Chapter 15 The cause and effect of the Alipay VIE incident

We have talked about several shareholding changes in Alibaba's history before. Due to the input of several foreign funds, Alibaba's shareholding structure has undergone major changes, and the shareholding of the earliest Jack Ma team has gradually been diluted.After 2005, there was a shareholding structure in which Yahoo owned 39% of the shares and SoftBank Group owned 29.3% of the shares. Together, these two companies accounted for about 70% of Alibaba’s shares, and the remaining 30%. It is held by the Jack Ma team.In Ma Yun's team, Ma Yun's own equity share has not been accurately counted so far, and it is probably less than 10%.This is a shareholding structure of Alibaba.

But in 2004, Alibaba invented a third-party payment tool, namely Alipay, which played a decisive role in supporting the growth of Taobao's business.This is also a great embodiment of Jack Ma's business wisdom. Alipay was an asset belonging to Alibaba Group in the early days, but in June 2009, an abnormal phenomenon occurred: Alibaba Group transferred the equity of Alipay to a company named "Zhejiang Alibaba E-Commerce Co., Ltd." enterprise.The major shareholder of Zhejiang Alibaba E-Commerce Co., Ltd. is Ma Yun, who holds 80% of the shares, and the other 20% of the shares are in the hands of a person named Xie Shihuang.That is to say, this part of Alipay's assets was transferred to Jack Ma's private company twice.The total amount of equity transfer at that time was 330 million yuan.This is what happened after 2009.

This matter came to light in May 2011.After the exposure, the question arises, that is, how do Yahoo and Softbank, the two major shareholders of Alibaba, think about this matter? This matter is a very big blow to Yahoo.Yahoo should be the biggest beneficiary of Alibaba's growth in the past few years.UBS once made a statistic for Yahoo. Over the past 11 years, Yahoo’s investment in Alibaba’s asset income has a compound annual growth rate of 55%, which means that the money Yahoo invested in that year has increased by 55% every year. Then After 11 years, it has grown geometrically.But around 2011, Yahoo slowly lost its prestige in the U.S. because of the squeeze and oppression by companies such as Google and Facebook in the U.S. market.Some people have calculated that the value of Yahoo's shares in Alibaba is basically equal to Yahoo's total valuation.In other words, except for this part of Alibaba's equity, Yahoo's other assets can be almost zeroed.From this we can imagine the importance of Yahoo's stake in Alibaba.

So when news came out in May 2011 that part of Alipay’s assets had been transferred to Jack Ma’s private company, it led directly to two consequences: first, Yahoo’s stock fell by 6% within a week; American shareholders sued Yahoo, accusing Yahoo of not fulfilling the supervisory responsibility of a major shareholder to Alibaba.So for this matter, Yahoo maintains a very strong opposition. So what is the attitude of another major shareholder, Softbank?It is noncommittal on this matter, but its general attitude is also against it. Alibaba explained this matter in this way: Alipay is a third-party payment tool and a financial product, and this part of the country is subject to supervision and foreign investment is not allowed to participate.Therefore, in order to prevent Alipay from being unable to obtain a legal third-party payment license, Ma Yun transferred this part of the assets to a company wholly owned by Chinese people.Otherwise, Alipay will not get a license and it will become an illegal product.

So do Yahoo and Softbank agree with this explanation?They do not agree.Because they believe that in the field of Internet companies, the Chinese government actually has a lot of license systems, such as Sina, Sohu, and Netease. They need a license called ICP to build portal websites in China, but the Chinese government has been in it for a long time. It is not allowed to issue ICP licenses to foreign companies.One result of this is that when Sina went public around 2000, it invented a workaround—VIE, or agreement control, which means that an overseas company actually controls the domestic company, while the ICP license is issued by Domestic companies apply for it.Yahoo and Softbank believe that since Sina was able to circumvent the supervision of the Chinese government through VIE, why couldn't Alibaba bypass it?Ma Yun said, I don't want to bypass it. If I bypass it, it will become a very gray matter.

In other words, Ma Yun has challenged the VIE system that has been implemented by Chinese Internet companies for more than ten years.This actually touches on a fundamental system design problem that Chinese Internet companies currently have at the capital level.So this matter caused a lot of controversy in the country at the time.