News Column

Alibaba...and The 27 'Thieves': Center Event Warns of Serious Risks in the Chinese Internet Giant's Planned I.P.O.

July 17, 2014

WASHINGTON, July 17 -- The Center for Security Policy issued the following news release:

The Center for Security Policy convened an expert panel yesterday to discuss the incipient - and much-hyped - Alibaba initial public offering and the potential threats it poses to U.S. national security. The participants explained the various risks associated with an IPO fraught with problems, ranging from concerns about inherent counterintelligence vulnerabilities to fostering new opportunities for China to engage in cyber espionage, attacks on the U.S. grid, asymmetrical warfare, and economic warfare to exposing investors to serious and undisclosed liabilities.

The panel discussion took place at the National Press Club on 15 July and was moderated by Center President and former Assistant Secretary of Defense for International Security Policy (Acting) Frank Gaffney. The panelists were: Michelle Van Cleave, who served as the chief of U.S. counterintelligence under President George W. Bush; Kevin Freeman, Chartered Financial Analyst, founder of the National Security Investment Counselor Institute, and author of Secret Weapon: How Economic Terrorism Brought Down the U.S. Stock Market and Why It can Happen Again; Fred Fleitz, Chief Analyst and co-founder of, a 25-year Intelligence professional with the Central Intelligence Agency, Defense Intelligence Agency, Department of State, and the U.S. House of Representatives Permanent Select Committee on Intelligence, and Senior Fellow at the Center for Security Policy; and David Yerushalmi, a securities litigator and co-founder and Senior Counsel at the American Freedom Law Center.

The following were among the highlights of the presenters' comments:

Mrs. Van Cleave explained the context in which the Alibaba deal should be considered: "One has to step back and say, 'geo-strategy has many dimensions to it and we see that among the things that the Chinese government is doing to extend its power, including... reaching into the West, and in particular into the United States, to steal those things that it cannot produce indigenously, that it needs in order to gain an economic, commercial or military edge against us."

Mr. Freeman warned that the Alibaba IPO is just one manifestation of the Chinese practice of "unrestricted warfare" against the United States. "We assume a Western viewpoint that all transactions are economic....This is not a Chinese concept; in fact, quite the opposite. Theirs is holistic - it's an expression of power, not just economics."

Mr. Fleitz addressed Chinese intelligence operations and cyber warfare - and the failure of the U.S. leadership to recognize Beijing's hostile intent: "China is using cyber warfare to target foreign infrastructure, to identify dissidents, to harass, arrest or kill, and to steal industrial secrets....A serious problem within the intelligence community, within the U.S. government, and within the corporate world, is that these threats are being dismissed or being argued away."

Mr. Yerushalmi enumerated legal and securities considerations that should cause the Alibaba deal to be alarming to regulators, investors and U.S. competitors, not least insofar as they are the result of a concerted effort by China's state-owned and ostensibly private enterprises to secure advantaged positions in our economy, in general, and our markets, in particular.

Such concerns include the use of a non-transparent management structure known as a "variable interest entity"- involving in Alibaba's case a shadowy group of 27 "partners" - that foreign investors will be unable to hold accountable. Mr. Yerushalmi warned: "These [Chinese] companies are strategically placed in exactly the right industries... [with] close to a trillion dollars in market capitalization...and no one is going to connect the dots. And that's the problem I see here."

The video of yesterday's program in its entirety can be viewed here:

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Source: Targeted News Service

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