Two weeks ago Jack Ma, the Chinese entrepreneur and founder of the e-commerce giant, Alibaba, addressed a big financial conference in Shanghai. Responding to his host’s tongue-in-cheek introduction, he said: “I’m not throwing any bombs” — but then proceeded to do just that. He gave the equivalent of both barrels to China’s risk-averse financial regulators, and labelled China’s state banks, on which his business depends, “pawnshops” for their lending to only those that could post significant collateral. A week later, the authorities pulled what was to be the world’s biggest initial public offering (IPO), of $37 billion of shares in his spun-off Ant Group in Shanghai and Hong Kong with 48 hours’ notice.
The Ant IPO on the STAR market, China’s NASDAQ equivalent, was oversubscribed by factor of about 800, and, had it gone ahead, would have given Jack Ma, China’s capital markets and China itself a lot to crow about at a time when China is keen to exploit the West’s pandemic and economic plight, and America’s political divisions and distractions. Now he looks rather naive, but perhaps more importantly, China’s regulators look bad, and the opaque, controlling and interfering role of Chinese politics has again been corroborated. Western financial firms, queuing up to bring capital into China at a delicate geopolitical time, should take notice.
For background, Ant, which is 33 per cent owned by Alibaba, is best known for Alipay, which dominates China’s $17 trillion on-line payments market, and reaches over 700 million people. Alipay generated over half of Ant’s $9 billion in annual revenues last year. The group also sells investment products, makes small loans, and offers other financial services, including loans to regular banks.
The most immediate cause of the falling out between Ma and the authorities lies in the regulatory area. Ant straddles two of the most scrutinised sectors in business nowadays, finance and technology. The finance industry in China and elsewhere is developing so called “fintech” at a rapid pace, presenting central banks and regulators all over the world with new and sometimes daunting problems, especially as digital currencies and payments systems are developing.