Jack Ma VS Xi Jinping For The Hearts And Wallets Of China
Chinese President Xi Jinping has recently pushed back on big private businesses. His latest move calling off Ant Group's IPO is one to show dominance and power from the country’s newly assertive Communist Party.
Mr. Ma controls 50.5% of Ant’s voting rights, but What is Ant Group?
In 2008, when he was Alibaba’s CEO, Mr. Ma noticed that traditional banks in China were ignoring businesses that badly needed funding.
“If the banks don’t change, we will change the banks,” he said, explaining that he envisioned “a more comprehensive lending system that served the needs of small businesses.”
In 2013, as Alibaba’s chairman, he again took aim at traditional Chinese lenders, saying “The financial industry needs disrupters” and outsiders to bring about changes".
Around that time, Alipay created an online money-market mutual fund designed to help individuals earn investment returns on spare electronic cash sitting in their Alipay wallets. It was an instant success even drawing complaints from some lenders that Alipay was siphoning their deposits.
In 2014, Alipay, along with Alibaba’s other financial businesses, were folded into Ant Financial Services Group, the company now known as Ant Group. 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. To date it has long been spared from the tough regulations and capital requirements that commercial banks have been subject to.
Ant’s big money-market fund became the world’s largest of its kind, with more than $250 billion under management by 2017.
Ant raised three rounds of private capital. By mid-2018, it was the world’s most valuable startup, worth $150 billion, based on the prices private investors had paid.
In a speech on Oct. 24, days before the IPO, Mr. Ma cited Mr. Xi’s words in what top government officials saw as an effort to burnish his own image and tarnish that of regulators. Mr. Ma quoted Mr. Xi saying,
“Success does not have to come from me.”
During his 21-minute speech, Mr. Ma criticized Beijing’s campaign to control financial risks. “There is no systemic risk in China’s financial system,” he said. “Chinese finance has no system.”
He also took aim at the regulators, saying they “have only focused on risks and overlooked development.” He accused big Chinese banks of harboring a “pawnshop mentality.” That, Mr. Ma said, has “hurt a lot of entrepreneurs.”
His remarks went viral on Chinese social media and Mr. Ma's blunt criticism of the government’s increasingly tight financial regulation and lack of innovation reached Mr. Xi and other senior leaders who were furious. An order was issued to Chinese regulators to investigate and all but shut down Ant’s initial public offering. (Investors had committed to paying more than $34 billion for Ant’s shares)
“Xi doesn’t care about if you made any of those rich lists or not,” said a senior Chinese official. “What he cares about is what you do after you get rich, and whether you’re aligning your interests with the state’s interests.”
Ant’s shareholders include Boyu Capital, a private-equity fund whose partners include Alvin Jiang, the grandson of former Chinese leader Jiang Zemin. China’s national pension fund, China Development Bank and China International Capital Corp. , the country’s top investment bank, all have large unrealized profits on their investments in Ant.
“It has always been a very complicated relationship between Ant and the government,” said Cornell University professor Eswar Prasad, a former head of the International Monetary Fund’s China division. He said the company is no longer seen as too big and influential to be reined in by government agencies. Mr. Ma’s speech in October “was a trigger for the government to act,” he said.
At a meeting of the Financial Stability and Development Committee headed by Mr. Liu, the group decided to “put all kinds of financial activities under regulation and treating the same businesses in the same way,” .
The new rule, aimed squarely at Ant, had a requirement that didn’t exist in previous drafts: Firms such as Ant would need to fund at least 30% of each loan it makes in conjunction with banks.
The next day, the Shanghai Stock Exchange suspended the Ant IPO, citing the meeting and changes in the regulatory environment. The China Securities Regulatory Commission, which previously signed off on the listings, now says it was a “responsible move” to protect investors and markets, as the regulation, once implemented, would severely limit Ant’s business scope and profitability.
Alibaba this year solidified its position as China’s most valuable listed company after more than quadrupling its market capitalization in barely six years. Ant’s listing, had it gone ahead, would have valued the company at more than $300 billion and made it worth more than most of China’s and America’s largest banks.
All this likely will mean that Ant’s lofty valuation will be cut when or if it tries to list again.