Today Alibaba Group reported its March quarter and fiscal 2019 earnings. Below are comments Executive Vice Chairman Joe Tsai made during a call with analysts.
We had a great quarter with operations, revenues and profits beating expectations. This shows the resilience of our business in the face of complex geopolitical and economic conditions. Still, I want to address the elephant in the room, which everyone calls “The Trade War.”
Let’s distill the complexity of U.S.-China relations to what it means for Alibaba. In short, the trade talks put Alibaba on the right side of all of the issues on the table.
First, the reduction of the U.S. trade deficit. China’s commitment to purchase more American products means China will over the next several years become a net importing country. Consumers in China will benefit from the availability of quality imported products from all over the world, including from American farmers, brands and small businesses.
Alibaba is set up to benefit from this secular trend of growing imports into China. We are the platform of choice for global producers of products and brands selling into China because we have the reach and deep insights on over 650 million active Chinese consumers on our platform. The scale and effectiveness of our access to Chinese consumers is simply unrivaled.
In cross-border commerce, our Tmall Global is China’s number-one platform for overseas brands and merchants without physical operations in China to sell to Chinese consumers directly. Well-established global retailers and brands that have built an online presence on Tmall Global include nutritional supplement vendors Chemist Warehouse and Blackmores, baby products brand Pampers and apparel brand Emporio Armani.
Second, the trade negotiations will lead to China opening its markets to more foreign businesses to satisfy the massively growing demands of domestic consumers. We are not concerned about slowing China exports affecting GDP growth because the Chinese economy is shifting from an export economy to a domestic consumption economy. Job expansion is continuing in China. Over the last five years, while China lost 14 million manufacturing jobs, the economy added 70 million service jobs that drove real disposable-income growth and consumption.
The middle class in China has reached a critical mass of over 300 million, almost as large as the entire U.S. population. The middle class will double in the next 10 years, especially from the lesser developed Chinese cities. While total Chinese domestic consumption is US$5.5 trillion today, consumption from these third-, fourth- and fifth-tier cities, with a combined population of 500 million people, will triple from US$2.3 trillion to nearly US$7 trillion in the next 10 years.
Third, intellectual-property protection. In recent years, China has made significant improvements in reducing IP infringement, as China moves closer to global norms in protecting and paying for foreign IP. China also recognizes the need to protect its own innovators, as well as being focused on Chinese consumers who demand genuine products of high quality.
Alibaba is at the forefront of protecting intellectual property. Leveraging on our cutting-edge technology, we take proactive and aggressive steps to crack down on counterfeits in our marketplaces, because the customers who trust our platform demand it.
Alibaba is the only e-commerce company that is validated by global brands as having the highest commitment to IP protection. The Alibaba Anti-Counterfeiting Alliance, which we initiated in 2017, has grown to 132 global brand companies from 16 countries in 12 industries. The Alliance members collaborate in six key areas: proactive online monitoring and protection, product test-buy programs, offline investigations, assisting law enforcement, litigation against infringers and public-awareness campaigns.
Fourth, reforming the structure of the Chinese economy. The model of state-dominated influence in traditional industries is being complemented by private-sector initiatives to digitize the economy from manufacturing, supply chain, distribution, product development and marketing. Through our New Retail strategy and support from our intelligent cloud-computing solutions for enterprises, Alibaba is playing a leading role in building a new commerce infrastructure in an increasingly digitized economy.
Our partnership with Starbucks is a case in point. Starbucks in China has established a prominent brand presence and customer-engagement platform within our mobile-ready China retail marketplaces. This has already resulted in Starbucks acquiring millions of new loyalty members online. We are also enabling Starbucks to expand their offering from store-based operations to on-demand delivery to customers. Through these initiatives, Starbucks has added an online dimension to its customer acquisition and engagement as well as fulfilling customer demands outside its stores. This would not have been possible without the support of our Alibaba Business Operating System, data technology and on-demand logistics infrastructure.
To summarize, the vexing issues in the trade negotiations will resolve themselves as the Chinese economy is already evolving to close the gap between the interests of the United States and China. This means that in the future there will be bigger Chinese domestic consumption, more foreign imports, continuing focus on enhanced IP protection and further digitization of industries driven by the participation of the private sector.
As we look at the evolution of the Chinese economy, Alibaba is on the right side of all of the issues. I cannot think of another company that is better equipped to drive these secular changes and participate in the ensuing long-term benefits.