for withdrawals? That is to say, is it really their money, or not?

According to Kyle Bass, chief investment officer of Hayman Capital Management, “Tsai and Ma are only billionaires because the CCP says they are. As the world has already witnessed, it can and will change in an instant.”

Bass stated that Ma and Tsai’s “need to borrow from western banks to fund their luxurious lifestyle” is a mystery. “It’s entirely possible that any US dollars they harvest through share sales must [be] paid to CCP party members,” he wrote.

A request for comment sent to Ma and Tsai via Alibaba only yielded a link to Alibaba’s prior comments. A spokesperson for Alibaba Group there characterized Chinese billionaires who do things like hock stock as collateral for jet loans as “ordinary.” They pointed out that Ma is no longer an executive at Alibaba.

Traders work on the floor of the New York Stock Exchange while the price of Alibaba Group's initial price offering (IPO) is decided, in New York City on Sept. 19, 2014. (Andrew Burton/Getty Images)

“Share pledges by senior executives of US companies, including Elon Musk of Tesla and Larry Ellison of Oracle, are well-documented in the news, and based on even a cursory survey of public filings of other US companies, including Amazon, Bank of America, Bristol Myers Squibb, General Electric, Netflix and Walmart, it is clear that many companies do not prohibit share pledges by executives,” the Alibaba spokesperson wrote.

But according to Ryan McMorrow at the Financial Times, “Share pledging, whereby banks accept stock as collateral for loans while the borrower retains ownership of the shares, is risky and most US companies limit its use by executives. Any forced selling of pledged stock can exacerbate the fall of a company’s share price.”

According to the FT, Ma and Tsai had to collateralize chunks of their supposed $35 billion stake in Alibaba, an e-commerce group, to buy relatively cheap stuff (for a billionaire) like a luxury house in Hong Kong, private jets, and French vineyards. Western banks, including Goldman Sachs, Morgan Stanley, Credit Suisse, and UBS, provided the loans. Are these banks risking their client money for the CCP?

Ma transacted loans and purchases through offshore companies that control over half of his Alibaba stakes. Is it possible that the CCP has control of those companies too? Otherwise why wouldn’t Ma just sell a negligible amount to buy the jets? Why hasn’t Alibaba Holding ever provided dividends to its shareholders, including Ma and Tsai, to give them a little spending money once in a while? Supposedly Alibaba is so profitable that it could easily do so.

“Alibaba doesn’t produce dividends because the CCP needs every last US dollar to remain in China for the sovereign to be able to operate globally,” wrote Bass in an email. “It’s important for the world to see that China’s entire economic future rests on their ability to continue to attract US dollars from passive and active sources.” That sounds like a Ponzi scheme.

“The Yuan only represents 1.8% of global cross-border currency settlements (according to SWIFT),” Mr. Bass continued. “And almost the entirety of the 1.8% is settled with themselves in Hong Kong.” SWIFT is a Belgium-based telecommunications system that banks use to transfer funds internationally.

The private jets that Ma and Tsai “bought” are both of the same make: Gulfstream G650ERs, which sell for about $66.5 million new. That’s less than 1 percent of Tsai’s supposed net worth of $11.2 billion and just over a tenth of a percent of Ma’s $46.7 billion. They shouldn’t have to borrow money for their ride.

Chinese businessmen leave a Gulfstream G650 luxury business jet during the Asian Business Aviation Conference and Exhibition (ABACE2014) at the Shanghai Hongqiao airport on April 15, 2014. (Mark Ralston/AFP via Getty Images)

Yet, Ma and Tsai repeatedly borrowed against their Alibaba stock since the company went public in 2014. “Ma and Tsai, Alibaba’s two largest individual shareholders, have used the loans to unlock vast personal fortunes tied up in the group’s shares,” according to McMorrow. “Tsai’s Gulfstream 650ER private jet is mortgaged to Credit Suisse,” he wrote. “The Swiss bank, which brought Alibaba to market, also extended credit during the IPO run-up to an offshore shell company later linked to Ma’s purchase of a lavish house in Hong Kong’s elite Peak district and a new plane the same model as Tsai’s.”

China’s economy, if its Alibaba “billionaires” are any indication, is sounding more and more like a house of cards.

Bass noted that “When Ma was forced to resign his Executive Chairmanship of Alibaba in 2018, he was stripped of his VIE [variable interest entity] shares and they were ‘given’ to five unnamed individuals who happened to live at the same remote address in China.” If the government can just take your money, that’s not really your money, is it?

Alibaba’s VIEs hold its operating licenses and other assets in mainland China. Bass has in the past bet against Chinese and Hong Kong currencies.

Given the CCP’s heat on Ma, he could be attempting to extricate himself from China, where he holds citizenship and is a member of the CCP. His wife, Cathy Ying Zhang, took Singaporean citizenship. She is the sole director of two offshore companies that hold 60 percent of the family’s Alibaba stake. It is that stock that Ma reportedly pledged as collateral for loans.

“Bankers say stock pledges are a common method for Chinese executives to raise cash without losing control of their companies or sending negative signals to the market by selling their shares,” according to the FT. One has to ask why such stock pledges are apparently more common among Chinese executives than their international peers. Is this the way Chinese “billionaires” steal a little juice from their CCP-controlled assets?

One banker who spoke to the FT, said that such stock pledges are “a really good business for banks, it feeds a lot of people.” He said, “These founders are asset rich but cash poor.”

That seems at odds with reports that Ma, his wife, and his charitable foundation supposedly cashed out approximately $15.5 billion worth of Alibaba stock since the company floated, with the majority selling after 2016. Tsai sold approximately $5.4 billion. Regardless of the fact that Alibaba claimed on July 2 that “Jack Ma has no outstanding loans collateralized by Alibaba shares,” those cashed-out billions should have been more than enough to purchase jets and luxury homes. So, why the loans? Is it possible that Bass called it again, and that Ma and Tsai can’t even access that money?

Last October, a possibly frustrated Jack Ma let his tongue slip. He called for reform of China’s financial system, chided regulators for suppressing innovation, and said that state-owned banks had a “pawnshop mentality” that still relied on “pledges and collateral.” In retaliation, Chinese authorities disappeared him for three months. Their securities watchdog cancelled the $37 billion IPO of Alibaba’s Ant Financial in November. It would have been the world’s biggest IPO of all time. By December, regulators forced Ant Group to restructure per new anti-monopoly laws. The company’s valuation fell by billions. What a feather in China’s cap, but no. Xi Jinping had to show the world who’s boss, and in the process, harm China’s economy by making clear that billionaires in China aren’t really billionaires.

With few rights and little real control over their money, China’s “billionaires” are fakes. They are better understood as ostentatious money managers for the CCP who occasionally find creative ways to get the minimum cash necessary for the conspicuous consumption that keeps up appearances.

One has to wonder then why Yale, which got $30 million in 2016 from Joseph Tsai, or Harvard, which got $350 million from another possibly fake China-linked billionaire family in 2014, haven’t asked more questions about the ultimate source of these funds. How can we depend on our top academic institutions for unbiased information about China if they are not leaning into these issues?

Anders Corr has a bachelor’s/master’s in political science from Yale University (2001) and a doctorate in government from Harvard University (2008). He’s a principal at Corr Analytics Inc., publisher of the Journal of Political Risk, and has conducted extensive research in North America, Europe, and Asia. He authored “The Concentration of Power” (forthcoming in 2021) and “No Trespassing,” and edited “Great Powers, Grand Strategies.”

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.