Wednesday, 29 October 2014

Hollywood Babble On & On #1190: Ma's Money Meets Movieland

Jack Ma is an extremely rich man, and his company Alibaba Group, had the biggest IPO ever, and he's on a little shopping trip in Hollywood.

First, he's looking for content. Alibaba handles a wide range of online services, and its the entertainment wing that's needs content and lots of it. Remember, there are well over a billion people in China, they crave entertainment, and, for the first time in the country's history, the country has a growing middle class who has money to spend on entertainment.

But reports say that Ma is looking at more than just content. There's talk that he's considering buying a piece of mini-major Lionsgate Pictures.

Buying a piece of Lionsgate is probably a smart move for him, because it would set him up with something outside of China.


Because, as I always say, China is a growing market, but it's not a free market.

Jack Ma is rich, important and prominent, and that's great, but in the context of China, he is not truly powerful. True power in China rests solely in the hands of the ruling Communist party.

Under the Communist Party, China is a fundamentally feudal economy. A merchant/worker class is allowed to make money, but only as long as they please the ruling political elite. Except instead of Kings, Lords, and Knights that need appeasing Chinese businesspeople must pay various forms of obeisance to politicians, policemen, military officers and bureaucrats. Displease any of them and you could end up having your assets seized, and your ass seized shipped off to the dankest dungeon around.

Since it's very uncomfortable to do business while balancing on a political high wire that being jerked around by the whimsy of over 100 internal political factions, it's important to build a safety net.

That safety net comes in the form of foreign assets.

A good example of this practice is Russia. It's dangerous business to be rich and successful in Russia. At any moment the cronies of the ruling class may decide that your property would look better in their possession. Then you are well and truly screwed.

That's why you see Russian oligarchs dropping huge money to buy up foreign assets, their favourite being British real estate. They need something that is outside of the reach of their hometown higher-ups so that when the shit hits the fan, at least their family can live in comfortable exile.

It's unlikely China's government will embrace wider economic freedom in the form of expanding political rights, including protection from unlawful interference, imprisonment, and seizure. That's because they remember what happened to the regime of General Augusto Pinochet and his Junta who took over Chile in a bloody coup.

At first the Junta tried to rule the nation's economy the way they ruled everything else, with a mix of brutality and corruption.

Their attempts at central economic control flopped, leaving the country with high unemployment, crippling inflation, and exploding debt.

Desperate, the Junta agreed to follow a program designed by University of Chicago economist Milton Friedman. That program called for the government to essentially pull out of economic matters almost entirely. That meant that one of the most politically oppressive regimes in the Western Hemisphere had a high level of economic freedom.

What happened?

Chile is no longer ruled by a military dictatorship. The growth caused by the economic freedom led to a movement for greater political freedom that eventually forced the Junta out of power.

The rulers of China, be it the men at the front, or the string pullers behind the scenes, have learned that lesson. They will allow only enough to generate prosperity, and do everything they can so it doesn't go any further.

So expect Ma, and others like him from China to start buying up not only content, but companies, real estate, and anything else that can be well and truly theirs and out of the reach of politicians.

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