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China Using Man-In-The Middle Attacks Against Google

Posted by w_thames_the_d on September 18, 2014

China continues its attack on foreign firms. It is waging war against Google ever since. Google spilled the beans on a corrupt official.

Here is a great link about China’s attack on Google.

RFr6u92N_normal.png GreatFire.org (@GreatFireChina)
9/11/14, 20:59
China Using Man-In-The-Middle Attack Against Google techdirt.com/articles/20140… via @techdirt

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Stock Fraud Alert- Read Before Buying Alibaba Stock

Posted by w_thames_the_d on September 17, 2014

China’s Alibaba is going to IPO in the USA. Simply put, there are too many unknowns and the company poses a significant investment risk.

Read before buying…
‘With Alibaba set to have the biggest IPO in history, investors around the world are looking to handicap the mysterious and largely misunderstood Chinese Internet company.

Speaking to CNN Money’s Erin Burnett yesterday, PayPal co-founder, early Facebook, LinkedIn, Palantir, and Yammer investor, and former PandoMonthly guest Peter Thiel expressed some not so enthusiastic views on the company.

Asked whether he would invest in the company’s public stock, Thiel says, “I would not, although I think it will probably go up some. They’re probably going to price it in such a way that it gets some sort of a pop.”

But it’s not the return potential that seemingly gives Thiel pause. It’s the uncertainty around Alibaba’s connection to (and dependency on) the Chinese government.

“I do think that the Chinese Internet has been largely off limits to Western investors, it’s been firewalled off,” Thiel says. “If you look at the world from the perspective of companies like Facebook or Google, places like Saudi Arabia and Iran are way more tolerant than China. You can get on Facebook in Saudi Arabia and you can’t get on it in China. So China is in this very weird category of its own.”

The Founders Fund and Clarium Capital founder goes on to say that Alibaba’s fate is tied to its ability to appease Chinese state officials.

“Alibaba is sort of this protected Chinese company – it will do well, but it is fundamentally a political entity that is somehow very deeply connected with the Chinese government,” Thiel says. “You’ll get a pop and you’ll do well if it continues to stay in the good graces of the Chinese government, but it’s fundamentally a political investment.”

Politics and investment are two categories that rarely overlap nicely. And, China in particular, has proven itself unpredictable and parochial in the way it manages the Internet. It’s no doubt in China’s best interest, both economically and politically, to see its homegrown corporate giant succeed on a global stage. But that notwithstanding, there remains the very valid concern this patriarch could one day impede Alibaba’s growth either domestically or abroad without warning or recourse. There are also concerns around accounting irregularities and loose corporate governance that have been raised by countless other Chinese company IPOs.

These are all issues that public company shareholders will need to think long and hard about before deciding to put their faith in Alibaba’s growth engine. For Thiel’s money, it’s a bet not worth making.



Alibaba’s Link to Elite Military Family Is Etched in Stone

Sep 15, 2014 – 06:44 GMT

HONG KONG — Perched on a steep hillside in Changshou township lies the modest family tomb of a military dynasty, overgrown with tall grass and lined with cheap white tiles. Carved in an ancestral tablet that records the living as well as the dead is the name of Zhang Zhen, the family patriarch, who turns 100 next month and was one of the highest-ranking generals in the People’s … (continue reading)



More on Alibaba and its connection to communist party members and the Chinese military

‘HONG KONG — Perched on a steep hillside in Changshou township lies the modest family tomb of a military dynasty, overgrown with tall grass and lined with cheap white tiles.

Carved in an ancestral tablet that records the living as well as the dead is the name of Zhang Zhen, the family patriarch, who turns 100 next month and was one of the highest-ranking generals in the People’s Liberation Army. Below are his sons. One of them has the job of making sure the soldiers controlling China’s nuclear weapons stay loyal to the Communist Party. Another, Zhang Lianyang, was a general before venturing into business and is listed along with his wife, Chen Xiaoying.

The couple appears elsewhere together: on the corporate rolls of Citic 21CN, the telemarketing and pharmaceutical data business now controlled by the Chinese e-commerce giant Alibaba Group and Yunfeng Capital, a private equity company owned in part by Alibaba’s chairman, Jack Ma. Ms. Chen is Citic 21CN’s executive vice chairwoman, and Mr. Zhang was a director through April.

Alibaba has been one of the big success stories in China, a dominant private company in a country where state-owned enterprises typically command the heights of the economy. Its initial public offering, expected this week, could be the largest debut ever for an Internet company in the United States.

Alibaba’s acquisition of Citic 21CN, which was announced in January, provides an example of how the rapid growth of the private sector is also benefiting the country’s political elite, the so-called princelings, or relatives of high-ranking officials. Since Alibaba announced that it would buy a controlling stake in Citic 21CN for about $170 million, the pharmaceutical data company’s stock has risen more than sevenfold. As a result, Ms. Chen’s shares have soared in value by about $500 million.

That windfall has been previously reported. But the familial connections, traced to the stone tablet in Changshou, are largely unknown to the general public.

There is no evidence that Alibaba was aware of such connections. The company previously said it bought Citic 21CN for its “vast pool of pharmaceutical product data,” as part of an effort to build out technology standards for medical and health information. It was a “pure business decision,” according to a person with knowledge of the deal who was not authorized to talk publicly.

Although Alibaba declined to comment for this article, citing regulatory restrictions on public statements ahead of a public offering, the company has said it relies on the market — not political connections — to drive its business.

“To those outsiders who stress companies’ various ‘backgrounds,’ we didn’t have them before, we don’t have them now, and in the future we won’t need them!” the company said in a statement in July after a report that several investment companies tied to the sons and grandsons of senior Communist Party leaders owned stakes in Alibaba, including New Horizon Capital, whose founders include the son of former Prime Minister Wen Jiabao.

Ms. Chen did not respond to repeated requests for an interview made by fax, phone and visits to the company’s Hong Kong and Beijing offices.



This is scary. The people running Alibaba can take the money and run, leaving us holding the bag.


SEC’s Alibaba Structure Review Inadequate, Senator Says

Regulators haven’t done enough to protect investors from a risky corporate structure Chinese companies including Alibaba Group Holding Ltd are using to go public, U.S. Senator Robert Casey, said in a letter to the Securities and Exchange Commission.

Casey, a Pennsylvania Democrat who serves on the Senate Finance Committee, wrote that he was dissatisfied by the SEC’s assurances that it has adequately reviewed the corporate structure of Alibaba and the risks to U.S. investors who buy its shares.

Alibaba is scheduled to begin trading on Sept. 19, in a deal valued at $21.8 billion, which could make it the largest IPO in history. While the SEC hasn’t yet publicly cleared the offering, it has given no indication it will stand in the way.

“I remain concerned about the dangers that these structures pose,” Casey wrote. “I am specifically concerned that improved disclosures alone may be insufficient to address these risks.”

Casey first raised his concerns in a July 8 letter to SEC Chair Mary Jo White. In a response dated Sept. 11, White spelled out the steps the commission staff has taken to protect U.S. investors from Chinese Internet companies’ use of the controversial organizational format.

SEC Assent

Known as a variable interest entity, or VIE, the setup allows Chinese companies to dodge a home-country prohibition against foreign investment in key industries, including the Internet and telecommunications. More than 200 other Chinese companies, including the major Internet firms, used the device to go public on American exchanges, Casey wrote.

The SEC has assented to the same VIE structure in those public offerings. The process is part of a staff review that generally doesn’t involve any of the agency’s presidentially appointed commissioners. It isn’t designed to judge the merits of the offering, only to ensure investors are alerted to all risks.

The SEC has no special procedures for high-value or high-profile IPOs, current and former SEC employees have said. Like other companies’ offerings, Alibaba’s filings have been vetted by a securities lawyer and an accountant in the agency’s corporation finance division.

‘Declared Effective’

Before trading begins, the SEC will give public notice that it has approved, or “declared effective,” the company’s documents, which together are known as a registration statement.

The SEC should consider making a formal determination that VIEs pose a “significant risk,” echoing a judgment regulators made about an earlier wave of public listings by Chinese companies relying on so-called “reverse mergers,” Casey said in his letter.

Casey also is seeking detailed information about any potential enforcement investigations the commission is performing “on the ground” in China and details of SEC oversight of outside advisers who “facilitate VIE listings by Chinese firms.”

The VIE structure also drew fire in June from the U.S.- China Security Review Commission, a congressional panel charged with examining the national security implications of the countries’ ties, which equated the device to an “intricate ruse” that leaves a small cadre of executives in control while giving American shareholders few rights.



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China Offers Up New and Shitty Investment

Posted by w_thames_the_d on September 16, 2014


IMG_0051_normal.jpg Gordon G. Chang (@GordonGChang)
9/8/14, 6:08
#China wants you to buy shares in its banks. Good investment? See this: onforb.es/1q3IXfH

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China’s Alibaba Buying Up Companies Owned By Communist Party Elite? Fraud Alert?

Posted by w_thames_the_d on September 15, 2014

Alibaba is as dirty as they come. This smoke and mirrors disaster in the making is a few years from collapse. Now. Jack Ma is buying companies owned by communist generals.

Just think, now you can give your hard earned money to the people with whom we will soon be fighting a shooting war. Great job America!,,


Alibaba has been one of the big success stories in China, a dominant private company in a country where state-owned enterprises typically command the heights of the economy. Its initial public offering, expected this week, could be the largest debut ever for an Internet company in the United States.

Alibaba’s acquisition of Citic 21CN, which was announced in January, provides an example of how the rapid growth of the private sector is also benefiting the country’s political elite, the so-called princelings, or relatives of high-ranking officials. Since Alibaba announced that it would buy a controlling stake in Citic 21CN for about $170 million, the pharmaceutical data company’s stock has risen more than sevenfold. As a result, Ms. Chen’s shares have soared in value by about $500 million.

That windfall has been previously reported. But the familial connections, traced to the stone tablet in Changshou, are largely unknown to the general public.

There is no evidence that Alibaba was aware of such connections. The company previously said it bought Citic 21CN for its “vast pool of pharmaceutical product data,” as part of an effort to build out technology standards for medical and health information. It was a “pure business decision,” according to a person with knowledge of the deal who was not authorized to talk publicly.

Although Alibaba declined to comment for this article, citing regulatory restrictions on public statements ahead of a public offering, the company has said it relies on the market — not political connections — to drive its business.

“To those outsiders who stress companies’ various ‘backgrounds,’ we didn’t have them before, we don’t have them now, and in the future we won’t need them!” the company said in a statement in July after a report that several investment companies tied to the sons and grandsons of senior Communist Party leaders owned stakes in Alibaba, including New Horizon Capital, whose founders include the son of former Prime Minister Wen Jiabao.

Ms. Chen did not respond to repeated requests for an interview made by fax, phone and visits to the company’s Hong Kong and Beijing offices.



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Observations on China’s Alibaba and Jack Ma

Posted by w_thames_the_d on September 13, 2014

Comment from Cgange:

Check out this link, Alibaba’s Jack Ma Said Tienenman Killings ‘The Right Thing to Do’. this pos is selling his made in …

jack ma looks like a mix between an orang-utan and a chimpanzee. his mother was a prostitute and monkey and his multiple fathers orang-utans. he is a typical chinese product. just look at his disgusting ugly physical appearance. lies, cheats, jealousy, inferiority complex, hate and evilness is written on his face. that ktv-girl-fucker is a inhuman crook. just look at him and his ccp party-friends.

alibaba is FULL of scammers, cheaters and criminal chinese “companies”. if you are a foreigner and stupid enough to do business with them and get scammed you’ll never get your rights or money back. never.

alibaba protects thieves and cheaters because alibaba is a cheater and thief. anyone who even registers with those criminals is a stupid idiot and anyone who buys stocks from those criminal, inferior chinese communist thieves and liars should do something more useful: throw your money out of the window and help the poor in your own country. makes more sense.

Ali Baba and the Forty Thieves

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Some Kind Of Coup Attempted in China

Posted by w_thames_the_d on September 13, 2014

Read the note below. I was in China during that time and for sure something was up. In fact, i had returned to China after one of those coup attempts and can assure you that there were military vehicles lined up to Beijing’s power center. It was on lock down.

On August 5, 2014, Radio Free Asia published an article titled, “Some Kind of Coup May Have Taken Place in China.” The article analyzed [what it identified as] the current abnormal situation in China, including the following. First, on-going unprecedented large scale military exercises are taking place from July to September (a portion of the exercises will continue until November). Second, a secret meeting was held at the end of July between the former Japanese Prime Minister Yasuo Fukuda and China’s current top leader Xi Jinping in Beijing in an effort to improve Sino-Japanese relations. Third, on July 29, a public announcement was made of the investigation of the former domestic security chief Zhou Yongkang. Fourth, on July 30, the Central Discipline Inspection Commission of the Chinese Communist Party sent a large investigation team to Shanghai; the team will be stationed in Shanghai until September (the same period of time that the large scale military exercises are taking place). Fifth, Shanghai Bright Food Group Chairman Wang Zong-nan, who has a close relationship with China’s former top leader Jiang Zemin, was taken away for investigation several days ago. Sixth, a large number of civilian flights were canceled in July, especially flights between Beijing and Shanghai. Seventh, in July security checks were enhanced in subways and other transportation areas in Beijing (trash cans have to be emptied every 15 minutes). Eighth, People’s Daily published a commentary article titled, “The Takedown of the Big Tiger Zhou Yongkang Does Not Mean the Anti-Corruption Campaign Has Stopped,” which was then removed from its website. Finally, China’s former top leader Jiang Zemin’s inscriptions and signatures are being removed from public places, with online photos being published as evidence of the removal.

All of the above incidents indicate that some kind of coup is taking place between Beijing and Shanghai. The article concluded that the anti-Xi forces may have started the coup but failed when Xi’s forces fought back or that the Xi Jinping group launched a coup to eliminate the Jiang Zemin’s faction.

Source: Radio Free Asia, August 5, 2014

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Alibaba’s Jack Ma Said Tienenman Killings ‘The Right Thing to Do’

Posted by w_thames_the_d on September 12, 2014

Check out this link, Alibaba’s Jack Ma Said Tienenman Killings ‘The Right Thing to Do’.   this pos is selling his made in zchina stock to Americans. His history is questionable and his politics more so. Read thus before bypuying Alibaba. If your portfolio is worth more than your soul, then buy all means support guys like this snd China.

Posted in Uncategorized | 2 Comments »

Chinese Internet Stocks Super Risky- Read Before Buiyng!

Posted by w_thames_the_d on September 12, 2014

Read this in its entirety. Chinese internet stocks sold in the. USA are toxic. You do not really own stock in the company. Per chinese communist law you cannot.

If they go belly up you get nothing. If the commies take over the company you get nothing. If and when we go to war with them you get nothing.

Be informed about toxic Chinese stocks.

From the US chamber of commerce

China’s leading private Internet companies are turning to U.S. stock exchanges to raise funds for expansion. Unable to access sufficient capital from China’s state-owned banking system or from its undersized bond market, Chinese Internet companies must rely on foreign investors to keep their businesses operating and growing.[i] However, the Chinese government restricts foreign investment in its Internet sector through foreign equity caps and complex licensing requirements.[ii] Moreover, most private Chinese companies must obtain permission to list overseas.[iii] To bypass these restrictions, Chinese Internet companies use a complex and highly risky mechanism known as a Variable Interest Entity (VIE). VIEs, usually based in tax havens such as the Cayman Islands, are essentially holding companies that link foreign investors and Chinese firms via a set of complex legal contracts.[iv] In theory, the VIE structure guarantees that economic benefits flow to the foreign investors; meanwhile operating control of the business remains within the Chinese firm, ostensibly to comply with Chinese laws.[v]

U.S. shareholders face major risks from the complexity and purpose of the VIE structure. For example, the legal contracts that serve as the basis of the structure are enforceable only in China, where rule of law remains rudimentary.[vi] Though listing VIEs on U.S. exchanges is legal in the United States, they can be considered illegal in China. As Internet giants Alibaba, Baidu, and Weibo become synonymous with “Chinese Amazon,” “Chinese Google,” and “Chinese Twitter,” risks could mount for unsuspecting U.S. investors who buy into their precarious VIE structures.[vii]

China’s Internet Firms Flock to U.S. Exchanges

A recent wave of Chinese Internet companies launching initial public offerings (IPOs) on U.S. exchanges has raised misgivings among U.S. regulators.[viii] In May 2014, Alibaba, China’s leading e-commerce website, filed for a U.S.-based IPO in what is expected to be one of the largest in U.S. history.[ix] In the same month, JD.com, a Chinese retailing website, launched its IPO on the NASDAQ.[x] And, on April 17, 2014, Weibo, a Chinese microblog with over 140 million users, made an IPO on the NASDAQ.[xi] In doing so, Weibo and JD.com joined the ranks of several Chinese Internet firms that already list on major U.S. exchanges (see Figure 1).

As China’s leading Internet companies expand, they are unable to obtain sufficient capital domestically and are turning to foreign investors by listing on non-Chinese exchanges, most commonly in the United States.[xii] This trend has grown despite Chinese regulations that attempt to prevent it.[xiii] It is extremely difficult for Chinese firms to obtain permission to list overseas; it is illegal in China for foreign shareholders to have a controlling interest in a China-based Internet firm.[xiv] Nonetheless, Chinese Internet companies make no secret of their overseas listings, and Chinese state-run media report on them without questioning their legality under Chinese law.[xv] This is because Chinese firms have circumvented domestic regulations by listing overseas via a complex and highly risky scheme of legal arrangements with overseas investors via VIEs.[xvi]

Figure 1: Major Chinese Internet Firms Listed on U.S. Exchanges

Company Stock Symbol Primary Service Market Capitalization

(in billions)[xvii]

U.S. Exchange
Baidu BIDU Internet search $58.27 NASDAQ
JD.com JD E-commerce $33.3 NASDAQ
Qihoo 360 QIHU Internet security and software $23.82 NYSE
NetEase NTES Web portal $9.24 NASDAQ
Ctrip.com CTRIP Travel website $7.48 NASDAQ
Weibo WB Microblog $6.04 NASDAQ
YY YY Social network $3.79 NASDAQ
Youku Tudou YOKU Online video $3.77 NYSE
Sohu.com SOHU Internet advertising and search $2.26 NASDAQ
Changyou.com CYOU Online games $1.41 NASDAQ
Renren RENN Social network $1.22 NYSE

Source: Google Finance.

Variable Interest Entities: A Regulatory Work-Around

All of China’s major Internet companies that list on U.S. exchanges use the VIE structure as a means of circumventing Chinese restrictions on their access to foreign capital. The VIE structure is best understood by looking at a specific company case in which ownership is deliberately obscured by a series of shell companies. In the case of Weibo, a leading microblogging website in China, U.S. investors who purchase stock on the NASDAQ are buying into a company called Weibo Corporation, which is based in the Cayman Islands. According to Weibo Corporation’s U.S. Securities and Exchange Commission (SEC) filing, Weibo Corporation is the sole owner of a Hong Kong-based firm called Weibo Hong Kong Limited (“Weibo HK”), which wholly owns and operates a subsidiary in China known as Weibo Internet Technology (China) Co., Ltd. (“Weibo Technology”).[xviii] However, because the subsidiary Weibo Technology is wholly owned by foreign entities (Weibo Coporation and Weibo HK), it is banned from directly owning and operating a website in China, a service that is subject to foreign equity caps and various Internet-related licenses.[xix]

The Chinese company that actually operates the microblog Weibo (and has the requisite government licenses to do so) is called Beijing Weibo Interactive Internet Technology Co., Ltd. (“Weibo Interactive”). Weibo Interactive is wholly owned by another Chinese firm called Beijing Weiming Technology Co., Ltd. (“Weiming”), which is a VIE. As a VIE, Weiming’s primary functions are to hold the equity of the primary Chinese company and engage in a series of contractual arrangements with foreign-owned Weibo Technology. (Figure 2 was included in Weibo Corporation’s SEC filing and illustrates this structure.)[xx]

Figure 2: Weibo’s VIE Structure[xxi]

Source: Form F-1 Registration Statement, Weibo Corporation, U.S. Securities and Exchange Commission.

According to Weibo Corporation’s SEC F-1 filing, the contractual arrangements between the foreign subsidiary Weibo Technology and the VIE Weiming include: “loan agreements, share transfer agreements, loan repayment agreements, agreements on authorization to exercise shareholder’s voting power, share pledge agreements, exclusive technical services agreement, exclusive sales agency agreement and trademark license agreement.”[xxii] This byzantine complex of legal arrangements allows foreign investors to invest in Weibo Interactive without maintaining direct share ownership, which would be illegal under Chinese law. These loan agreements ostensibly guarantee to the foreign-owned subsidiary Weibo Technology the profits of the VIE Weiming and the right to purchase Weiming at a pre-determined price.

In sum, this intricate ruse is a way of making the business appear to be Chinese-owned to Chinese regulators while claiming to be a foreign-owned business to foreign investors.[xxiii]Neither claim is technically true, and the arrangement is highly risky and potentially illegal in China.

Risks of Investing in VIE-based Internet Firms

The utilization of VIEs in sectors of the Chinese economy that ban or restrict foreign investment has long been the subject of debate. These sectors are typically those deemed by the Chinese government as strategic and emerging industries (SEIs)[xxiv] or otherwise sensitive for political or national security reasons. Internet-related services fall under all of these categories, which explains why the vast majority of Chinese firms using VIEs to list on U.S. exchanges are in the Internet industry.

Legality and Enforceability of VIEs in China

Many U.S. legal experts argue that the VIE structure is technically illegal under Chinese law, and advise U.S. investors against engaging in such investments. The risk of investing in VIEs is, in fact, described in painstaking detail in SEC filings. For example, in Alibaba’s SEC Form F-1 in the section entitled “Risk Factors,” the company states:

Foreign ownership of certain types of Internet businesses, such as Internet information services, is subject to restrictions under applicable PRC laws, rules and regulations. For example, foreign investors are generally not permitted to own more than 50 percent of the equity interests in a value-added telecommunication service provider.[xxv]

Nonetheless, the lure of high returns in the short-term from access to the vast and growing China Internet market appears to outweigh this risk, so U.S. investors continue to invest and Chinese firms continue to list on U.S. exchanges.

Chief among the many risks related to VIEs is the fragility of the legal contracts that are the foundation for the entire set-up. Because the legal contracts are between the wholly foreign- owned subsidiary and the VIE, both of which are established in China, the contracts are only binding and enforceable if Chinese courts are willing to uphold them.[xxvi] Since the entire VIE structure is built on the premise of circumventing Chinese government regulations, relying on Chinese courts to uphold the VIE contracts in court is highly risky.

Therefore, for U.S. investors, a major risk is that the Chinese shareholder of the VIE will steal the entity, ignoring the legal arrangements on which the system is based.[xxvii] In theory, the wholly foreign-owned subsidiary would then have to take the VIE to court to seek enforcement of the legal contracts. However, such a scenario is unlikely because of the high probability that the Chinese judges will not honor the contracts, though there is no evidence of legal precedence. In Alibaba’s SEC Form F-1 filing, the company’s legal representative explains the risks of judicial non-enforcement in detail.[xxviii]

Given that some of China’s most successful new companies rely so heavily on VIEs, the Chinese government has yet to take any concrete steps to dismantle them.[xxix] However, some recent regulatory decisions indicate that VIEs may come under scrutiny if the Chinese government so chooses. In 2013, China’s top judicial body, the Supreme People’s Court, ruled that contractual agreements between Hong Kong and Mainland companies (referring to the VIE agreements) were clearly intended to circumvent Chinese regulations and were tantamount to “concealing illegal intentions with a lawful form.”[xxx] Earlier, in 2009, the General Administration of Press and Publication (GAPP, which is now part of the State Administration of Press, Publication, Radio, Television, and Film or SAPPRFT) published a notice that the VIE structure was specifically prohibited in the online game sector.[xxxi] The Ministry of Commerce and the China Securities Regulatory Commission (CSRC) have also discouraged VIEs, especially in the Internet sector.[xxxii]

Understanding the Alibaba IPO
The much anticipated Alibaba IPO will be the latest in the recent trend of Chinese Internet firms listing on U.S. exchanges and is expected to be among the largest IPOs in U.S. history. Like other Chinese Internet firms, Alibaba will use a VIE structure to list in the United States.[xxxiii] Therefore, Alibaba stock will carry the same legal risks as other Chinese VIE-structured Internet companies. Alibaba’s SEC Form F-1 filing describes the legal ambiguity of its VIE and related risks bluntly:

If the PRC government deems that the contractual arrangements in relation to our variable interest entities do not comply with PRC governmental restrictions on foreign investment, or if these regulations or the interpretation of existing regulations changes in the future, we could be subject to penalties or be forced to relinquish our interests in those operations.[xxxiv]

In addition, Alibaba will be using a preferential stock structure that will consolidate all decision-making authority with the company’s founders in China. Under this stock structure, share ownership does not equate to voting rights in the company.[xxxv] According to the company’s SEC filing, “This governance structure…will limit your ability to influence corporate matters, including any matters determined at the board level.”[xxxvi]

Alibaba’s controversial history, with its first major foreign investor Yahoo!, sheds light on the risks U.S. investors face in buying into Chinese Internet companies under the VIE structure. In 2010, Alibaba chairman Jack Ma spun a deal that angered foreign investors but was achievable

due to the VIE structure.[xxxvii] Alibaba had developed an online payment tool called Alipay, a service akin to PayPal. Launching the tool was expected to have positive consequences for Yahoo! as a major investor in Alibaba. However, through the autonomy that the VIE granted to Ma, he secretly and unilaterally decided to spin off Alipay as a separate company owned solely by himself, though it was developed with Alibaba resources and supported by foreign investors.[xxxviii] Under the VIE structure, there is no obligation of the parent company to notify foreign investors of these kinds of decisions, which can prove very costly for them. As a result, Yahoo! lost out on any direct benefit from launching Alipay, and Ma was able to seize the business without any knowledge or input from Alibaba’s foreign investors.

Most recently, Alibaba’s decision to launch its IPO in the United States instead of Hong Kong is noteworthy. In order to consolidate control over the company in the hands of the original founders, Alibaba has insisted on using a preferential stock structure in which investors will have no decision-making authority over the business.[xxxix] That authority remains with the management in China. Hong Kong regulations currently do not permit publically traded companies to use preferential stock structures, which Alibaba set as a precondition for listing there. Given the large size of the Alibaba IPO, Hong Kong regulators were under investor pressure to revise the rules to accommodate Alibaba. But Hong Kong decided ultimately to retain its rules that guarantee equal voting rights for shareholders.[xl]

Because the United States permits unconventional stock structures as long as they are disclosed in SEC filings, Alibaba chose to file for its IPO in New York.[xli] Preferential stock structures are not uncommon in the U.S. Internet sector, and there is nothing inherently bad about them. However, investors in U.S.-based companies that use preferential stock structures have the strength of the U.S. judicial system as a safety net if the listed company attempts to steal investments or engage in other unlawful activities. In the case of Alibaba, as well as other Chinese companies listed on U.S. exchanges, U.S. investors would need to rely on China’s judicial system to seek remedy for any unlawful acts. The Communist Party-controlled judicial system has an inconsistent record in securing the rights of foreigners in disputes with Chinese entities.[xlii]

See Addendum on page 11 for updates regarding Alibaba’s IPO.

Risks Related to Corruption and Internet Censorship

Another factor that U.S. investors should consider is the possibility and consequence of Chinese Internet companies engaging in corrupt practices, especially those associated with Internet censorship in China. Corruption is prevalent in China and makes doing business there challenging for those who resist engaging in shady practices.[xliii] In its China Business Report 2013-2014, the American Chamber of Commerce in Shanghai reported that the problem of corruption and fraud is one of the top five challenges for American companies in China, with 82 percent of member companies surveyed saying that the frequency of corruption and fraud encountered was at the same level or increasing since the previous year.[xliv]

Employees of Chinese Internet companies often accept bribes for removing embarrassing or accusatory information from the Web.[xlv][xlvi] Although the Chinese government itself censors the Internet through official channels under Chinese law, often removing criticism of top government and party officials, an alternate for aggrieved officials accused of wrongdoing by netizens using social media also exists. This unofficial system of censorship is also widespread and generally involves government officials, companies, or private citizens paying bribes to employees of Internet companies to remove negative information about them from the Internet. There have been multiple cases of this kind of bribery, and it is a growing black market industry in China.

For example, in August 2012, three Baidu employees were arrested for taking bribes of about $96 to remove defamatory online comments about government officials and companies. Subsequently, the average bribe for content deletion on Baidu rose to about $386. Some reports claim that for a larger fee (about $4,800), content can be deleted across all Internet portals.[xlvii]In another case, former General Manager of Alibaba Yan Limin was arrested in August 2013 on suspicion of accepting two bribes in the form of expensive cars while employed by the e-commerce firm.[xlviii] Several other Alibaba employees were also found guilty of related corruption and bribes.[xlix] Alibaba fired Yan prior to the arrest and issued a statement that it does not tolerate “behavior of this sort.”[l] However, Alibaba has other fraudulent activity in its recent history. For example, in 2011, about 100 Alibaba employees used the company’s online trading platform to assist in making false stock listings for personal gain.[li]

Most recently, a market has developed in China of “Internet PR agencies” or “dark PR agencies” that facilitate exchanging bribes for unofficial censorship.[lii] In some cases, these agencies are intermediaries for the payment of bribes between Internet company employees and government officials. In other cases, the PR agency conducts the censorship itself. One example was the firm Yage Time founded by former Baidu employee Gu Dengda. Gu understood the Internet censorship infrastructure from his experience at Baidu and used that knowledge to censor information for private or government entities in exchange for a fee. According to a former Yage Time employee, 60 percent of the company’s business was from “minor government functionaries deliberately seeking to erase local whistle-blowing reports.”[liii]

In their SEC disclosures, Chinese Internet companies are not required to and generally do not reveal any history of corruption or bribery nor do they describe how they use the Chinese government’s censorship infrastructure to engage in unofficial censorship. However, Chinese Internet companies listed on U.S. exchanges[liv] fall under the jurisdiction of the U.S. Foreign Corrupt Practices Act (FCPA) even for acts of corruption that take place outside United States.[lv] For example, under the FCPA’s accounting provisions, bribes, including foreign bribes, that are mischaracterized in a company’s financial records are in violation of Section 13(b)(2)(A) of the Securities Exchange Act of 1934.[lvi] In addition, failure to properly disclose material information about the company’s business, “including material revenue, expenses, profits, assets, or liabilities related to bribery to foreign government officials” is in violation of the FCPA.[lvii]


Despite the risks outlined above, some securities analysts claim that VIEs, in theory, are not inherently risky. In fact, some analysts argue that VIEs are the only reasonable mechanism to bring foreign investment into China’s Internet sector. Moreover, it is not VIEs themselves but rather Chinese government policies that are the true source of the problem: a lack of enforceability in Chinese courts. Thus, in seeking to reduce the risks of Chinese VIEs on U.S. exchanges, the United States should engage China to remedy the following more fundamental problems:

1. Unequal Access for Foreign Digital Services in China

The U.S. has a global competitive advantage in services, especially information and communication technology (ICT), and certain services that can be distributed digitally, such as music, movies, and other forms of intellectual property.[lviii] According to a U.S. Department of Commerce study, in 2011, ICT-related services made up over 60% of U.S. services exports and 17% of overall exports, with demand concentrated in Europe and East Asian markets.[lix] Yet, U.S. service exports to China in these sectors have remained extremely low. For example, in 2012 less than 3 percent of U.S. exports in digitally-distributable services were bound for China.[lx] This disparity is illustrated in Figure 3.

Figure 3: U.S. Exports of Digitally-Distributable Services by Region

Source: Bureau of Economic Analysis, U.S. Department of Commerce.

This trade imbalance is due largely to Chinese restrictions on the free flow of information over the Internet, specifically the requirement that Internet companies be majority owned by Chinese nationals. These restrictions are the main reason why Chinese Internet companies must establish VIEs to list on U.S. exchanges. Eliminating these restrictions would greatly reduce the need to establish VIEs.[lxi]

2. Restricted Financial Markets in China

China’s restricted financial markets make it very difficult for Chinese firms to list domestically or to list directly on overseas exchanges. As a result, Chinese Internet companies in need of financing have little choice but to use the VIE structure to obtain foreign capital. Therefore, China’s restricted financial markets not only create unnecessary risks for investors by forcing companies into VIE structures, they also limit the growth potential of Chinese Internet companies that could more efficiently access capital by listing domestically or directly overseas rather than via VIEs. Liberalization of financial markets, therefore, would also reduce the need to establish risk-ridden VIE structures.

3. China’s Rudimentary Rule of Law

Chinese VIEs are excessively risky precisely because the legal contracts upon which the structure is based are enforceable only in China, where rule of law remains underdeveloped. Investors have little faith that raising grievances through the Chinese judicial system will lead to a fair ruling, particularly when the complainant is foreign. Improved rule of law would encourage U.S. investors that they can fairly file complaints through the Chinese legal system.

4. Ambiguity Surrounding the Legality of VIEs in China

While some Chinese government agencies have indicated that the VIE structure is illegal in China, the Chinese government, in practice, has allowed them to exist. This legal ambiguity contributes to the risk born by foreign investors, who are unsure if or when the Chinese government may begin to enforce its previous statements that VIEs are illegal. Clarification from the Chinese government on the legal status of VIEs would help reduce uncertainties among foreign investors.[lxii]

The VIE structure does not appear to be a sustainable model if major Chinese companies continue to list on U.S. exchanges. If U.S. investors continue to buy into such Chinese VIE schemes and the system collapses, the scenario could be akin to the 2001-2011 Chinese reverse-merger debacle that cost U.S. investors an estimated $18 billion.[lxiii] If China were to enforce its laws and ban VIEs, the result would be a short-term loss for the foreign investors involved as well as the Chinese and foreign firms that use them to operate in China. If China maintains the foreign equity restrictions that compel firms into the legal ambiguity of the VIE structure, the potential result is a more extensive loss in which U.S. and other foreign Internet and ICT services firms have no legitimate access to compete fairly in the Chinese market, and Chinese firms will continue to resort to legally questionable methods to obtain foreign capital.

Addendum: Updates on Alibaba’s IPO

This addendum contains further details related to Alibaba’s upcoming initial public offering (IPO), and is based on updates to Alibaba’s filings to the U.S. Securities and Exchange Commission (SEC) as well as media reports released after the original publication of this staff paper on June 18, 2014.

Alibaba Escapes Enforcement of China’s Antimonopoly Law: In advance of Alibaba’s IPO, which is now estimated to raise over $20 billion, the company has expanded its already large market share by acquiring substantial stakes in other Chinese Internet companies, including many competitors.[lxiv] However, Alibaba’s acquisition spree has not raised any official accusations that it is in violation of China’s Antimonopoly Law (AML). Based on estimates of Alibaba’s market capitalization after the IPO, the company is expected to be two to three times larger than some of China’s state-owned enterprises (SOEs), including China Telecom.[lxv] So far in 2014, Alibaba has spent about $5 billion in acquisitions, targeting sectors that complement its e-commerce business, such as online maps, social media, and logistics.[lxvi] On September 5, 2014, Alibaba submitted an update to its SEC filing in which it acknowledged that China’s Ministry of Commerce (MOFCOM) could choose to review the company’s acquisitions for antitrust considerations, given the company’s size.[lxvii] According to the AML, companies are required to notify MOFCOM of such acquisitions, and Variable Interest Entity (VIE)-structured companies are required to seek special approval from MOFCOM to acquire other Chinese companies.[lxviii] According to Alibaba, MOFCOM has never approved acquisitions by VIE-structured firms, suggesting that the company has, up to now, escaped enforcement of the AML.[lxix] Alibaba’s ability to avoid AML enforcement to date comes at a time when China has been using the law with increasing frequency to punish foreign firms for alleged antitrust behavior, indicating unequal treatment between Chinese and foreign firms. On September 8, the U.S. Chamber of Commerce released a report stating that such unequal enforcement of the AML may be a violation of China’s World Trade Organization (WTO) commitments.[lxx]

China Securities Regulatory Commission (CSRC) Can Still Delay IPO: According to Chinese regulations on mergers and acquisitions (M&A) revised in 2009, VIE-structured companies such as Alibaba must seek permission from the CSRC before listing on overseas stock exchanges.[lxxi] According to Alibaba’s filings to the SEC, the regulation “purport[s] to require that an offshore special purpose vehicle formed for the purpose of an overseas listing of securities in a PRC [People’s Republic of China] company obtain the approval of the CSRC prior to listing and trading . . . on an overseas stock exchange.”[lxxii] Despite its apparent understanding of the rule, Alibaba claims that the regulation is “unclear” and that—based on their legal representatives’ assessment—the company does not need to seek CSRC approval (and has therefore not done so).[lxxiii] However, Alibaba admits that the CSRC may nonetheless apply the rules to the company’s IPO. In this case—according to the company—the CSRC or any other PRC regulatory agencies may also take actions requiring Alibaba to halt the IPO prior to settlement and before delivery of traded shares begins.[lxxiv]

Alipay and Alibaba Remain Separate: Due to Chinese government restrictions on foreign ownership of financial services, Alipay (Alibaba’s online payment platform) continues to be under separate ownership from Alibaba.[lxxv] Therefore, U.S. investors who purchase Alibaba stock will not have an ownership stake in Alipay. Alibaba claims it will be the recipient of about one-third of Alipay’s profits, but it will not hold a stake in Alipay, as that would violate Chinese laws restricting foreign investment in the financial services sector.[lxxvi] Nonetheless, Alipay’s performance will be central to Alibaba’s profitability. According to updates to Alibaba’s IPO filing, “Any negative event involving Alipay could harm Alibaba’s core business.”[lxxvii]Alibaba outlined several risks associated with Alipay’s business, including increased regulatory attention from the Chinese government, security leaks of customers’ private information, and possible employee fraud.[lxxviii] In addition, Jack Ma, who will stay on as executive chairman of Alibaba, will maintain majority control over Alipay through its parent company, Small and Micro Financial Services Company. According to Alibaba’s filings, this leaves open the option of Ma making decisions that benefit Alipay but harm Alibaba.[lxxix]

Chinese Princelings, Putin Ally Could Profit from IPO: A number of Chinese princelings, the descendents to the Chinese Communist Party’s political elite, stand to profit from the Alibaba IPO. Among these potential beneficiaries is Winston Wen, son of former Premier Wen Jiabao. Wen’s stake in Alibaba is through New Horizon Capital, a fund he cofounded and that is backed by Japan’s Softbank.[lxxx] Neither the firm nor Alibaba have disclosed Wen’s stake, but it is estimated at 3.73 times its original value.[lxxxi] Other princelings obtained their Alibaba stakes in a large share transfer deal in 2012. In the deal, Yahoo, which is still a major stakeholder in Alibaba, sold half its shares valued at $7.6 billion to a select group of Chinese private equity firms with princelings occupying senior executive positions.[lxxxii] These firms included Boyu Capital, CDB Capital, and CITIC Capital Holdings, Ltd. Following a report from The New York Times in July 2014 linking these firms and their princeling executives to Alibaba, the company disclosed their respective shares to the SEC.[lxxxiii] Boyu Capital, which was cofounded by former President Jiang Zemin’s grandson Alvin Jiang, holds a 0.55 percent stake; CDB Capital, whose vice president is He Jinlei, son of former Politburo Standing Committee member He Guoqiang, holds a 0.47 percent stake; and CITIC Capital, whose senior managing director is Jeffrey Zeng, son of former Vice Premier Zeng Peiyan, holds a 1.1 percent stake.[lxxxiv]Together, these companies hold an estimated $4 billion in Alibaba shares; they will be selling more than 11.4 million shares in the IPO.[lxxxv] Alibaba denied the princelings have any political influence over the company; however, some commentators believe that the princelings’ stake in the company means they have a vested interest in seeing a successful Alibaba IPO—which could explain the company’s ability to avoid enforcement of both the AML by MOFCOM and the M&A rules by the CSRC, described earlier in this Addendum.[lxxxvi]

Russian oligarch Alisher Usmanov, a close ally of Russian President Vladimir Putin, may be another beneficiary of the Alibaba IPO. Usmanov, a large investor in China’s Internet companies, could earn substantial profits if he sells his Alibaba shares during the IPO.[lxxxvii] In a March 2014 opinion piece in The New York Times, Russian lawyer and activist Alexey Navalny called on the Obama Administration to target sanctions at Putin’s “inner circle,” including Usmanov.[lxxxviii] Although Usmanov is considered the wealthiest person in Russia and is a member of Putin’s inner circle, he and his financial management firms do not appear on the U.S. Treasury Department’s Sectoral Sanctions Identifications List related to the crisis in Ukraine.[lxxxix] Usmanov’s asset management company, USM Holdings,[xc] revealed in March 2014 that Chinese companies “accounted for about 70 to 80 percent of the [company’s] portfolio of . . . foreign Internet investments,” with most of its investments in “Alibaba, JD.com, and some other companies with great potential.”[xci] In 2011, Digital Sky Technologies (DST), a venture capital fund of which Usmanov is the largest shareholder, joined other funds—namely Silver Lake and Yunfeng—in purchasing a $1.6 billion stake in Alibaba.[xcii] Although the current value of Usmanov’s own Alibaba stake is unclear, Alibaba revealed in updates to its SEC filings that Silver Lake, Yunfeng, and their “affiliated entities” own a combined 4 percent of Alibaba, with about 10 percent of those shares set to be sold during the IPO.[xciii] Furthermore, it appears Usmanov has begun disguising his control of USM by reducing his shares to a nominal minority. In August 2014, Usmanov sold 10 percent of USM to reduce his voting share to a minority 48 percent share.[xciv] The shares were sold in divided stakes to Usmanov’s close advisors, including USM’s Chief Executive Officer (CEO) and other executives of companies controlled by Usmanov.[xcv] Usmanov claimed that the decision was not motivated by current tensions in Ukraine or the threat of sanctions.[xcvi] However, with Usmanov ostensibly holding only a minority share in USM, the company could be immune to U.S. sanctions, even if Usmanov himself is added to the sanctions list.[xcvii]

The U.S.-China Economic and Security Review Commission was created by Congress to report on the national security implications of the bilateral trade and economic relationship between the United States and the People’s Republic of China. For more information, visit www.uscc.gov or join the Commission on Facebook!

Disclaimer: This paper is the product of professional research performed by staff of the U.S.-China Economic and Security Review Commission, and was prepared at the request of the Commission to support its deliberations. Posting of the report to the Commission’s website is intended to promote greater public understanding of the issues addressed by the Commission in its ongoing assessment of U.S.-China economic relations and their implications for U.S. security, as mandated by Public Law 106-398 and Public Law 108-7. However, the public release of this document does not necessarily imply an endorsement by the Commission, any individual Commissioner, or the Commission’s other professional staff, of the views or conclusions expressed in this staff research report.

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Philippines Prove Chinese have Invaded Their Island

Posted by w_thames_the_d on September 11, 2014

Take this China, suck it….

MANILA (Reuters) – The Philippines on Thursday put on display dozens of ancient maps which officials said showed that China’s territorial claims over the South China Sea did not include a disputed shoal at the centre of an acrimonious standoff.

The Philippines is in dispute with China over parts of the South China Sea, including the Scarborough Shoal, an area believed to be rich in oil and natural gas as well as fisheries resources.

China seized control of the shoal in June 2012 and has prevented Philippine fishermen from getting close to the rocky outcrop, a rich fishing ground.

Philippine officials said the exhibition of old maps at a university showed that for almost 1,000 years, from the Song Dynasty in the year 960 until the end of the Qing Dynasty early in the 20th century, China’s southernmost territory was always Hainan island, just off the Chinese coast.



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Chinese Mom Trues to Kidnap American Child

Posted by w_thames_the_d on September 11, 2014

This crazy nag tried to kidnap a child and take him to hell-China. She boarded a plane and thank goodness it wasn’t Air China or she would have gotten away with it.

Read the details below

LOUDOUN COUNTY, Va. (WUSA9) — The U.S. Attorney’s Office says the hearing for a mother accused of trying to fly a child to China without permission from the father has been postponed.

Last week, we told you that a custody battle between Loudoun County parents forced a Beijing-bound flight to return to DullesInternational Airport. The flight carrying Wenjing ‘Linda’ Liu of Fairfax and her son had flown over Canada before the pilot announced the plane was headed back. Had the plane not turned around, the incident could have become a major international custody battle. The U.S. only has custody treaties with 90 countries, and China is not one of them.

Liu and her son were met by authorities when the plane landed, according to an affidavit. The child was returned to his father, William Ruifrok III, and Liu was taken into custody, officials said.

The father had notified the FBI that Liu was attempting to take their son to China without his permission. Liu is not allowed to take the child out of the country without the father’s permission, according to a custody agreement.

Liu had emailed the child’s father to say that her grandmother was dying and that “we gotta fly back asap,” according to an affidavit. The father told Liu that their son couldn’t go, but Liu said she already booked a flight and they were leaving immediately, according to an affidavit.

Liu faces attempted international parental kidnapping, according to an affidavit.

Ruifrok, who is American, separated from his wife Liu last year. The parents had joint custody of the child, but according to the custody agreement, neither parent was allowed to take the child outside the U.S. without the other’s consent.

Liu sent her estranged husband an email saying her grandfather was dying and she was taking their son to China, investigators told NBC News. When Liu ignored Ruifrok’s objections, he notified FBI about the potential kidnapping.

Passengers said the pilot initially told them they had to return due to mechanical issues, CBS News reported.

“After they left, the pilot came back on and said that he deliberately misled us, he thought that, in his judgment that it was the best thing to do, given the circumstances of potential abduction that that’s the reason we had diverted,” passenger Lane Bailey told the station.

Flight 897 continued on to its destination Thursday evening.



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