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Alibaba’s Homecoming May Not Prove a Home Run

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The tech giant is mulling a listing in China to go alongside the one it already has in the U.S. That may not be much benefit to existing shareholders.

Alibaba’s investors may feel excited about its plan to list on a mainland Chinese stock exchange. In reality, there may not be much to celebrate.

Alibaba’s savvy leader Jack Ma has clearly sniffed the political winds in Beijing: Chinese officials have been openly pressing the country’s largest technology firms to return to their home markets. The problem until now has been that firms such as Alibaba and Tencent have been structured as offshore entities. Under Chinese rules, that means they can’t list domestically.

Chinese regulators are now studying the use of so-called depositary receipts, which would allow investors to indirectly own shares of foreign-listed firms. Alibaba already uses such receipts, known as ADRs, for its U.S. listing.

Holders of those ADRs probably won’t reap much direct benefit from this move, even though their price jumped 3.4% Thursday. Beijing’s concerns about unrestricted capital outflows will likely mean Alibaba’s Chinese-listed depositary receipts won’t be convertible into its New York-listed ones. So there will be no way to bring their two prices together if they diverge.

Nor is this a triumph for corporate governance. Alibaba looks set to maintain its current shareholding structure, which gives Mr. Ma and other top executives control over the company. Sure, holders of its depositary receipts have had a chance to benefit from Alibaba’s breakneck growth—they have almost tripled in value since it listed in 2014. But they don’t get paid a dividend and don’t have any say over the company’s running.

The benefits for Alibaba are clearer. In particular, it could find it cheaper to raise capital at home. Alibaba and its ilk will likely get much higher valuations in mainland China. Two years after it delisted from the NYSE, tech firm 360 Security Technology —formerly known as Qihoo 360—has a Shanghai listing worth $52 billion, nearly six times its value when it quit the U.S.

Still, with a Chinese listing, Alibaba will come under more direct scrutiny from local market regulators. Right now, that might not seem a problem for a company long assumed to have close ties to the Beijing leadership. But the political sands can shift pretty quickly in China these days—just ask those who run companies such as Anbang, which have suddenly fallen from favor. Alibaba’s homecoming may not be lined with rose petals.