The biggest news in global finance in September is no doubt the successful IPO of Alibaba in New York. Despite an increased offering, shares were up 38% the day of the IPO price. The IPO raised a record $25 billion.
Right before the Alibaba’s fantastic debut, the World Economic Forum (WEF) Annual Meeting of the New Champions convened in Tianjin, People’s Republic of China, from 10 to 12 September 2014.
This meeting was established in 2007 as a global gathering on science, technology, and innovation for leaders from major multinationals as well as government, media, academia and civil society. The theme of the 2014 meeting is Creating Value through Innovation. Alibaba is a fitting example of this theme. Its enormous market value is created through innovation.
In his address to the annual meeting, recognizing the theme of the meeting, Premier Li Keqiang underscored the importance of innovation in driving the transformation of China’s economy from its focus on manufacturing for export and fixed-asset investment to a more balanced and sustainable consumption-driven model.
“China’s reform and opening up over the past three decades has itself been a great innovation drive,” the premier observed. “Just imagine how big a force it could be when a working population of 900 million all become enthusiastic about entrepreneurship, innovation and creation. The blood of innovation can flow unhampered in society.” Small and medium-sized enterprises (SMEs) must have easier access to capital, he added. “We need to be sure there are adequate financial services to meet this need to encourage innovation.”
Although Alibaba is the pinnacle of value creation through innovation, the amount of money it gathered is also worrisome. It almost looks like a winner take all sweepstake. It is good for Alibaba and its investors, but not necessarily good for fostering the growth of innovation, big and small, in that it drains a lot of money from the capital market. For any given market, there is always resource limitation. So what Premier Li described above is important, we need to ensure there are adequate financial services to meet the needs of SMEs to encourage innovation. The blood of innovation, big and small, can flow unhampered in society.