After Shanghai’s stock exchange abruptly suspended Ant Group’s initial public offering just 10 days after Jack Ma delivered a blistering speech comparing Chinese regulators to a “geriatric club” intent on “feeding dementia medication meant for seniors to a child suffering from polio,” observers, analysts, and investors wanted an answer to one question: who ordered the IPO be stopped?
At The Wall Street Journal, Lingling Wei and Jing Yang have uncovered the answer: Xi Jinping himself decided to shut down the Ant group IPO:
Chinese President Xi Jinping personally made the decision to halt the initial public offering of Ant Group, which would have been the world’s biggest, after controlling shareholder Jack Ma infuriated government leaders, according to Chinese officials with knowledge of the matter.
[…] Mr. Xi, who read government reports about the speech, and other senior leaders were furious, according to the officials familiar with the decision-making. Mr. Xi ordered Chinese regulators to investigate and all but shut down Ant’s initial public offering, the officials said, setting in motion a series of events that led to the deal’s suspension on Nov. 3. Investors around the world already had committed to paying more than $34 billion for Ant’s shares. It isn’t clear whether it was Mr. Xi or another government official who first suggested the shutdown.
[…] Chinese regulators have long wanted to rein in Ant, according to the Chinese officials with knowledge of the decision-making. The company owns a mobile payments and lifestyle app, called Alipay, that has disrupted China’s financial system. Alipay is used by roughly 70% of China’s population, has made loans to more than 20 million small businesses and close to half a billion individuals, operates the country’s largest mutual fund and sells scores of other financial products.
Ant largely focused on serving people and companies that traditional banks long ignored, and it has emerged as an important cog in Chinese finance. It has long been spared from the tough regulations and capital requirements that commercial banks have been subject to. [Source]
— Bill Bishop (@niubi) November 12, 2020
A bevy of new regulations designed to reform Chinese financial technology (fintech) companies followed the Ant Group IPO’s suspension. The new regulations, especially a Xi-approved rule that mandates Ant itself fund at least 30% of all loans, are designed to treat Ant Group and other fintech companies like “traditional financial institutions instead of tech startups” by limiting their leverage and forcing them to contribute more to loans. Currently, Ant itself only funds between 1%-10% of the microloans distributed through its Huabei and Jiebei platforms, the rest coming from partner financial institutions. Caixin reported that “Ant Group [will] have to either dramatically reduce its loan size or increase capital by billions of yuan” to satisfy the new parameters.
Rui Ma wrote that regulators’ crackdown on Ant was, in part, triggered by previous peer-to-peer loan scandals and university lending scandals, “which resulted in students committing suicide when they could not deal with the mounting levels of debt they had accumulated.” Ant’s typical microloan users are, in its own words, young, internet savvy, and hungry for credit. Regulators fear that this group is particularly vulnerable to exploitation. Global Times’ analysis was succinct, “Too much innovation that overburdens the regulatory regime could result in a fintech bubble which, in the worst-case scenario, drags the nation’s internet-savvy population into a nightmare of false prosperity that might go bust.”
Regulatory concerns aside, the actions against Ant seemed to highlight the Party’s desire for control over private corporations. In September, a powerful office under the Central Committee issued new guidelines, “Opinion on Strengthening the United Front Work of the Private Economy in the New Era,” that call for the Party to take a greater role in private businesses. The Economist analyzed the danger the Party’s drive into private firms poses to Chinese entrepreneurs:
Many of the businessmen who once fancied themselves as a Chinese Warren Buffett are in prison or worse. Wu Xiaohui, the chairman of Anbang, which bought the Waldorf among other assets, was handed an 18-year prison sentence in 2018 for financial crimes. Ye Jianming, who attempted to buy a $9bn stake in Rosneft, a Russian oil producer, was detained in early 2018. His whereabouts is still unknown. Xiao Jianhua, a broker for China’s political elite who once controlled Baoshang Bank, was kidnapped by Chinese agents from his flat at the Four Seasons Hotel in Hong Kong in 2017 and is thought to be co-operating with authorities in the unwinding of his financial conglomerate.
[…] The party has also been increasing its influence over private firms in more subtle ways. Under a strategy referred to as “party building”, firms have been asked to launch party committees, which can opine on whether a corporate decision is in line with government policy. The number of committees in publicly traded but privately controlled companies is still low. According to a survey of 1,378 Chinese listed firms by Plenum, a consultancy, of the 61% that were privately controlled only 11.5% had party-building clauses in their charters compared with 90% of state-owned firms.
[…] Yet the prevalence of such committees looks likely to grow. In September Mr Xi asked for the private sector to “unite around the party”. A day later Ye Qing, vice-chairman of the All-China Federation of Industry and Commerce, a powerful organisation controlled by the Communist Party, issued a more detailed list of demands. He called for private groups to establish human-resources departments led by the party and monitoring units that would allow the party to audit company managers. [Source]
For those entrepreneurs still unclear about the Party central’s message, Xi Jinping made a public stop at the Nantong Museum’s exhibit on the life of Zhang Jian, a Qing dynasty-era official and entrepreneur. Xi had previously extolled Zhang Jian in a July speech, in which he said, “In modern times, patriotism has been the glorious tradition of our nation’s best entrepreneurs.” （爱国是近代以来我国优秀企业家的光荣传统 ）Commentators offered their opinion about the meaning of Xi’s visit to the Zhang Jian exhibit on Twitter:
Maybe: 1. Donate all your wealth to China’s modernization and education and die as a bankrupt entrepreneur; 2. Business interests should come after national interests; 3.Xi is probably not aware how much more freedom Zhang had in his biz and philanthropy experiments a century ago https://t.co/eAUXkm1kuR
— Li Yuan (@LiYuan6) November 13, 2020
Meanwhile, Xi made it clear what kind of entrepreneur he wants by praising Zhang Jian as a model for Chinese private bosses. Btw, Zhang is from Qing Dynasty. H/t: @ByXiaoXiao https://t.co/qNifwTeKhn https://t.co/qNifwTeKhn
— Lingling Wei 魏玲灵 (@Lingling_Wei) November 13, 2020
Some analysts are still bullish on Ant Group’s future. At Bloomberg, Anjani Trivedi and Shuli Ren were confident that focusing on MyBank—another Ant affiliate—instead of Huabei and Jiebei, will give Ant Group ample opportunity for growth:
The financial outfit has a similar 30% ownership in MyBank, and describes the licensed digital lender as one of its largest customers and “most important partner,” serving more than 12 million small and medium business clients in 2019. Net interest margins are close to 4%; those at large, traditional banks are around half that.
[…] In the speech last month that ultimately led regulators to halt Ant’s $35 billion IPO, Ma said that China’s financial system works like a pawnshop: Banks won’t lend without collateral or guarantees. Ma wants the lending industry to evolve into one based on effective credit systems. Using real-time payments data and its own risk management tools, MyBank can quickly decide whether to make small loans.
Running a bigger, successful MyBank would prove Ma’s point. One clear path of expansion would be consumer loans, leveraging the co-lending model with traditional banks. That’s a strategy that seems to be working for WeBank. [Source]