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Tea Leaf Nation
‘Be in Love With Them, but Don’t Marry Them’
How Jack Ma partnered with local government to make e-commerce giant Alibaba, and Hangzhou, a success.
Before Alibaba settled in Hangzhou 15 years ago, the city of 8 million people in eastern China was best known for its silk, its scenic West Lake, and its signature dish, noodles with sautéed shrimp and eel. Now, Hangzhou is seen as China’s e-commerce capital. And it’s not just home to Alibaba, China’s largest e-commerce platform, which on Sept. 19 had the largest U.S. IPO in history, or the birthplace of Alibaba founder Jack Ma, now China’s richest man. It also has roughly 15 percent of the nation’s e-business platforms, including 96188.com, an online market selling fresh produce; and Xiami.com, a music-streaming website.
But Alibaba is the jewel in Hangzhou’s crown. For millions of Hangzhou natives like me, who have witnessed Alibaba transform from a team of 18 since its founding in 1999 to a titan with 26,000 employees, it’s not surprising that "second-tier" Hangzhou — and not the "first-tier" megacities of Beijing and Shanghai — is home to Alibaba’s gargantuan headquarters, a 1,615,000-square-foot campus that houses more than 10,000 employees.
In the beginning, Ma flirted with Beijing and Shanghai. He went to Beijing in 1996 to promote China Pages, his first (failed) start-up and a precursor to Alibaba. Shortly after founding Alibaba in Hangzhou in 1999, Ma raised $25 million in venture capital, and in 2000 he moved the company to Shanghai, 100 miles northeast of Hangzhou. But Ma soon found that Shanghai — packed with state-owned enterprises and multinational companies — didn’t care about an Internet start-up like his. Within a year, Ma hauled Alibaba back to Hangzhou, whose city government "gave us more attention," he told state-run outlet Beijing Youth Daily in 2008.
The Hangzhou city government embraced Alibaba even when it was scrappy and inconsequential. Between March and November 2003, an outbreak of the viral respiratory disease SARS swept through China, terrifying a populace that suddenly became afraid to venture outside. That development brought an unexpected opportunity to the country’s budding e-commerce industry — if people couldn’t go outside to shop in person, maybe they would shop online instead. On April 30, 2003, Hangzhou Mayor Mao Linsheng visited Alibaba, and soon after introduced a series of policies to encourage companies to adopt platforms like Alibaba to promote their trade business online. In January 2004, the Hangzhou government provided a piece of land on which Alibaba built a $37 million research and development center.
Hangzhou is situated in Zhejiang, a province that, more than any other, exemplifies how China’s 35 years of economic liberalization have unlocked the entrepreneurial energies of its people. According to government figures, at least one in four people born in Zhejiang has started his or her own small or medium enterprise somewhere in China — reportedly the highest ratio in China. A September 2014 report in Hurun, a business and finance monthly, lists more Zhejiang natives among China’s richest 1,000 people than from any other single province. (Ma ranks first in that group of 164.)
It also couldn’t have hurt that in November 2002, Xi Jinping, now China’s president, took the helm as Zhejiang’s Communist Party chief, the highest-ranking position in the province. During his five-year tenure, Xi’s focus on bolstering private economic activity catalyzed the growth of e-commerce companies like Alibaba. (Xi’s achievement in Zhejiang was one of the major reasons for his promotion to the central government in July 2007.)
According to the Hangzhou government’s 2013-2015 agenda, Hangzhou plans to invest $50 million in Alibaba’s cloud-computing project that brings big data into e-commerce, and another $800 million in 44 public service platforms that share resources with other people and companies, including Alibaba’s "Taobao City," a 450-acre technology campus in northeastern Hangzhou. Shenzhen and Guangzhou, two giant southern Chinese cities that invest around $80 million each in e-commerce annually, can barely compete.
Ma and China’s central government have managed to get along pretty well, too. A number of princelings, the well-connected grown children of China’s top party leaders, were among Alibaba’s investors and thus also counted as winners in its historic IPO; in July 2014, Ma accompanied Xi on a state visit to South Korea. As an ambitious job creator locally and a business reformer nationally, he has confidence and shrewdness in dealing with both the central and Hangzhou government. In a recent panel discussion organized by the Wall Street Journal, Ma characterized his relationship with the Chinese government this way: "As always, be in love with them, but don’t marry them."