Jack Ma knows as much as anyone about how China’s middle class spends its money. What will he do with this information?

I do think that being given the basic environment, the Chinese will be great businesspeople.
We only need to see the situation in Hong Kong, Singapore, and other Chinese communities in other countries like Malaysia, etc.
And now, it's China the mainland. Let's wait for a new era of business.

This article shows that the consumer part of China is soaring - making the Middle Kingdom the new Eldorado for foreign and local companies.

Intriguing article that highlights developments in e-commerce in China that may not be widely known (probably fewer people in outside of E. Asia are aware of Alibaba than those who may know say Rakuten in Japan).

If the figures on user/business activity on his e-commerce sites are true, seems like there is a lot of runway for Mr. Ma to develop informational assets that would be highly desirable to commericial firms, both Chinese and foreign.

I did find the following points disturbing though:

The government largely controls the allocation of credit in China. Through state-controlled banks, it funnels the nation’s savings to large, politically favoured firms.

The above statement seems to signify at a minimum an element of cronyism that could down the road react negatively to e-commerce developments, or may implied a degree of latent power for government agencies to exercise administrative guidance over private firms.

So how "closed" is the Chinese economy in reality?

This article is still too shallow. One important question is: Why Amazon and Ebay failed in China? They tried to enter the Chinese market but failed. Yahoo! was smarter. It used some money to buy stocks of Alibaba and the return is more than 500%. I know several key reasons but I would like to encourage journalists of Economist to dig deeper in China's news.

True, China's state-controlled banks funnels the nation’s savings to politically favoured firms, but not necessarily "large" firms as suggested by Economist. In fact, many small private clean energy firms can easily get loans from banks in recent years. However, many large state-owned firms' applications for loans were rejected because they were investing money in real estate market.

It is not surprising for China to use state savings for its political agenda. In recent years, Chinese firms working on clean energy, new medication, biotech, supper computer chips, space science, high speed train, and other high-tech can easily get loans. Even though Alibaba provides credit to consumers, it has no conflict of interest with China's central government.

In contrast, the U.S. also use state savings for its political agenda. To make "American Dream" come true, the Clinton administration (the former democrat government) urged American banks to lend money to the American poor (mostly black and Hispanic Americans) at a low interest rate. This created huge real estate bubbles, which were not crushed till 2008. In the past 15 years, this stupid political agenda killed the innovation of the U.S. because most of the money was used to buy houses, not to develop new innovations. The U.S. is down because of those stupid American politicians, plus the stupid democratic political system in favor of voters instead of innovations and economic development.

@Chinaeagle:

Wow. Please stick to what you know about. I don't even the most conservative, ractist American would blame the housing bubble on some government policy to advance housing loans to black/hispanic Americans...

With respect to the actual topic of the article, agreed that China has provided cheap loans to a variety of nascent industries which make economic sense and advance important social policy goals (like the US is to a lesser degree for renewable energy under the Dept. of Energy Loan Guarantee program). This is smart and something China should be praised for.

However, the flip side is that loans are also being for solely political/connection reasons, which is not so smart. As Japan and others have shown, lending made for political or other reasons can undermine the entire system.

@Loki2,

Americans love to tout its "freedom of speech" but in fact many "politically incorrect" speech was not allowed in the U.S.

I said, it was wrong to give low-interest loans to black/Hispanic Americans. This is a very neutral comment. I don't understand why you suggested that I am a racist.

The correct policy for the U.S. is giving FREE EDUCATION to black/Hispanic Americans or all the American poor, not giving low-interest housing loans to them. Education is a kind of human capital INVESTMENT while housing loan is a kind of CONSUMPTION. If the government makes investment in human capital, then the country will have more high-tech workers, who will earn more money and thus more taxes for the government. This is a win-win situation for the government and the poor. However, helping the poor to consume is a lose-lose situation for both the poor and the government because the poor will be trapped in high debt and the government will have less tax income because of the financial crisis. Certainly it the short run, stupid policies can help democrats to reap votes. However, in the long run, democrats' stupid policies kill the American economy and innovations.

China's central government rarely gives loans to help Chinese to consume. Instead, China's central government tries its best to give the best education to its people. For example, most of the ethnic minorities (e.g. Tibetans, Uyghurs, Mongolians, The Miao, The Qiang, etc.) can get FREE EDUCATION (including university-level education) in China.

Alibaba may lend money to small firms and consumers. This is a PROFITABLE and RISKY business. But this kind of business is NOT in China's political agenda. It is a more business-related issue rather than a politics-related issue.

Alibaba lends money to help the Chinese to consume; China's central government helps the Chinese to obtain good education. Alibaba lends money to help low-risk small firms while China's central government helps high-risk high-tech firms. They are doing different things. I don't think there is any conflict of interest between Alibaba and China's central government.

Chinaeagle,

Thank you for the additional perspective Chinese banking. Quick question - Has access to capital been limited to hinder foreign operations within China, or utilized as a tool for implementing non-tariff barriers?

I ask with Japan's administrative guidance practices of the 1980s as non-tariff barriers in mind (for example: say prevent dealerships or Toys R Us from setting up shop, or hindering foreign firms from bidding on contracts for steel and bridges, etc.).

Otherwise, we do have public education in the United States, but varies considerably in quality (essentially a highly localized checkered system).

As for the housing boom, that followed the 2001 recession really (I know becuase I owned an apartment beforehand and cashed out nicely in 2005). Another data point - the jump in proportion of subprime loans took place from 2004 to 2006, when they approached or breached 20% of originations.

Financial interests in securitization, private speculation, as well as an uncontrolled, and ultimately unstable business environment was likely the predominant cause of the bust (so gut feel say 80% private financial sector).

The government wasn't telling private institutions to leverage up massively (employing all sorts of financial tricks), or play games with rating securitized instruments, or engage in predatory lending (having people crammed down to subprime status), or tolerate mortgage fraud (which blossomed around 2003 to 2005), etc.....

As for home ownership, it is a good goal in America - creates stability. However, overall percentages of housing units owned hadn't moved very quickly (from 64% to something like 67% under Clinton; then 67% to something like 69% under Bush; back down to 67% - Source US Census Bureau - http://www.census.gov/hhes/www/housing/hvs/annual05/ann05t12.html )

Mr Ma,i am so glad that he creats taobao.com which bring much convient for buying.

China is a great place to be right now for entrepreneurs. It is here where ideas can develop fast (or fail fast) and where the market is hungry for new ideas. As a foreigner who has been living in Beijing for the past two years, I cannot help but feel that China is becoming somewhat of a hub for all sorts of new ideas: in the medical field, internet, environment, energy etc.

Because of its fast and unprecedented growth, China faces challenges no other nation has had to face before. Therefore, it needs solutions to problems. These solutions come in the form of entrepreneurial ideas that will help carry China safely into the 21st century.

I have recently written an interesting article about China and the world in my blog: www.laowaiblog.com

I invite everyone to read and to comment

Thank you!

I note that Aliexpress.com is very conspicuous by its absence here.

As the next Craigslist, it's easy to anticipate why.

@Michael Dunne

Thank you for providing the house ownership data during 1995-2004. However, since many houses were actually owned by banks rather than the American poor during the Clinton administration, the fluctuation of house buyers is not reflected in the house ownership data. I cannot believe that the number of house buyers was so stable during 1995-2004. Keep in mind that house buyers are different from house owners.

The Clinton administration did use financial tools to pursue its political agenda. To make American houses "affordable" to black/Hispanic Americans, the Clinton administration used government-sponsored Fannie Mae and Freddie Mac to execute its political agenda.

If Fannie Mae and Freddie Mac were not backed and sponsored by the American federal government, nobody would dare to lend money to those black/Hispanic Americans, who cannot afford houses. In short, it is wrong for Democrats to give houses to the American poor. The correct policy is giving education to them.

An analysis is available here:
Bill Clinton Helped Cause 2008 Financial Crisis
http://www.newsbusters.org/blogs/noel-sheppard/2010/04/24/media-heresy-b...

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Chinaeagle wrote: "China's central government rarely gives loans to help Chinese to consume. Instead, China's central government tries its best to give the best education to its people. For example, most of the ethnic minorities (e.g. Tibetans, Uyghurs, Mongolians, The Miao, The Qiang, etc.) can get FREE EDUCATION (including university-level education) in China."

While I agree to your comments to some degree, the Chinese Central Government did subsidize the consumption of home appliances in the rural areas as recently as last year to stimilate the domestic consumption due to dropping of export to the West.

Also, the Chinese education system only offer nine years of free schooling. Many bright talent students in the poor inner provinces often have to drop out after middle school due to lack of funding to go to senior high schools. Some lucky ones receive support from non-profit organizations to continue on. I know this for a fact because I personally donated money to the organizations in Hongkong.
Funding for education in China is still relatively low comparing to Western countries. The Central government needs to address this with higher ratio of the percentage of GDP in the coming future.