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JD.com: five things to know about the Chinese ecommerce group

The arrest of founder Liu Qiangdong has shone a spotlight on the tech company

Liu Qiangdong, founder and chief executive of Chinese ecommerce group JD.com, was arrested by police in the US city of Minneapolis on Friday following an allegation of sexual assault against a Chinese university student.

Mr Liu, who goes by the English name Richard, was released and returned to China on Monday. The New York-listed company said in a statement “there was no substance to the claim” and Mr Liu’s lawyer said “charges are highly unlikely”. However, the Minneapolis Police Department said on Sunday the investigation was continuing and he was released pending a formal complaint.

Ahead of the first day of trading since the scandal, here is a look at how the company operates and who controls it.

What is JD.com?

JD.com is China's second-biggest ecommerce company by goods sold and says it had 314m active users at the end of June. The group has a roughly 30 per cent of the Chinese business-to-consumer online market, according to China E-Commerce Research Center, a Hangzhou-based think-tank.

The company buys inventory from branded suppliers, and owns and operates its own logistics chain, employing an army of uniformed workers to deliver goods bought on the platform. JD.com uses its control over that process to portray itself as a more trusted platform for high-quality goods — a major challenge for the Chinese retail world, where counterfeits are rife — and differentiate itself from rivals such as Alibaba, which acts as a platform for others to sell their goods.

The company has experimented with delivery technologies, from drone deliveries in rural areas, to within-the-hour delivery in major cities.

Who is Liu Qiangdong?

Mr Liu, 45, has become one of China’s leading tech entrepreneurs and became a billionaire in 2014 when JD.com raised $1.8bn through an initial public offering in New York. At the time, the company was the most valuable Chinese business to list only in the US.

Mr Liu grew up in poverty about 700km south of Beijing, the son of peasant farmers who were so poor they were only able to eat meat once or twice a year.

After university, he founded a bricks-and-mortar electronics shop called 360buy in 1998. The business did well and he opened a dozen other branches.

But in 2013, when a pandemic known as severe acute respiratory syndrome hit the region, Mr Liu was forced to take his company online — “I wouldn’t have entered ecommerce hadn’t it been for Sars,” he once told the Financial Times — and expand his product offerings. He soon realised the huge potential of online commerce and later renamed the company.

Who are JD.com’s investors?

The company’s backers include Tencent, the online gaming and social messaging group, and private equity firm Hillhouse Capital.

But it also has several major foreign investors, hinting both at its scale in China as well as its growing overseas ambitions. Earlier this year, Google paid $550m for a less than 1 per cent stake in the company. Walmart also owns roughly 5 per cent of the company, which it received in exchange for the US retailer’s China ecommerce arm.

The global push

Mr Liu's goal is for half of the company’s profits to come from outside China within 10 years. He has made a series of moves in Europe in pursuit of that goal, with a plan to spend €1bn over the next two years to build a logistics network in France. He intends to then turn to the UK and Germany. Mr Liu has said he plans to launch in the US this year.

The company is expected to expand beyond ecommerce, and has said it will open a European research centre in the UK in the first half of 2019 to focus on artificial intelligence and big data.

JD.com’s partnership with Google means it can sell its goods through the US tech company’s shopping site overseas, and the two companies have announced they are exploring retail opportunities in south-east Asia, the US and Europe.

JD.com also invested almost $400m in UK-based fashion technology company Farfetch last year, as part of what the company calls its “major luxury push”. 

Mr Liu’s control

Mr Liu holds 15.5 per cent of company shares but has more than 79 per cent of the voting rights on the board.

The company is listed in New York through a structure known as a “variable interest entity” or VIE, which allows Chinese companies in sectors restricted from foreign investment to list on overseas exchanges. Through JD.com’s VIE structure, Mr Liu has also secured a high level of control for himself.

The company prospectus dictated that Mr Liu’s “incapacity” to act as chairman would not include “any confinement against his will”, meaning that the founder would retain control even if he were to find himself in jail. The document also effectively prevents the board from taking any decision against Mr Liu’s wishes, as he must be present at all board votes.

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China state banks seen intervening to support renminbi

Large Chinese state banks intervened in the offshore renminbi forwards market in recent days to ease depreciation pressure by raising the cost to investors of betting that the currency will weaken.

A trader told the Financial Times that state banks had bought offshore renminbi forwards since Monday in what appeared to be a concerted, if modest, action. This activity has the effect of tightening offshore renminbi liquidity, raising the cost of borrowing the currency in order to place short bets. 

Large state banks acting together are typically viewed as doing so on behalf of the central bank. The People's Bank of China has previously acted to tighten offshore renminbi through both explicit policy and undeclared intervention through state banks. 

"The market should all know the central bank's intention," said a trader at a regional bank in Shanghai. 

"There are not many people who are really shorting the renminbi at this point," he added.