HANGZHOU, June 22 (Xinhua) -- The Alibaba Group said on Wednesday that the company and its major stakeholders Yahoo! Inc. and the Softbank Corporation have made "substantive progress" in settling a dispute over the status of Alipay, Alibaba's popular online payment platform.
The dispute arose a month ago, when Alipay became separated from Alibaba to become its own business entity.
PROGRESS IN SOLVING RIFT
Yahoo, which owns 43 percent of the Alibaba Group, has complained since early May that it was not notified of the decision to split Alipay into a separate entity to be controlled by Ma.
Ma has defended the move, saying that splitting Alipay was done to secure a license from the People's Bank of China (PBOC), or China's central bank.
He insisted that Alibaba's stakeholders, including Yahoo and Softbank, were informed of the transfer of ownership early on.
The central bank created a rule last September that requires all payment-service companies in the country to obtain a specific type of business license, which can only be granted to Chinese-owned entities.
"The Alibaba Group and its major shareholders, Yahoo! Inc. and the Softbank Corporation continue to be engaged in constructive negotiations," according to a joint statement issued by Alibaba, Yahoo and Softbank Wednesday.
"Our objective is to reach an agreement in a timely manner that serves the interests of all stakeholders," the statement said.
No further comments will be made until it is appropriate to do so, the statement said.
VIE TACTIC NO LONGER SAFE
The incident has exposed a tactic widely used by foreign investors, particularly in the online sector, to tap opportunities that may seem off limits.
China has regulations that limit foreign investors from engaging in business areas that are considered to be related to national security, such as agriculture, real estate and the Internet.
Yahoo! and Softbank have been bypassing these restrictions through service contracts with Alibaba, their Chinese partner, in exchange for a share of their profits.
Industry insiders say that it is common practice for Chinese Internet companies and their foreign investors to use the so-called "variable-interest entities structure," or VIE, to make their way around the restrictions.
The tactic has worked for some time. However, the central bank's 2010 rule regarding business licenses for payment-service companies may change that.
Ma said in a previous interview that he believed the regulators would not turn a blind eye this time, as payment-service providers are closely related to China's financial and information security.
Ma said the central bank asked Alipay to submit a statement proving it had no contractual ties to foreign investors.
It is alleged that a few companies have used the VIE structure to secure the PBOC license. Tenpay, an online payment-service subsidiary of the overseas-listed Chinese Internet company Tencent, has been specifically mentioned.
However, Tenpay insisted last week that it is a Chinese-owned company and has never used the VIE structure.
Fang Xingdong, founder of blog provider bokee.com, said that there is tendency among Internet companies and foreign investors to gamble on whether the government will actually enforce its rules.
The Alipay case shows that the VIE structure may not be safe for foreign investors anymore and it is hurting the credibility of Chinese regulators, according to Fang.