Commentary on Political Economy

Monday, 21 December 2020


Jack Ma Makes Ant Offer to Placate Chinese Regulators

Trying to salvage his relationship with regulators in a Nov. 2 meeting, the Chinese billionaire said he was ready to do what the country needed

Until recently, Chinese billionaire Jack Ma had a reputation for well-cultivated political ties. PHOTO: LUDOVIC MARIN/AGENCE FRANCE-PRESSE/GETTY IMAGES
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As Jack Ma was trying to salvage his relationship with Beijing in early November, the beleaguered Chinese billionaire offered to hand over parts of his financial-technology giant, Ant Group, to the Chinese government, according to people with knowledge of the matter.

“You can take any of the platforms Ant has, as long as the country needs it,” Mr. Ma, China’s richest man, proposed at an unusual sit-down with regulators, the people said.

The offer, not previously reported, appeared a mea culpa of sorts from Mr. Ma as he found himself face to face with officials from China’s central bank and agencies overseeing securities, banking and insurance. The Nov. 2 meeting took place a few days before Ant was supposed to go public, in what would have been the world’s biggest initial public offering.

Mr. Ma had angered Beijing by lashing out in a speech in October at President Xi Jinping’s signature campaign to control financial risks, saying it stifled innovation. Now, the regulators had called the meeting to voice their concerns about Ant’s business model.

His olive-branch offer at the meeting failed at saving the IPO and Beijing has since stepped up efforts to rein in China’s Big Tech giants.

“Ant Group cannot confirm the details of the meeting with regulators held on Nov. 2, 2020, because it is confidential,” a spokesman at the company said.

The suspension of Ant’s share sale of more than $34 billion that followed the Nov. 2 meeting was just the start. It was followed by a barrage of actions against what is dubbed the “platform economy,” or internet-based businesses championed by large tech firms.

Mr. Xi personally ordered Chinese regulators to investigate the risks posed by Ant, according to Chinese officials with knowledge of the matter, and to shut down Ant’s IPO.

People close to China’s financial regulators say there is no decision, for now, to take Mr. Ma up on his offer. One plan being considered involves subjecting Ant to tighter capital and leverage regulations, according to the people. Under that scenario, state banks or other types of state investors would buy into Ant to help cover any potential capital shortfall as a result of the tightened rules.

How Ant’s Record IPO Plans Unraveled
Days before Chinese fintech giant Ant Group was scheduled to go public in what would have been the world’s largest listing, regulators put plans on hold. WSJ’s Quentin Webb explains the sudden turn of events and what the IPO suspension means for Ant's future. Photo: Aly Song/Reuters

“The Chinese state has already effectively nationalized some of the financial infrastructure Ant built, such as the interbank payment system that became NetsUnion,” said Martin Chorzempa, a research fellow at the Peterson Institute for International Economics who specializes in China’s fintech sector, referring to the firm now controlled by the central bank that clears transactions between banks and third-party payment providers. “So there is a precedent for nationalizing platforms that are viewed as serving a critical policy purpose.”

The government under Mr. Xi’s leadership in recent years has shown a resolve to bring to heel private conglomerates viewed as undisciplined—however politically invincible their founders might have appeared.

Property tycoon Wang Jianlin’s Dalian Wanda Group, for instance, has been forced to sell assets, shrink its business and pay back bank loans. Anbang Insurance Group, another private high roller, has been taken over by the state, while its founder Wu Xiaohui in 2018 was sentenced to 18 years in prison for fraud and embezzlement. In addition, HNA Group, an airlines-and-hotel conglomerate, has had to pull back on aggressive acquisitions overseas and sell assets.

Until recently, Mr. Ma also had a reputation for well-cultivated political ties. He hasn’t made any public appearance since his Oct. 24 speech.

For years, companies including Ant and e-commerce giant Alibaba Group Holding Ltd. BABA -1.68% , both controlled by Mr. Ma, and internet conglomerate Tencent Holdings had largely enjoyed relatively little government oversight of their quest to build and expand internet-based payment, lending and other businesses.

With Tencent’s WeChat and other apps developed by these firms, millions of Chinese consumers and small-business owners can make a purchase, hail a taxi, execute an investment or even take out a loan with a swipe on their smartphones. Firms such as Alibaba and Tencent have become so successful that Chinese leaders including Premier Li Keqiang regularly hail the use of the internet and big data as crucial in driving future economic growth.

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. PHOTO: ALY SONG/REUTERS

However, Beijing’s leadership also has shown increasing unease with the wealth and influence these firms have built as well as the risks posed by their lightly regulated activities, such as online lending made popular by Mr. Ma’s Ant. In addition, the big tech firms in some instances have complicated the government’s own effort to use data and technology to tighten social control.

In November, China released draft regulations aimed at preventing these firms from colluding to share sensitive consumer data, forming agreements to block out smaller rivals and engaging in other anticompetitive behavior. Earlier this month, a meeting chaired by Mr. Xi of the Communist Party’s Politburo pledged to strengthen antimonopoly efforts next year and to “prevent the disorderly expansion of capital”—a message seen as portending a larger crackdown on internet giants.

Chinese officials say the leadership is particularly concerned that highflying entrepreneurs such as Mr. Ma keep attracting capital while exposing the financial system to greater risks.

Even before the halt of Ant’s IPO, for instance, regulators were already worried about the frenzy over the deal. The stock sale would have valued the company at more than the likes of JPMorgan Chase & Co. and Goldman Sachs Group.

Shortly after the Politburo meeting, China’s antitrust regulator fined Alibaba and a Tencent subsidiary for some acquisitions made in years past—again signaling the days of laissez-faire are over.

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