Alibaba's Jack Ma is no double agent

October 4, 2011: 12:03 PM ET

Some have strongly criticized the idea of China's Alibaba-Taobao buying a distressed Yahoo. They're wrong. These days, the U.S. desperately needs direct investment from China that goes somewhere else other than into Treasury debt.

By Bill Powell, contributor writer

jack_ma_alibabaFORTUNE -- Twice in the last decade, Chinese state security were looking for men who had, in the minds of the Chinese government, both become irritants. One, an engineer named Wang Xiaoning, had written pro-democracy essays on a popular group web site. Another, Shi Tao, a prominent journalist, had forwarded an e-mail he had received to an overseas address, an e-mail that had instructed Shi not to cover the anniversary of the Tiananmen Square massacre. With the assistance of a high profile internet company -- whose Hong Kong office gave up their e-mail records to mainland authorities -- Chinese state security got their men. Both were sentenced to ten-year jail terms for "subverting state power" and "sharing state secrets."

Jack Ma, the founder and CEO at Alibaba-Taobao, the successful Chinese e-commerce company said at a conference in Silicon Valley late last week that he was "very, very interested" in taking over Yahoo (YHOO) -- which owns 40% of Alibaba, but which (to put it mildly) has had strained relations with Ma and the Hangzhou-based company over the last few years. Then, on cue -- and evidently with straight faces -- journalists in the U.S. began writing next-day stories raising the prospect that an Alibaba takeover of Yahoo might raise privacy issues for Yahoo e-mail users, or even national security issues for the United States government. Former journalist Rebecca MacKinnon, now a senior fellow at the New American Foundation who studies internet issues in China, was quoted asking, "will people who use Yahoo email feel comfortable using a service owned by a Chinese company, knowing that in China all internet companies are expected to share information about user identities and activities on request?" Several of the stories (such as this one in the Financial Times) didn't bother to mention Shi Tao or Wang Xiaoning.

Why would they mention them? Because the internet company that gave them up to the Chinese government was...Yahoo. And in 2007, the company settled a case brought in US federal court seeking damages on behalf of Chinese internet users for what Human Rights USA, the attorneys for the plaintiff in the case, called "major human rights abuses in China." Yahoo in settling the case admitted no guilt, but according to Harry Wu, executive director of the Laogai Research Foundation, company founder Jerry Yang "admitted" to the families of the prisoners at a hearing that "this was wrong and would not happen again." (In the wake of the lawsuit Yahoo says it started a fund to provide humanitarian and legal aid to dissidents imprisoned for expressing their views online.)

Another ostensibly high-minded critic of a hypothetical Alibaba takeover of Yahoo is Jeff Chester, the head of the Center of Digital Democracy, an advocacy group. He said the following: "Lawmakers should oppose a deal where the data of Americans come under the control of a foreign company with links to the Chinese government." And he added, "an Alibaba takeover of Yahoo would sanction the surveillance of millions of Americans."

Wow. Where to start with this? First, Alibaba-Taobao (the eBay (EBAY) of China) is a private company; that is to say, it is not state owned the way, say CNOOC was (and remains) when the oil giant tried to acquire UNOCAL of the U.S. in 2006. In this sense it has "links" to the Chinese government the same way that eBay has "links" to the United States government because it's based in California. Alibaba's headquarters is in China, it pays taxes in China and it has to follow the law in China. This means, according to the FT's ominous lede sentence, that Yahoo would fall under "Chinese control."

Does the Chinese government monitor and censor e-mail and the various Twitter-like social media sites in China? Yes indeed it does, as the two very high profile cases in the last decade demonstrates, when it was Yahoo (asserting at the time, by the way, that it was merely following the law in China) who gave up the dissidents. If anyone can point me to comparable cases in which Jack Ma, the elfin founder of Alibaba, did the same thing while running his e-commerce business in China, please let me know. I'm unaware of it.

But Chester, among others warning of the alleged "risks" in having a China based company takeover, says a deal would place "millions of Americans" under [Chinese]surveillance." Seriously? Aliababa-Taobao -- which my wife happily uses to buy everything from new printer cartridges for our computers to clothes for our daughter-- is going to be transformed into a Trojan Horse for the Chinese government –spying in the United States on dissidents and Falun Gong practioners and pro Taiwan activists and whomever else Beijing doesn t like ? And you re going to use //that// fear as a pretext to prevent it from buying, of all companies given its track record in China, Yahoo?

The mind reels. The U.S. needs to get a grip when it comes to economic relations with China. We've reached a point in which everyone from Mitt Romney to Paul Krugman are calling for protectionist tariffs on Chinese exports to the U.S. because China allegedly "manipulates" its currency to steal our jobs (never mind that the currency has risen 25 per cent against the dollar in the last five years.) We wouldn't let a state owned Chinese oil company buy a Unocal because of alleged national security concerns. That claim might have been marginally defensible, but the ruckus over that whole deal left a very bad taste in Beijing's mouth. Note the number of big, expensive, high profile cross border deals done since then: zero.

Now we're apparently going to consider Jack Ma a national security threat; the same Jack Ma who studied English in Hawaii and goes to the U.S. all the time, both for business and for fun. Jack Ma, who last year at his company's annual "Alifest," a bash for Alibaba-Taobao users, had Jon Huntsman, then the US ambassador to Beijijng, as his featured speaker. (Oh right, I forgot: the mandarin-speaking Hunstsman, now running for the GOP's presidential nomination, is a Chinese stooge because he thinks Romney and Krugman and the rest are idiots for seeking a trade war with Beijing.) Ma's also hosted noted Chinese dupes Bill Clinton and Arnold Schwarzeneger at previous Alifests. That Jack, he's a helluva double agent.

The truth is, these days the U.S. desperately needs direct investment from China that goes somewhere else other than into Treasury debt. We need Chinese investors and companies to buy distressed real estate and build factories or expand their business presence in the U.S. in a way that would stir economic activity and maybe even create a few jobs. (Think Japan's direct investment wave in the 1980s). China still has huge amounts of dollar reserves that it needs to redeploy (even though its current account surplus has steadily been coming down as a percent of GDP). But if we keep someone like Jack Ma -- a brash, engaging, smart entrepreneur who loves the Silicon Valley business ethos -- has many friends in the U.S. and (who knows?) might even have a strategy for reviving a flailing Yahoo -- if we keep him from pursuing a deal because of specious "privacy" or national security issues, then we are well and truly clueless -- dumber even than the Chinese leadership these days thinks we are.

And that's saying something.

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