Alibaba's land speculation under guise of e-commerce
Jack Ma stands in front of the Alibaba logo, Nov. 12, 2013. (Photo/Xinhua)
Cainiao Network Technology Company, jointly developed by Alibaba and several delivery firms and financial institutions, has started building Alibaba founder Jack Ma a smart logistics empire through acquiring lands in large quantities, a move that may turn sour with land speculation, reports Shanghai-based IT Times.
Integrating e-commerce and logistics, Cainiao will spend five to eight years developing eight cities capable of sustaining businesses worth an average of 30 billion yuan (US$4.9 billion) per day. There will be 8 first-level, 16 second-level and 32 third-level logistics points. Once the network is finished, Cainiao will be able to charge sellers of Tmall and Taobao as well as other e-commerce operators warehousing fees.
Local governments have largely welcomed Ma's venture and have listed logistics industry areas in their planning charts, likely hoping that an increase in gross domestic product (GDP) will come with Cainiao's smart network.
The prefecture-level city of Jinhua in Zhejiang province serves as a guide to understanding Cainiao's rapid expansion in China and Alibaba's ambitions for it. At a time when Jinhua was in need of a development plan, Alibaba was quick to purchase 100 hectares of land to be developed into a logistics industry area, totaling 150 billion yuan (US$2.5 billion) in investment.
The local government levied 40 hectares for the first phrase of project within three months. Eighty hectares will also be seized in a similar process, half of which will be allocated to Cainiao and the rest to logistics companies such as STO, YTO, ZTO, Yunda, and China Post. Those who were living on the land received compensation of 540,000 yuan (US$88,000) per hectre and will be relocated to new buildings.
Alibaba expects to invest 100 billion yuan (US$1.6 billion) in the first phrase of the project that will see the construction of warehouses and office facilities. Construction is set to be completed by September and operations are then expected to start. The whole logistics industry area is set to be completed by 2018.
The speed with which the local government negotiated with local residents to free up land for the project and that of construction has come as a surprise even to Alibaba and is evidence perhaps of the eagerness of the local government for the e-commerce project to go ahead. There has been some controversy over Cainiao's land acquisitions, however. Nie Linhai, an official from the e-commerce section of China's Ministry of Commerce said recently that Alibaba's construction of a national warehousing network is the wrong direction for the company. According to the official, local governments, eager for the potential business brought by the e-commerce industry, had sold the land off at too cheap a price, adding that he thought a fourth-party payment platform for logistics would make more sense.
Alibaba said that warehouses are essential to smart logistics and that land acquisitions are inevitable, but added that it obtained the lands at an extremely cheap price. Cainiao obtained the 40 hectares for a mere 1.4 billion yuan (US$23 million) instead of its market value of 6 billion yuan (US$98 million).
An unnamed local official revealed that Alibaba's original plan was to acquire 133 hectres and use a quarter for commercial purposes. This plan met with strong and resistance and was eventually given up. Opponents were worried that Alibaba would use the land for real estate construction and land speculation, given Cainiao's land acquisitions in Wuhan and Tianjin.
Four delivery companies STO, YTO, ZTO, and Yunda have started joint land acquisitions as well. BeeNet will build its own warehouses and integrate current logistics.
Cainiao is essentially a real estate developer, according to a logistics analyst. He stated that it only requires an integration of the current logistics network and e-commerce platforms to build a smart logistics system.
Cainiao's and BeeNet's real purposes are to attract logistics companies and e-commerce operators to enter the logistics industry sector and build central business districts, their income will rely not so much on the rent of the warehouses but on capital. The strategy is to acquire lands cheaply in the name of e-commerce, build warehouses to stabilize income in cash, and then capitalize the cash overseas. Since local governments are eager to develop their e-commerce sectors, Cainiao and BeeNet ask for much more lands than they really need, meaning that they may act as real estate developers in the future.
The challenge for smart logistics is to make efficient use of spare land. Whether e-commerce can succeed through logistics real estate remains to be seen, however, as third-party international logistics companies are popular and may hinder Alibaba's global ambitions.
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