Alibaba IPO points to a new economic model
China now wants to focus more on domestic consumption to power its next phase of growth
China is no stranger to outsized equity offers. Its three large banks took the global financial markets by storm a few years ago when they tapped the primary markets to raise capital. Chinese online retail giant Alibaba Group Holding Ltd has just raised $21.8 billion in its record initial public offering (IPO). The firm will thus be valued at $168 billion. But the share sale deserves attention for other reasons too.
Alibaba is a different company in two important ways: it is the result of an emerging entrepreneurial culture in China as well as a star of the digital economy rather than a smokestack industry. It also has global ambitions. In a way, Alibaba is an example of the new economic model that China is trying to adopt, as its traditional strategy of manic industrial investment funded by government banks now shows signs of fatigue. China now wants to focus more on domestic consumption to power its next phase of growth.
Alibaba’s IPO should be understood in that context.
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