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UPDATE 1-Alibaba praises Hong Kong at start of retail campaign for $13 bln listing

Scott Murdoch

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* Listing process starts despite HK protests

* Retail shares capped at HK$188 each

* Shares due to start trading Nov. 26 (Recasts with retail pricing, campaign details)

HONG KONG, Nov 15 (Reuters) - Alibaba Group Chairman Daniel Zhang said Hong Kong's "future is bright" as the ecommerce giant kicked off the retail campaign for its secondary listing in the city gripped by increasingly violent protests and recession.

In a first for the Asian financial hub, Alibaba said the listing would be fully automated and paperless to reflect its environmental standards, confirming an earlier Reuters story.

Investment bankers familiar with the listing however said the move avoided a potential publicity nightmare of investors queuing at banks to place stock orders while protests raged around them.

Four thousand people have been arrested in Hong Kong since June and the territorys economy has sunk into recession for the first time in a decade as the anti-government demonstrations disrupt business and deter tourists.

Zhang made no mention of the unrest in the chairmans letter included in the company's supplementary prospectus.

"Over the last few years, there have been many encouraging reforms in Hong Kongs capital market. During this time of ongoing change, we continue to believe that the future of Hong Kong remains bright," he wrote.

Hangzhou-based Alibaba is hoping to raise up to $13.4 billion in its Hong Kong listing and the shares are due to start trading on Nov. 26. The retail price of the shares will be capped at HK$188 each.

The share sale is set to be Hong Kong's largest in more than nine years, and comes as Beijing seeks support from the semi-autonomous territory's tycoons and entrepreneurs to maintain a sense of business-as-usual in the face of more than five months of unrest.

Alibaba had originally considered a Hong Kong IPO in 2013, but ultimately chose New York after failing to gain approval from Hong Kong regulators for its unusual governance structure.

The institutional price will be finalized on Nov. 20 following a book build which is underway for global investors.

In the retail component 12.5 million shares will be offered, which is 2.5% of the total deal, however, that could be increased to up to 50 million, or 10% of the total transaction.

Alibaba also has the option to exercise a so-called over-allotment option to add an extra 75 million shares to the deal.

(Reporting by Scott Murdoch; Editing by Stephen Coates)