(CWBN)_ In October this year, Jack Ma took to a conference stage in Shanghai, and unveiled a 20-minute roasting of the communist regime in China, which would suffocate the country’s innovations.
Previously, the tech mogul called out “pawn shop” Chinese lenders and regulators who don’t understand the internet, and the “old men” of the global banking community.
The famously outspoke entrepreneur, known for his confident swagger, is the co-founder of China’s largest company, Alibaba Group Holding Ltd., and was on the brink of pulling off an unprecedented $35 billion initial public offering for the country’s largest digital payment platform, which was expected to swell Ma’s own fortune beyond its already blistering $61 billion.
Over the past few months, the communist regime of Beijing has launched a regulatory crackdown, which not only took down the Ant public offering, but also imposed tough new antitrust rules, which saw a $140 billion decline in Alibaba’s market value.
Meanwhile, the confident, outspoken billionaire has vanished from the public view, and his empire is under regulatory scrutiny. While his wealth and influence has been restrained, however, it is reported that Ma is not on the verge of personal downfall. Instead, it was a warning that the communist regime had lost patience with the country’s technology moguls, which are perceived as a threat to the political and financial stability of President Xi Jinping.
“The [Communist] Party is trying to make it clear that Ma is not bigger than the party,” a professor specializing in Chinese politics at Oxford University, Rana Mitter, said. “But they also want to show that China is a good place to do business, and that means that the party needs to show that entrepreneurs can succeed.”
Nevertheless, the authorities in Beijing set in motion an unprecedented series of events, which conveyed a warning message to Ma and fellow entrepreneurs to tone down the swagger. While, the unexpected suspension of the world’s largest IPO on November 3 left financiers from New York to Shanghai stunned, a week later the authorities issued proposed a 22 pages long anti-monopoly guidelines.
This led Ma’s empire into crisis mode, with his top executives being a part of a task force which has almost daily interactions with watchdogs, while regulators continue to weigh which businesses the Ant Group should give up in order to contain the risks it poses to the economy.
However, it is believed that Ma’s fall from grace has been years in the making. The former school teacher has long cultivated his image as a rebel fighting the system. His companies have clashed with various power entities, from industry regulators to state-owned enterprises.
He first rose to prominence as the co-founder of Alibaba, the online retailing enterprise which went on to become China’s largest company. Subsequently, Ant was brought to life 17 years ago, during a period when Beijing hadn’t yet granted permission to companies to operate in finance. Nevertheless, with Silicon Valley-based PayPal Holdings Inc. as his model, Ma created the Alipay service, and in the early days he emboldened his employees with promises like “If someone has to go to jail, I’ll go”.
Alipay began to thrive, boosting the success rate of online purchases from a third to 90 per cent, thereby establishing Ant’s dominance in digital payment services.
Next, Ma attempted to stir things up in China’s heavily regulated state banking sector. The group created the money-market fund Yu’ebao, a leftover treasure, which required balances as less as 1 yuan (15¢), and allowed withdrawals at any time. A part of the goal was to create a more transparent financial system that would disrupt the local banking system, which was sucking in cheap deposits and earning significant net interest margins. And in less than a year, with 30 million users, the assets under management of the fund grew to 100 billion yuan ($15.3 billion), and one point became the world’s largest money-market fund.
While Yu’ebao was creating waves in Beijing, Alibaba was making news in New York, where it pulled the world’s largest IPO in 2014. Its stock soared 38 per cent on the first day, and Ma noted that his method of dealing with authorities was to “never ever do business with government. Be in love with them, don’t marry them.”
However, the online retailing genius’ already chilly relationship with the government hit a new low in 2015, when the State Administration for Industry and Commerce issued a report which noted that Alibaba had a credibility crisis, alleging the company was carrying out counterfeit products, hosting shady merchants, and taking bribes.
During this period, Ma was making an appearance at the World Economic Forum in Davos, Switzerland, where he said that he would never share customer information with Beijing unless it was investigating terrorism or other crimes. However, this growing dispute rattled investors, sending Alibaba’s share price tumbling.
In order to limit the crisis, Ma visited the regulators in multiple occasions. Later that month, the Industry and Commerce watchdog issued a letter noting that the allegations made against the company didn’t have “judicial effect”. This bolstered investor confidence in Ma’s ability to navigate regulatory waters and finding the right balance when picking battles with authorities.
However, the peace was broken in September, which led up to the scattering of the long-awaited Ant’s IPO. With investors lined up for a piece of the financial-services powerhouse, valued at $315 billion, the authorities in Beijing set out to curtail it, bringing the IPO to an abrupt halt.
According to a finance professor and director of the Asia Global Institute at the University of Hong Kong, this was a wakeup call to all private businessmen that the communist regime regulates everything. “It is not new that the party regulates everything, including private businesses and especially private financial businesses, as this had been … explicitly stated in China’s constitution,” says Zhiwu Chen. “But many private businessmen did not take this seriously. The recent Ant episode was a wake-up call.”
Just a few days before Ant’s scheduled IPO, Ma and his top executives were summoned before the main financial regulators in Beijing, and the listing was halted the following day. Although the Group hasn’t been given specific details on the overhaul, the underlying message is for the company to comply with rules and rethink its business.
Moreover, Ant will likely lose one of its two licenses that permit the Group to run its microlending platforms, Huabei and Jiebei, and on the other hand, institutions have also been told to report their co-lending with Ant to the authorities. Experts say that these and many other expected changes have narrowed the chances of the Group reviving its IPO before 2022.
No tech mogul has succeeded in China by offending the regulators and stepping over their ever-shifting lines. Wang’s Twitter-like Fanfou, ByteDance’s Zhang, Tencent’s gaming empire, which were all shut down, are a testament to this fact.
Ma’s absence from public view since the halt of the Ant IPO is in sharp contrast to his previous glamourous life in the spotlight, appearing in his own Hollywood-style screen productions. Experts say that the current clampdown is a reminder to private businessmen that “You can be rich. You can have a powerful company. But you’ve got to play by our rules”.
