In an Oct. 24 speech at the Bund Summit in Shanghai, a two-day meeting of Chinese bankers and regulators, the billionaire entrepreneur Jack Ma criticized the “outdated supervision” of financial regulation for stifling innovation, and said Chinese banks operated with a “pawnshop mentality.”
“The game in the future is about innovation, not just regulatory skills,” Ma said.
At the same summit, China’s vice president Wang Qishan delivered a pre-recorded address in which he said China’s financial industry should stay off “wrong paths” of speculation and focus on preventing financial risks.
At the time of Ma’s speech, Ant Group, the fintech company he founded, was less than two weeks away from what was slated to be a record-breaking $37 billion initial public offering. The dual debut in Shanghai and Hong Kong would have displayed the clout of a homegrown tech company that eschewed U.S. capital markets at a time when technological self-sufficiency is a strategic priority for Beijing.
But on Tuesday the conflicting messages of Ma and Wang seemed to come to a head, with the Shanghai Stock Exchange bringing Ant’s IPO plans to a screeching halt. Two days before Ant’s float, the Shanghai exchange suspended its portion of the IPO, saying Ant “may not meet listing qualifications or disclosure requirements.” Ant suspended the Hong Kong portion of the IPO after the announcement. The company declined to comment for this article.
The timing of the suspension—just before Ant’s debut, and less than two weeks after Ma’s controversial speech—suggests it may have been a sharp reminder from China’s banking czars of who is in charge.
“This is the way the regulators have of telling Jack Ma what his place is,” said Anne Stevenson-Yang, co-founder and research director of J Capital Research, a consulting firm that specializes in China. “It was a matter of saying, ‘Look, we’re willing even to pull your IPO, we’re not scared of you, so you have to get in line.'”
The suspension was a shock to the financial world, especially for the retail investors in Hong Kong and Shanghai who had swamped the exchanges with $3 trillion worth of bids for Ant’s shares. But the news may have been less surprising to Ma himself. The teacher-turned-richest man in China is the poster child for the mainland’s technological rise and economic growth, but he cycles between the roles of national champion and upstart disrupter. His habit of embracing the latter means he’s had run-ins with Beijing in the past.
The era of Ma Yun
China’s state media loves to rehash Ma’s irresistible rags-to-riches journey from an unemployed school teacher who couldn’t code to founder of two of China’s biggest tech firms. For years, state-run outlets referred to “the era of Ma Yun,” using Ma’s Chinese name to describe China’s fast-growing tech industry.
Ma launched his first digital venture in 1995, not long after returning from a trip to the United States, where he was introduced to the Internet. The business was called China Pages and the idea behind it was as simple as an old-fashioned phone book. Ma wanted to create an online directory where global buyers could locate and communicate with Chinese suppliers. Revenue would come from the suppliers, who would pay fees to China Pages to list their companies and explain their products and services.
The business took off, and just a year after its launch, China Pages entered a joint venture with its biggest competitor, the Hangzhou branch of state-owned China Telecom. According to the New York Times, China Pages was pressured into the deal.
“The general manager of China Telecom offered to invest $185,000 to do a joint venture,” Ma recalled in a 2008 interview with Inc. magazine. “It was the most money I had ever seen in my life. But unfortunately, China Telecom got five board seats. I got two board seats. Everything we suggested, they turned us down. It was like an elephant and an ant.”
Ma ultimately resigned and took a job working for Infoshare, an Internet advertising agency controlled by China’s Ministry of Foreign Trade and Economic Cooperation. The first-hand exposure to government bureaucracy reinforced Ma’s view that the state could be a counter-productive force on innovation.
“At that time, I felt it was too tiring doing e-commerce in the government,” Ma said of his time at Infoshare in a 2005 interview. “E-commerce should start with private enterprises.”
After 14 months at Infoshare, Ma returned to Hangzhou in 1999, just as the global dot-com boom was reaching its height, and launched his second venture, an online retailer called Alibaba that Ma founded with 17 partners. They pooled $60,000 to fund it.
Ma thought Alibaba, like China Pages, could help Chinese businesses find customers abroad. Early investors like Goldman Sachs, which poured $3.3 million into Alibaba in 1999, helped the company get off the ground; SoftBank invested $20 million in 2000.
In 2002, as Alibaba turned its first profit, Ma spearheaded the development of Alibaba’s eBay-like consumer arm. It was a departure from Alibaba’s model up to that point, which had focused on business-to-business transactions. The consumer site, Taobao, let sellers list products for free, unlike eBay, which charged a fee. Taobao effectively drove eBay out of the Chinese market in a matter of years.
Taobao grew rapidly as Internet penetration in China increased and the nation’s middle class grew. Alibaba today retains a dominant share in China’s e-commerce market. Its payment platform Alipay—which Ant now operates—also helped the e-commerce firm grow by cultivating consumer trust.
Alibaba is now the biggest technology company in China, with a market cap of around $753 billion (Before the news of Ant’s IPO halt knocked its shares, Alibaba’s market cap stood at $840 billion.) Its e-commerce platforms reached 757 million annual customers as of this month.
An ambivalent relationship
Alibaba’s success catapulted Ma to celebrity and fortune. He held a public debate with Elon Musk to discuss aliens and artificial intelligence and starred in an Alibaba-produced martial arts film with some of China’s biggest film stars. Ma is currently the 17th-richest person in the world, and the wealthiest person in China, with a net worth of $63.5 billion.
Beijing has commended Ma’s business success, holding him up as an example of what Chinese talent—particularly, members of its ruling party—can do.
In November 2018, the Central Committee of the Communist Party of China included Ma in a list of 100 people it was honoring for their contributions to the nation’s development. The party’s official newspaper, the People’s Daily, identified Ma as a party member in announcing the list—and noted that rival tech titans, Baidu founder Robin Li and Tencent founder Pony Ma, were not.
But even as Beijing has feted Ma, his global profile, enormous wealth, and sometimes blunt criticism of the government have rankled officials who expect native sons to show deference to party leaders.
Ma has alluded to his ambivalent relationship with the state in the past. In 2014, referring to the Chinese government, he said, “As always, be in love with them, but don’t marry them.”
In September 2018, on his 54th birthday, Ma announced he was stepping down as chairman of Alibaba to focus on philanthropic work. The announcement sparked speculation—which Ma publicly denied—that the Chinese government had pressured him to retire from Alibaba as Beijing increased scrutiny of private enterprises and of tech companies, in particular.
Ma’s retirement news sparked some surprise, since the charismatic founder was revered within Alibaba and widely viewed as the face and the soul of the company, which was unique among Chinese tech entrepreneurs.
“There were rumors when he retired as chairman of Alibaba in 2018 that he was forced to leave, and there was a question of, ‘Is he becoming too powerful?'” said Dev Lewis, a fellow at Hong Kong-based think tank Digital Asia Hub.
Ant’s promise and risks
Just two years after Ma stepped back from Alibaba, the Ant IPO promised to reinstate any prominence he might have lost.
Ant’s IPO was expected to raise around $37 billion, more than any public float in history. It would have valued Ant at around $315 billion, and padded Ma’s own fortune by an estimated $27 billion.
Ant runs Alipay, but in the last few years it’s expanded into credit, investment, and insurance businesses that hundreds of millions of Chinese citizens use.
Chinese regulators have real concerns about the potential risks of large-scale consumer lending operations like the ones that Ant facilitates.
Banks use Ant’s platforms to provide credit to small businesses and individuals. Since Ant doesn’t provide funding for most of the loans it processes, credit is on the banks’ balance sheets, not Ant’s own. Ant generates revenue by collecting fees from banks for facilitating the loans.
“The actual risk [is held by] the banks lending the capital,” Lewis said.
One of the new rules the government published on Monday would require Ant to provide a minimum of 30% of the funding for the consumer loans it facilitates on its platform. (Ant currently funds 2% of its loans, according to Bloomberg.)
‘Don’t mess with the regulator’
If Beijing was already worried about the business risks Ant poses, Ma’s comments at the Bund Summit likely fanned the flames.
“The lesson here is: don’t mess with the regulator, especially the central bank, anywhere in the world—no matter how rich you are,” says Paul Schulte, founder of Hong Kong-based equity research firm Schulte Research.
According to Reuters, Ma’s Bund Summit speech angered several senior regulatory officials and prompted a fresh round of investigations into Ant’s financial activities that culminated in the last-minute suspension of the IPO.
The suspension of Ant’s IPO, Lewis said, “is really adding to the rumors that essentially [Ma] was getting too big, too powerful, sitting at the same chairs with world leaders [and] heads of state.”
Ant’s halted IPO has upended the firm’s plans. Ant is currently in the process of refunding the millions of retail investors in Hong Kong and Shanghai who had rushed to grab shares in the lucrative IPO. The debut has no rescheduled date and faces a delay of at least six months. On top of that, China’s new financial regulations could cut into Ant’s revenue and pull down its valuation when it does list.
But the suspension achieved two goals for Beijing, said Stevenson-Yang: it was a warning shot against any business trying to flout financial regulation or challenge big, state-owned banks, and it reminded Jack Ma “where he sits in the food chain.”
