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CNBC Exclusive: CNBC’s Jim Cramer and David Faber Interview Alibaba’s Joseph Tsai from CNBC Institutional Investor Delivering Alpha Conference

WHEN: Today, Tuesday, September 13th

Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Joseph Tsai, Alibaba Group Executive Vice Chairman, live from the CNBC Institutional Investor Delivering Alpha conference in New York City on Tuesday, September 13th.

Following is a link to the video of the interview on CNBC.com:http://video.cnbc.com/gallery/?video=3000550794.

Mandatory credit: CNBC Institutional Investor Delivering Alpha conference.

>> Thanks for being here.

>> Thanks for having me and for spending a little time with us. On the stage not very long ago -- and we might as well just get right to it, sort of broaden out from there, Jim Chanos, who, of course, is a noted short-seller.

>> Oh, was he here?

>> Yeah, he was here. And he's been going after Alibaba a bit. And I would love to get your response, because this is a great opportunity to do that. Oftentimes, Joe, we interview you from far away with a long delay. So this is refreshing to have some time to have a conversation.

Specific to the ownership stake that you have in the delivery business, which he calls it, being unconsolidated -- and I'm quoting here -- you own 48 or 49% of it, but that's even deceptive because the actual companies that employ the guys on bicycles that deliver packages in China is unconsolidated from that. It's the Chinese model. You never see everything, and yet what you do see is the cash flowing out the door, not coming in the door, and accelerating going out the door relative to the size of the, quote, even though the business is growing. And that's concerning.

What's the response from Alibaba when you hear something like that from somebody who certainly has a following on Wall Street?

JOSEPH TSAI: Is he still here? Do I see him in the audience?

JIM CRAMER: He's not. He's left the building.

JOSEPH TSAI: So I think when you are in the short-selling business, it's a very tough business. When you're wrong, you're downsize unlimited. So I have a lot of respect for Jim Chanos. All right?

But I think the problem is he doesn't seem to try to understand the business and try to appreciate the power of the digital economy in China. And you can lay a lot of claims, a lot of accusations on our business. The bottom line is, on the logistics business, we made full disclosure on the profits, loss, revenues, assets, liabilities of the business. So investors can do their own math, whether you're consolidated or not consolidated.

When you talk about cash flow -- I mean, we, over the last 12 months, bought back $5 billion of our own stock. And that's cash that we turned into -- real cash we're returning to our shareholders. So I think we have demonstrated that our business is extremely cash flow generative, that we are good stewards of capital.

I would like to invite Jim Chanos to come to Hangzhou and see our campus, see our business, so we can really explain our business to him. I think, you know, the problem with what's going on is since he's been talking down our stock several months ago or last year, yeah, our stock's been up 50%. You got to pay a lot of respect to him.

>> It's never easy to be short. And he did make the correlation to eBay, which is similar to the one that was made in the Barrons store, that you guys fairly strongly rebutted. And I would argue successfully, given what you just pointed out, as the very strong performance of the stock.

Why, though, was that not a correct parallel to make in terms of multiple, in terms of the business getting together buyers and sellers as of course eBay does here?

JOSEPH TSAI: Last quarter, we grew 59% of revenues. What's eBay's growth rate? Single digits? That makes all the difference. We're in a market in a confluence of high growth of the Chinese economy as well as technology. That's very, very exciting for us.

So in China today, what you are seeing is consumers are shifting their purchases online. But there's going to be more growth in consumption because China has a relatively low percentage of GDP; that is, leverage to consumption is about 40%. The more developed economies are 60, 70%. And if you look at the average Chinese consumer, they are in net cash position. There's net 4.6 trillion U.S. dollars of net cash savings on the balance sheet of Chinese households.

To give you a context to that number, the average American household in aggregate has 11 trillion of mortgage debt. So we're leveraged for the consumption economy. And that's very different from the low-growth environment here in the United States.

>> We want to get to broader discussion of China. And I know my partner here has a lot of questions. But on this question of consolidating or not the delivery business, I mean, Amazon obviously is a name that we would immediately think of. It has full control over its distribution. Why not consolidate it? Why not own it outright? What is the strategy there by which you do 48 or 49%?

JOSEPH TSAI: If we owned the whole business outright, we would have managed about 2 million people. And we just don't think that is something that a technology company should do. Okay? So, currently, you have to appreciate the scale of our business. On a daily basis, our platforms generate about 40 million packages per day that need to be delivered. Just to put that number in context, I think Amazon in the United States handles something around 5 to 6 million packages.

So when you look at 2 million people that are in our ecosystem, that are managing the warehouses and also delivering packages on the streets, if you combine the entire workforce of the FedEx and UPS, that's 600,000 people. So do you want to go out and buy FedEx and UPS? I don't think so. We are a technology company; we're not a labor-intensive company.

DAVID FABER: Let me go into more than just Chanos. Again, thank you for coming here. Most people would not want to answer the questions if they felt that they were going to incriminate themselves, so to speak.

First Jim said, do you think -- I asked him, do you think free cash flow is positive when you consider the so-called minority investments? We don't know, and that's the problem. With the minority investments, it's usually negative. It's enormously negative.

Herb Greenberg, of Pacific Square Research, whose work is -- again, I've known Herb since '90. He does some pretty good work. He believes that you are buying your growth with these, and that if you actually disclosed all the equity investments -- which he says you do not -- you would have no idea what this company is really earning, other than the fact that the -- most of the costs, like what you described, 2 million people, are off balance sheet, so you can't really figure out how well the company is actually doing.

JOSEPH TSAI: They're wrong. They never read our annual report. They never read our disclosures. We've made very clear disclosures about our equity investees, our affiliated companies. So that's just not right. And I hope that these guys will spend time and go to China and see what's going on, the power of consumption, the power of people -- young people today in China are accessing the Internet through the mobile device.

We have a platform that has over 430 million active shoppers on our platform. And that's very, very powerful. I think these guys -- I would invite these guys to come to China and see it for themselves. You can't just sit in the back room and read some balance sheet and draw conclusions about the business. It's just not right.

DAVID FABER: One of the things our panelists earlier -- different panelists -- you don't have to worry about it, Mr. Bishop -- was saying that there's a real turn in China, that a lot of the turn is fiscal stimulus, company monetary stimulus. You're seeing electricity use pick up. You're seeing a lot of metals pick up. But these are ultimately designed for a consumer economy to do better. Are you seeing that? He thinks January and February, March are not the bottom in Chinese lack of growth.

JOSEPH TSAI: I don't look at cyclical trends. We look at the long term, five, ten years out. Quarter to quarter, there's going to be cyclical fluctuations. But what we're seeing is the consumers that are buying and shopping on our platform, every year, they are buying more items, they are ordering more, they're spending more, and they're buying more across more categories, broadening out their consumption on our platform. That's what I see.

DAVID FABER: Do you have to worry about concerns that we've read recently about demographicship, where there could be fewer and fewer households and smaller households?

JOSEPH TSAI: I'm not concerned about that. We are all about...


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