Alibaba is an “accounting story,” and the e-commerce giant is committing capital to businesses that investors cannot see, believes Jim Chanos. He explained his bearish view on the Chinese e-commerce giant on CNBC’s Fast Money Halftime Report. He has been short Alibaba stock since November 2015.

Jim Chanos Explains Why He Is Bearish On Alibaba Group Holding Ltd
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What’s Chanos’ problem with Alibaba?

Chanos, founder of Kynikos Associates, said investors cannot see all the operations of the China-based online retailer, especially its fulfillment part. He added that more than 2 million people work in delivery and warehouses, and their salaries are part of an unconsolidated company. He said there is not enough information about the warehouse companies and individual delivery companies that distribute the products bought through the e-commerce giant.

Further, Chanos said there is no information about the cost of the 2 million employees; however, he does know that the e-commerce giant is placing capital into these companies. He suspects that it is financing operating losses. Chanos wants to know why Alibaba’s cash flow is so negative. He said that his basic problem with Alibaba is that one cannot see its entire operation.

In the interview, he said, “You see a line item, equity and net income of affiliates, but there’s no idea — with the 2 million employees — of what those costs are, what the accounting is there.”

Alibaba gives a befitting reply

According to Chanos, some of Alibaba’s affiliates have been attempting to raise capital. Investors should ask why the affiliates of a company which has been compared to U.S.-based Amazon (despite the two companies’ differences), have a “voracious need for cash,” said Chanos. He thinks it is strange that the e-commerce giant spent $20 billion last year.

“I would want to know if I’m investing in a $280 billion company that’s supposedly on the forefront of the digital revolution of China why it’s so cash flow negative and we can’t good answers,” the fund manager said.

Alibaba has poor corporate governance, said Chanos, adding that the e-commerce giant took Alipay away from Yahoo!.

Meanwhile, Alibaba said in a statement to CNBC that Chanos continues to be uninformed and wrong about it. The e-commerce company added that since its 2014 IPO, it has been cash flow generative every quarter. The Chinese firm said Chanos comment “that Alibaba has 2 million employees shows a lack of understanding of our business model.”

Further, the Chinese company said it makes full disclosures on this business, including revenues, loses, profits, assets and liabilities.