Following is the transcript of an exclusive CNBC interview with Jack Ma, Executive Chairman and Founder of Alibaba Group. The interview was broadcast on The CNBC Conversation on 3 September 2016 at 4.30pm SG/HK Time.
All references must be sourced to a "CNBC Exclusive Interview"
Interviewed by Eunice Yoon, Senior Correspondent, CNBC Asia Pacific
Eunice Yoon: Thank you so much for spending time with us. One of the issues that I wanted to bring up is the G20 agenda, you have a proposal, the electronic world trade platform, how do you see that fitting into the G20 agenda?
Jack Ma: Well I think this G20 is such a unique opportunity for the global leaders sitting down together, not only discuss about the political issues, we should discuss about the economic issues especially the young people and job creation, the economy. So I've been thinking a lot on this. We think that the WTO negotiation be postponed for such a long time, had a problem to agree on something. And since, when I used to work in APEC and it's helping a small medium sized companies.
For years I think what's wrong with WTO, what's wrong with the globalization. I think globalization is a great thing. And now a lot of people complain about globalization a lot of people don't like you know the globalize - of the concept, the idea of the results. I think the globalization is a great idea and to create a lot of jobs. Really help the global economy, but the global economy is not balanced not because of globalization, it's because globalization is not perfect. We have to improve the globalization. Now this period is called the growing pain of globalization. The last 20 years the globalization was helping big companies, developing nations. So if we can figure out a way to help a small business, helping young people to go globalize that's something we came up with the idea of eWTP.
EY: I was going to ask you that, how does the eWTP actually address SME as opposed to what the WTO already does.
JM: Well WTO has done a lot. Well, a lot of it is mainly discussed by government. So when you put hundreds of government in the office, they would never agree to help each other for political reasons because of some political reasons and people cannot do trade. So we think that the eWTP should be driven by business and we agree each other and supported by the government. Not the government agreed each other and then we follow the rules. WTO, they have such a thick document. It's just thick as like a Shakespeare book but never go nowhere. So we should make the trade treaty simple. And back to basic. Solve the problems of the global trade. So what we think that the eWTP should work is that focusing every country, should have focusing on how we can help small business sell abroad, buy abroad. How we can help consumers of every nation using the mobile phone or PC, sell anywhere by anywhere.
E: So how would it work?
JM: How would it work?
JM: Well we think you know for what we want to do. We do not want to put all that government into one country or one room discuss what we do. Alibaba will be, because we are the evangelist right. We are the innovator. We want to talk to one country by one country. For example, we go to New Zealand, talk to the NZ government, whether it is possible that the NZ small business sell their products to China if they sell less than one million US dollars a year, China government should give them duty free, tax duty free. And we should give them 24 hours custom office clearance, inspections and making sure the things arriving channel can quickly spread all around China's consumers. But why (unintelligible) if China's small businesses sell to New Zealand, New Zealand governments should also giving tax free if it is under one million US dollars per year. And also giving 24 hours clearance.
So it's something that there are a lot of special trade zones, free trade zones but they are free trade zones that are mainly designed for big companies. We think the world should create a free trade zone specifically for small business using Internet to do business.
E: So it would be a way then to try and streamline that whole tariffs, customs fees, everything else, so that you can see small companies trading with each other, almost directly it sounds like.
JM: Yes yes. We think in every country, if every country have a special trade zones which we called eHub for the small business, for young people, for those people who can use the e-commerce or using the Internet ways to trade across borders. And when we connect every eHub which we call the eRoad, connect to the road and people, small business can use this eRoad, or eWTP platform to have free trade around the world. That would be fantastic.
E: I could almost hear the government's wheels turning, people getting really concerned about what this might mean for them. What has been your pitch to G20 countries when you're talking to leaders and trying to promote the idea, what challenges do you foresee?
JM: Well in the past six months, I have talked to over 30 country leaders of mainly Europe and also Australia, NZ. We've all discussed the, Italy, France and so far we did not get any (unintelligible), because every government loves to support small business. Every government wants to support the young people. The only thing they wanted, was now, tell me what's the proposal? How can we do it? So I think for this G20, we will give this proposal to 20 leaders, to get their understanding and if they have any questions we will follow up with their ministers of trade, ministers of custom office, clearance tariffs. So I think this idea is like 10 years ago when WTO came up.
Lots of people say wow you know it's a big headache but somebody has to move forward. Somebody has to really do something for small business for young people, at best internet time. When we see that we've got like 2 billion people in the world especially young people using Internet. So how we can using Internet to really create a free, open, transparent and fair trade, global trade, that is something we like.
E: So what kind of time frame are you talking about? When do you think this is going to become a reality?
JM: I think we will start after the G20. We will start talking to one or two countries to start the sample and it's going to be, it's never going to be finished within one year or two years. We planned for 10 years, maybe eight of 10 years, maybe 15 years. If Alibaba cannot achieve it, somebody has to achieve it. Because this is globalization for small business, globalization for young people, globalization for free trade. I mean this is the trend. Nobody can stop it. So we are just lucky enough because we've been doing that in China for us in the past 17 years focused on helping small business and most of the small business operated by young people. We think it's fantastic if we already created close to 13 million jobs with China. If we can do that, this concept can be done around the world. It would be fantastic.
E: And yet one of the main items for this G20 is likely going to be anti-trade sentiment and the rise that we're seeing all around the world. Do you see that as a challenge then, to the realization of an electronic world trade platform?
JM: Yeah it is a challenge but it is also an opportunity. Somebody at this time has to stand up and say hey we should not anti-trade. Trade is a freedom and trade is helping promote, trade is something killed the wars, trade is something to read the misunderstanding. And I don't like that any kind of you know, punishment using trade, any political issues. Solve the problem in a political way, not to solve the problem by blocking the others from doing business. So if you're not happy about when people start to don't like each other, they block the trade.
I mean trade is something that you are buying from the other country, it's like you're buying the other people value, other people's culture. By buying and selling each other. We start to negotiate, when we negotiate or understand each other's position. So I think we do not think trade is a (unintelligible). Trade is a communication of cultures and values.
E: So then what do you make of all this rising anti-trade sentiment around the world. We're seeing it in the UK, the US with the Presidential election, with Australia, we're seeing it everywhere. So are you concerned about it?
JM: I am concerned about it. 17 years ago, when I do e-commerce in China everybody said no, this thing can never work because Chinese people want to have a face-to-face trading, why they would love to buy online. And I say we've got 1.3 billion people. I just cannot believe you cannot find one million people or a hundred people love to trade online. So today we got more than 200 countries. I don't believe there is evil. I cannot convincing one or two countries to work this with us. So I have not discussed with the Chinese government yet. I'm going to convince the China government. I'm going to come visit any government offices that I can. If you really care about your small business, if you really believe the young people that they can build different things, let's do it. So my belief is that a hundred years ago this world trade is controlled by three or four kings and emperors. And because of the trade between countries, a hundred years ago the world economy first grow.
In the past 50 years, the world trade is controlled by 60,000 big companies and the world economy had a big change. Of course it's unbalanced because it's only controlled by 60,000 big companies. Think about, at the internet time, if we can help 2 billion or 3 billion young people using mobile phones, they can sell and buy across the world. What do you think of the world would look like. Today if you have a mobile phone, you have a car. You can do a whooper right? You have a ceiling, you can buy or sell your solar system. If you have land, you can plant. You can sell your potatoes and tomatoes around the world. This is something that we think that we should do. And I think when you have a 2 billion people population today using Internet, why not create opportunity for them to do things across the board.
So I know there's a challenge and I know it we had a challenge 17 years ago where we do e-commerce and I know it's this thing cannot be done within one year. I have patience and we have patience since we put the proposal on the table. I say Jack Ma and Alibaba team, we just put the proposal where the first are lucky enough to be participating in this. It's like one times 100 meters relay race. We other guy run the first 100 meters. I leave this guy to the next generation.
E: You mentioned that you're going to be speaking with the Chinese government, do you think that they will be on board. I ask that because there has been growing sentiment among international businesses who say that China itself has become protectionist and is also supporting its local players more and more. So..
JM: Yeah I think, the China government. When I talk to them they would definitely like any government I talked to. So while it's a good idea, what can I do, right? This is the global. Every government in the world do the same thing. Yet they can never say I don't like small business and I don't like young people.But that's good. Then how would do it. The world is like where the TPP. And we have WTO and we have our Asia-Pacific this and that. I think this is no good.
For TPP when they started, China is not on board. So it's like American group again. And then the first, they start to have a trade war because how can you put the second largest economy not on that platform. So what we believe is that the work that it should be done by business, is not a done by the government.In the past hundred of years, trade is become a power. Trade is not a power. Trade is a freedom or if you use the word, trade is a human rights, they can not free trade. Right. So what we believe is that we should make this platform, any nation can join in, any nation, any guys. It's a really fair, open, free and transparent, using electronic ways that everybody has a chance as law is to follow the rules of the trading, not necessarily for the kind of a political wars.
So China I think they will. I have confidence they will embrace it because I live in this country and we created, I think China as the second largest economy. They tried to take, they are taking the responsibilities on one road, one belt. My understanding is that they tried to launch the second globalization of the world in helping developing countries and we believe eWTP looks like one road the one belt. Is it just driven by private sectors.
E: So you see it working then in concert with one belt, one road, with TPP, with world trade organization, you see it all working together as a supplement then?
JM: Yes. It's a supplementary to the WTO. It's a supplementary to one road, one belt, it's a supplementary to TPP and I think the only thing that TPP said well, this is something that we agree and you are not part of it yet. It's like a club. We are not a club. So that's why we do not call eWTO, is organization.Then you've got a lot of government negotiate which we are not. It's a platform that people the business know how to work on this.
E: Part of the anti-protectionism wave, I think and anti-trade, has been in part, because of an international reaction to China. And so I'm wondering, where do you think China policy is going to go, are you concerned about this international reaction?
JM: Yes of course, if there is no concern of course, because I think China in the past 20 years and there is suddenly growth become in a very low level economy accompany the country to the second largest economy. And people say wow of course. Meanwhile we bring a lot of value to the international world. Because of China, the world economy really changed a lot.
The other thing is that it's the balancing, and the world is not like that 30 years ago. So I think giving China a chance, giving business sectors, the private sector a chance, people like us. Right. I've been traveling around the world more than most of the Americas and I understand what's going on there. And I think also China government is trying to open right? But I think there's only, they need to be dialogue more like a G20 understand China. I'm happy people coming to Hangzhou for G20 this time. They will feel Hangzhou, they will feel China and it's not only about eWTP we were convincing the other nations.
We also have to convince China because China government has to open the market for 1.3 billion people. Let the international products, let the European products come to China. It's a big challenge to that too because it's going to destroy their industries. But meanwhile people also will worry about if China's products go to the other nations if they trade imbalances. So these things I think human being today are smart enough. I believe young people can solve the problems.
E: Do you worry about the anti-China rhetoric around the US presidential campaign? Is that something that you think will stick for China and could actually influence China's standing in the future?
JM: I'm 52-years-old now and I've seen a lot of American presidential elections,and every time, there's always lots of anti-China sentiment before elections. Many years ago, anti-Soviet Union sentient. Now anti-China, I think after election people will calm down. Trade is a trade. Business is a business. World economy and society will rebound.
I think that the anti-China movement now. I like the China government reaction now, you know they calmed down and focus on doing things, we focus on our own economy, our own things, it's not. The world is not about debating rule. Not only when they criticize you, fight back. Do our job well, take responsibility for the world. And I don't worry about it. I think after election people will back to their, back to their cells and they will start to do it.
E: Do you think that the criticism is fair at all?
JM: No of course not, because how many of them know in China, how many of them have been to China for so many times and understand our culture. So I think it's good when people criticize, a lot of people criticize Ali Baba all this and that. But you know, listen. Think about it. If the criticism is right, let's change and improve ourselves. If it's not right, keep on doing that.
So it's not fair and I think a lot Americans knows enough here. Right. So don't worry about it.
E: Do you worry that there could be a reversal of globalization because of all of this anti-trade rhetoric and rising protectionism and if there were to be a reversal, what would that mean for the world?
JM: Well it's going to be a disaster. Young people today. How the world is really become a village. The world is getting so small. Young people are mobile, they want to travel around the world. When you travel around the world, you exchange culture, you want to make friends, you want to exchange things. It's impossible and this is why we want to put a proposal eWTP. The world has changed. Let's using a new way to do trade. Let's think about in the past the hundreds of years, trade is organized or controlled by government. Let's think about private sectors. Let's think about how can business move trade, how business will move the trade.
A lot of times I find, it's the political issues that stop trade. It's not the trade to stop the trade. So I think I don't like the world if everybody start to do it themselves and it's impossible. In America, it's the same thing. If the California cannot do things do business with New York, New York set up you know some kind of idea, there will be no America and China. If Tibet and Zhejiang cannot do trade. Let's think about the world in a one pie, in one piece. Do not think about that different, Let the politician discuss political issues let the business discuss the business.
E: I want to talk more about your business. I know that you've taken a step back from the day-to-day running to Alibaba. I know you founded the company and are key to the strategic vision of the company, sowhere do you see the future of Alibaba?
JM: Well, we think after 17 years, we'd build from nothing, from my apartment to now we have a forty-three, forty-four thousand colleagues and we accomplished and closed less than that. Close to 500 billion US dollars GMV last year.Everything is going on. So good. So we always think about one thing. Our mission is to help doing business easier.
Our focused customers are small business and young people. We did a great job in China. How can we help those young people in India, in Pakistan, in Africa. If they can use in the same ways. So this is what we believe, we are right now the largest virtual economy in the world. So how we can make this virtual economy big enough that every young people with a mobile phone, with a PC, by leverage in this economy you can do incredible trade, you can do local trade. This is what we believe.
So Alibaba in the future, we want to be the fifth largest economy of the world and we want to make that economy, this is new, nobody has done this before. Just like 17 years ago and I say we want to make a big e-commerce platform in China.And I said, ah forgot about it. I told my team it's not about making money. We have no problem making money in next to five, 10 years because the value we're created is so so unique. But we should stop thinking about making money. We just think about if we can make 30 million jobs for China, is it a possibly next 20 years we can create 100 million jobs for the world? It is possible we can support two billion population in the world by using this platform. Our platform, they can buy and sell globally. It is possible that we could support a 10 million small business be profitable because of the leverage the internet acknowledge.
So this is what we want to do and this is why the more we think about it the more I think we should, we love the eWTP platform. The more we think about we've got crazy and I think that all we are really honored and happy that is that in our life we can do something that nobody has done before in the history. So we, my vice presidents, my managers, they care for the next quarter or next year's profit margin and our CEO and I, especially my job, to think about 10-15 years how we can help reshape the world.
You know every technology revolution takes about 50 years. First technology. The first twenty years normally is technology. The next thirty years is application of the technology. So now the human being is entering the data period. The Internet in the past 20 years, it's all Internet companies – Google, eBay, Amazon, Alibaba, Tencent. These are Internet companies. Next 30 years is how we use the Internet to transform the traditional world. This is a wonderful period and I don't want Alibaba, when the Internet technology, is losing the whole opportunity. We can reshape the world.
E: So then, what does that mean for you? Where are youinvesting?
JM: See. OK. Take China for example. Last year, our sales was equal to 10, 11 percent of the total China retail there, but 90 percent of the sales stew in the traditional supermarkets in the malls in the traditional ways. So how we can, how can we, do in a better way to transform 50 percent of them, 60 percent of the total you know, retailer online. So if we can do that. That will be good. So it's not about the shops, the real shops and online shops fighting each other, how we can leverage our technology to support the manufacturers to moving from traditional manufacturing to IOT, Internet of things.
How we can use the new technology, next technology, to increase the financing in the financing sectors. In 100 years is 28. Most companies, most of financial support 20 percent of big companies and make 80 percent of profit. How we can help 80 percent of the companies that not be got financed sufficient are the finest and only make it 20 percent of profit and that purpose past present profit is going to be much bigger than last a century. So what Alibaba want to do next 10, 20 years is to enable the innovation of traditional business,transform the World, transform all the traditional retailer, manufacturer,financial sectors and this is also using data technology to supporting it.
E: It sounds to be that Alibaba is interested in investments in tech, infras for IT, which to me sounds like cloud computing and when you talk about mobile, a lot of your growth is in mobile and in China, I'm always amazed at how innovative and quick Chinese consumers have been using mobile tech to make payments and the like. Do you see these areas as the main pillars of growth for the company?
JM: Yeah. We see we are infrastructure of Commerce in China. We already gone from e-commerce to commerce. So we're giving up e-commerce platform, so every small business can buy and sell. This is e-commerce.
So the second thing we're building up is e-financing. We are giving loans and giving it financial support, inclusive financing to everybody in China. We have you know more than half billion people use our Alipay and Ant financing and we also build up logistics centers, logistics service so that any business in the future, you want using cheap and efficient logistic system. We also have cloud computing which is very powerful, growing in China because China IT infrastructure is bad, not as good as in the United States. Now we using that data technology which is called, we call cloud computing to enable every business in the future put their business on the infrastructure of data technology.
And the third, global trade platform we can make everybody buy and sell globally.So these are the infrastructures we're building. And we think we were not only working on the retail. We're also working on the IOT, cloud computing and financings. So people say Jack, all the above has no boundary. Of course we're not, we don't have a boundary. We are the engine of the innovation. We believe if we using the data technology we have, using the infrastructure we have, we can make hundreds of companies, millions of companies be innovative.And this is our vision and this is what we've been keep on doing.
E: I think what was interesting was when I looked at the latest quarterly results and how that diversification and focus was reflected in the way you want to report the numbers, essentially now from what I understand, relying less on gross merchandize volume which is seen as a gauge for ecommerce and instead rely on four segments, cloud computing is one,entertainment is another, and innovative initiatives as well. How will that change help investors better understand your business and the finances of your business?
JM: Yeah I think you know people really put us just like an e-commerce company but we are much bigger than an e-commerce company. We are infrastructure of Commerce of China. So e-commerce, it just happened to be our first pillar.First business. So when people focus too much on the GMV and then they forget about that we have a much bigger business on the financing. We have a much bigger business on cloud computing. We have a much bigger big business on the entertainment side. So I think in the past two years we are learning how to communicate with the investors.
It's not easy to communicate with the outside world especially in the past two years. We review ourselves a lot. We did a great job. We're so, so popular in China, we're such a big household name in China. But investors in the states they don't know anything about us. They say are you on e-bay or are you Amazon.Apart from e-bay or Amazon, people don't know who you are you know. They think e-commerce either eBay or Amazon, they don't know there is another Alibaba. So and then if the people start to realize Oh, you are Alibaba and then why you have a cloud computing, why you have all this kind of entertaining. This is because only in China, China give us this opportunity. Right. We learned so much from this market.
That's why seven years ago we said we are not an e-commerce company internally we already made this decision, we are a data company. The difference between us and Walmart, Walmart sell a lot of products. They have the data. They analyze that data because they want to sell more. We sell things because we want to have the data. Our sales is to improve our data experience. When we data, then we have the cloud, then we have other business. We have purely the money and financing.
Even the logistic, we have the largest logistic systems in the world that Alibaba are helping to build up. You don't even want to deliver guys. So we think investors, it will be difficult for American investors to understand us. Reason is that this is such a big monster, it is something that never happened in the history before when you have a 1.3 billion people with terrible infrastructure of IT, terrible infrastructure of commerce, suddenly Internet comes. So we think we are changing China. We're helping China to the second level. And then,like in my venture capitalist never understand me for the first 12 years. And I asked the question, are you happy with our quarterly results every year? If yes continue to cross your finger. If no, sell us to the others because we are not quarterly driven company, we are vision driver, we believe our vision our mission that take us here and next to 10, 20 years still will take us to the next level.
E: I want to talk to you more about China's vision for entrepreneurship more broadly, For the G20, one of the reasons why we're herein Hangzhou is that Hangzhou is so famous for its entrepreneurial spirit, which you helped create. What kind of role do you think entrepreneurs will have in China's economy and do you think the Chinese government is doing enough?
JM: Well as the entrepreneur, we always expect a government to do more. There's always not enough. Right. But they're doing a great job.
Beijing is very focused on state-owned business. Shanghai loves the multinational companies. Hangzhou love the private sectors, so that is the entrepreneur. We are very good at that. And I believe that the China economy is shifting from investment on infrastructure, exporting domestic consumptions to the new three drivers, which is high technology, domestic consumption. Right. And the other thing is innovation service, the service industry.
And these are the new three drivers – service, high technology and consumption.From investment exporting to domestic consumption, it means the government control to market control and more government control of the market economy. So I think in the next 10, 20 years China is shifting from government-driven economy to market-driven economy. This is moving very fast.
Second, this is my belief. Entrepreneurs and business people are the scientists of the economy. It's not the government officers. It's not an economist. It is the business. It's the entrepreneurships; they are the scientist of the society's economy.
E: Have you seen then some interesting experimentation among entrepreneurs here that it could help broaden and support more entrepreneurs in China?
JM: Yeah. I think what we say you know maybe not, I mean it's Alibaba. We have more than 10, 20 million small business using our platform and 60 percent of them, this business never exist before Alibaba and the second is that China Internet companies did.
And you see today the gross of the consumption services in China. The growth of the high tech growth, this is all because of entrepreneurship. This is all because of the new technologies. So I see that despair. Take Hangzhou for example, we do not see a lot of big SOEs, you do not see a lot of big multinational companies here. This province is top five province in China, and I would say more than 80 or 90 percent of the economy was driven by private sectors, by entrepreneurs.
We are setting up a great role model for China that believing the private sectors, believing the entrepreneurs. But also because of China, the SOE take great responsibilities. They did good infrastructure. They did something that the private sector is not supposed to do. So, I think, I think that the next 10, 20 years is not waiting for government to support the private sectors. It's companies like us, take the responsibility and take the leadership on the economy.
E: I just want to ask one more question. So I wanted to draw upon your experiences as a teacher, because one of the complaints that you hear, not only in China, but I think in East Asia more broadly is that, there is a premium that is put in education and there is a premium put on good grades and making sure that you follow a certain path for success and the culture is not like SV where you think failure is not only a badge of honor, where it's a stigma, so how do you change that mindset in China, and that you can really encourage more people to take a chance?
JM: Well I think this is not only China, a lot of East Asia and Southeast Asia are doing that. They rely on diplomas. Luckily, Alibaba is when we hire the people,I'll never see the diploma. I just see where they're all optimistic, where they want to learn new things, wanted to change things, they want to work at teamwork. Good thing and the bad thing.
The good thing is China put a lot of efforts on education. In the past 30 years,it's the education reform that changed the China from such a poor economy to the second largest economy. But the next 10, 20, I think next century, or not that next century, the next 50-100 years. The education need to be more innovative. We need more innovative people with high IQ and EQ and LQ, the Q of love, people not only a high IQ person. So the education system because of this Internet technology is going to fundamentally change. And I personally because a teacher as a teacher.
My passion is on education so I'm doing a lot of testing works and doing a lot of frontier works in the rural areas. China big cities have a good education system for taking exams. If you have good exams, you have good university, with a good university, you have a good job. It's so difficult to change them. As I said it's impossible to change successful people. Let's change the countryside,the rural areas, I'm doing a lot of rural areas testing, giving rural teachers,people, kids in the poor areas, mountain areas, how we can giving them a new different way of education. This is something that I, my personal passion about I'm not testing that. If that works it can work in a lot of Asian and war countries.