Alibaba – Yeah Right Jack

Jack Ma – the Founder Chairman of Alibaba – released a letter in response to recent movements in the stock and fears about the Chinese consumer.

Linked here (and quoted below) is the Business Insider story about that letter.

“All in all, China’s economy has immense potential. It will not be easy, but China’s future ‘economic miracle’ will lie in its ability to boost productivity and its use of big data and Internet technology to stimulate domestic consumption and generate exponential development opportunities,” wrote Ma. Alibaba is a massive retailer in China. The company estimates that there are 367 million users on the service spending around $US1,056 per person annually.

The GDP of China in 2014 is $10.3 trillion. The population of China is (estimated) at roughly 1.4 billion people. This makes for GDP per capita of roughly USD 7,350.

China is also a country which has a very low private consumption rate. The World Bank estimates a domestic consumption rate of about 36 percent of GDP. This is the flip side of China’s huge saving rate.

Calculate it: household consumption per capita is roughly USD 2,650. So the Alibaba amount of spending per user (USD 1,056) is almost 40 percent of that number.

Yeah right Jack.

I figured there would be a few objections to this. So lets go through them.

Here is the original Jack Ma letter. He states explicitly that the marketplace does 3 trillion RMB of gross merchandise value. With 6.35 RMB to the USD this says that the gross merchandise value is USD435 billion. This is a bit over 4 percent of GDP or almost 12 percent of all household consumption.

The number of consumers is not stated in that letter – but the number of customers of Alipay is (that is 400 million) and Alipay has more customers than Alibaba. Alibaba’s 367 million customers are widely reported. This calculates at about USD1,185 per customer. The 40 percent number estimate above becomes an even more outrageous 44.7 percent.