{"id":67264,"date":"2021-01-12T15:14:49","date_gmt":"2021-01-12T07:14:49","guid":{"rendered":"https:\/\/www.mediaintel.asia\/?p=220547"},"modified":"2021-01-12T15:14:49","modified_gmt":"2021-01-12T07:14:49","slug":"jack-ma-vs-xi-jinping-the-future-of-private-business-in-china","status":"publish","type":"post","link":"https:\/\/www.chinalegalblog.com\/en\/2021\/01\/12\/jack-ma-vs-xi-jinping-the-future-of-private-business-in-china\/","title":{"rendered":"Jack Ma vs Xi Jinping: the future of private business in China"},"content":{"rendered":"
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Finance January 12, 2021 Techy 0 Four years ago, when Ant Group\u2019s premier money market fund was racing to a peak of more than $260bn worth of assets under management,...
\nFour years ago, when Ant Group\u2019s premier money market fund was racing to a peak of more than $260bn worth of assets under management, many of China\u2019s state-owned banks and their regulators started to get agitated. In a series of calls and meetings with Jack Ma, Ant\u2019s founder, bank executives and regulatory officials demanded that its Yu\u2019E Bao fund be reined in .
\n\u201cYu\u2019E Bao was pulling a lot of money from the banks,\u201d says one person familiar with the discussions. \u201cThe banks were worried about the impact on liquidity and wanted Ant to take measures to minimise the impact. The conversations were pretty tense.\u201d
\nIn the end, Mr Ma had to back down and Yu\u2019E Bao imposed caps on how much people could deposit. Between March and December of 2018, its funds under management fell by a third to $168bn and stood at $183bn last September.
\nThe showdown would prove to be a prelude to the much bigger confrontation that now pits the Chinese Communist party and President Xi Jinping against not just Ant but also Alibaba , the ecommerce group founded by Mr Ma.
\nThe stand-off, which has sparked rampant speculation about Mr Ma\u2019s whereabouts , could become a defining moment for the future of private business in Mr Xi\u2019s China.
\nOn December 24, China\u2019s market regulator announced it was launching an antitrust probe into Alibaba and sent investigators to its headquarters in the eastern Chinese city of Hangzhou, Mr Ma\u2019s hometown. The announcement came just two weeks after the party\u2019s politburo said it would target monopoly businesses to prevent the \u201cdisorderly expansion of capital\u201d. Jack Ma holds the gavel at the New York Stock Exchange in 2014. Mr Ma has not been seen in public since October last year \u00a9 New York Times\/Redux\/eyevine
\nThe move on Alibaba also came two months after financial regulators dramatically cancelled Ant\u2019s planned $37bn initial public offering, which would have been the world\u2019s largest.
\nTaken together, the measures amount to an unprecedented squeeze on a business empire whose ubiquitous services are central to the functioning of China\u2019s pioneering online economy . Ant says Alipay, its payment app, is regularly used by 700m people \u2014 half of China\u2019s total population \u2014 and 80m merchants, processing payments worth Rmb118tn ($18.2tn) in the group\u2019s last financial year.
\nAlibaba\u2019s shares have fallen by almost 30 per cent since the regulatory showdown began in late October, putting a big dent in the net worth of Mr Ma, who has not been seen in public since then. Over the same period his fortune has declined from $62bn to $49bn, according to Bloomberg data. The Hurun China Rich List estimated that Mr Ma had been the country\u2019s richest man as recently as October 20 but would now rank fourth, his top slot taken by a bottled water tycoon, Zhong Shanshan .
\nThe results of the showdown will say a lot about the sort of economy that China is developing. If Ant and Alibaba are crippled by regulators \u2014 or its founder is personally targeted by investigators \u2014 it will go down as a landmark moment in the party\u2019s fickle relationship with China\u2019s private sector even though Mr Ma is, ironically, a party member himself.
\nSince Deng Xiaoping launched the \u201creform and opening\u201d era 40 years ago, the party has become ever more dependent on private sector companies for economic growth, job creation and tax revenues. But the party\u2019s fixation with control, especially since Mr Xi came to power almost a decade ago, also triggers periodic crackdowns on the sector and prominent entrepreneurs.
\nYet there is another potential outcome that would indicate a less fraught relationship between the party-state and business. The investigations into Ant and Alibaba could lead to the sort of settlements that are not dissimilar to those pursued in the US and EU against large finance and technology groups. That would leave Mr Ma\u2019s two flagship companies humbled but still formidable and highly profitable national champions. Even then, a strong political message would have been sent.
\n\u201cChinese internet magnates can still enjoy thriving businesses and enormous fortunes if they are able to convince the top leadership of their loyalty,\u201d says Chen Long at Plenum, a Beijing-based consultancy. \u201cThe top leadership wants to ensure that neither Ma nor anyone else ever crosses the red line of trying to exert personal influence over government policies again \u2014 at least not publicly. The government will support them on the condition that they serve the national interest first.\u201d Fintech revolution
\nMr Ma has not appeared in public since October 24, when he gave a high-profile speech critical of the same state-owned banks he clashed with over Yu\u2019E Bao\u2019s rapid growth, as well as regulators who he said often sacrifice innovation on the altar of stability. According to people involved in the listing, the speech angered Mr Xi, who made the final decision to halt the Ant IPO. A woman views a QR Code at an Ant Group stall in Shanghai. The move against Alibaba came two months after Chinese financial regulators cancelled Ant\u2019s planned $37bn flotation \u00a9 Feature China\/Barcroft Media\/Getty Jack Ma with the winners of his \u2018Africa\u2019s Business Heroes\u2019 TV competition in 2019. The usually high-profile Mr Ma missed the November final of last year\u2019s contest \u00a9 africabusinessheroes.org
\n\u201cTo innovate without taking risks is to strangle innovation,\u201d Mr Ma said. \u201cThere is no such thing as riskless innovation in the world. Very often, an attempt to minimise risk to zero is the biggest risk itself.\u201d
\nHe was speaking at the same forum where Wang Qishan, Mr Xi\u2019s powerful vice-president and former anti-corruption tsar , had earlier emphasised the paramount importance of financial system stability. \u201cEfforts should be made to prevent and lower financial risks\u2009.\u2009.\u2009. security always ranks first,\u201d Mr Wang said. \u201cWhile new financial technologies have improved efficiency and brought convenience, financial risks have been heightened.\u201d
\nIn an unprecedented public rebuke of Ant two months later, on December 26 China\u2019s central bank criticised Ant for being too cavalier about financial risk and taking advantage of regulatory loopholes. But as frustrated as regulators are with Ant, they cannot ignore the beneficial effects of the financial revolution it has led in China.
\n\u201cAnt Group,\u201d People\u2019s Bank of China vice-governor Pan Gongsheng admitted in his otherwise critical comments, \u201chas played an innovative role in developing financial technology and improving the efficiency and inclusiveness of financial services\u201d. The central bank, he added in a nod to jittery entrepreneurs, was also \u201cunshakeable\u201d in its commitment to \u201cprotect property rights and promote entrepreneurship\u201d.
\nMr Ma has long enjoyed support from officials in a range of State Council ministries, as well as the lead financial regulators, who appreciate the contributions of Ant, Alibaba and their rivals, all of whom have transformed China\u2019s economy and made its online services sector a global leader. When his status as a party member was first confirmed only two years ago, it was in the context of an award he was receiving from the party\u2019s Central Committee for \u201cmaking China a leading player in the international ecommerce industry, internet finance and cloud computing\u201d.
\nAlibaba and Ant\u2019s ecommerce and online payment services were even more critical at the height of China\u2019s successful battle to contain coronavirus, providing essential services to the hundreds of millions of people caught in draconian lockdowns .
\n\u201cThere are different lines of thought within the regulators,\u201d Mr Chen says. \u201cUntil Jack Ma\u2019s speech the pro-growth people had the upper hand. But Xi thought the speech was too much and a second [risk-averse] group took the lead. If his speech hadn\u2019t happened, everything would have been fine.\u201d
\nDisappearing acts are unusual for Mr Ma, who also missed the November finale of his African reality TV show \u2014 Africa\u2019s Business Heroes . He routinely gives flamboyant musical performances at Alibaba events and hobnobs with heads of state and government leaders. People\u2019s Bank of China vice-governor Pan Gongsheng tried to calm jittery entrepreneurs when he said the central bank was \u2018unshakeable\u2019 in its commitment to \u2018protect property rights and promote entrepreneurship\u2019 \u00a9 VCG\/Getty China\u2019s president Xi Jinping with other world leaders at the G20 summit in Hangzhou in 2016. Mr Xi was said to be irked that some guests sought meetings with Jack Ma during the event \u00a9 Sergei Guneyev\/TASS\/Getty
\nAs China\u2019s most successful private entrepreneur, Mr Ma enjoys unique status in China \u2014 and overseas. His fluent English has made him a huge celebrity on the international conference circuit, with a star quality unmatched by any of his private or state-sector peers.
\nWhen Mr Xi hosted the G20 leaders summit in Hangzhou in 2016, some of his guests also visited Mr Ma \u2014 something that irked the Chinese president, according to one diplomat involved and other people familiar with the matter. Mr Ma\u2019s VIP callers included Indonesian president Joko Widodo, Canadian prime minister Justin Trudeau and the then Italian premier, Matteo Renzi. Foreign leaders were offered limited time slots and the Chinese foreign ministry was mostly cut out of the process.
\nOver the past week rumours about Mr Ma\u2019s whereabouts have abounded on China\u2019s carefully monitored social media channels, while domestic media outlets have received strict instructions from censors about the stories they can and cannot run on Ant and Alibaba\u2019s regulatory troubles.
\nMany of Mr Ma\u2019s friends and colleagues strongly dispute suggestions that he is personally in any sort of legal jeopardy, let alone on the run. \u201cHe is in China and not travelling because of Covid, not anything else. He\u2019s lying low,\u201d says one friend of Mr Ma.
\nAnother friend who communicates with Mr Ma regularly adds: \u201cEveryone is asking me if he\u2019s in danger, but he\u2019s doing fine. He responds [to messages and calls] quickly and seems like he\u2019s in good spirits. Discussions with regulators are still very much in process so he just has to stay quiet until they are resolved.\u201d Leadership missteps
\nFriends add that while Mr Ma may now regret the consequences of his October 24 speech, he meant what he said and still believes passionately in what he sees as Ant\u2019s mission to transform the provision of financial services in the world\u2019s second-largest economy.
\nYu\u2019E Bao, which translates as \u201caccount balance treasure\u201d, was started in 2013 and allowed anyone in China, from restaurant staff to the urban yuppies they serve, to deposit as little as Rmb1 ($0.15) in a money-market fund and earn more interest than they could in a Chinese savings deposit account. Just four years later it became the world\u2019s largest money market fund , surpassing JPMorgan\u2019s US government money market fund.
\nThe fund\u2019s success was a dramatic demonstration of Ant\u2019s potential. But it was also a threat to one of China\u2019s most powerful vested interest groups \u2014 state banks and the officials who regulate them. The central bank was also concerned. In its annual financial stability report published in late 2019, the PBoC said it would \u201cstrengthen regulation of systematically important money market funds\u201d, without mentioning Yu\u2019E Bao by name. A screen at a shopping event in Hangzhou shows Alibaba\u2019s number of delivery orders last year. The company\u2019s shares have fallen by almost 30% since the regulatory showdown against it began in late October \u00a9 Wang Gang\/China News Service\/Getty
\n\u201cWhen a taxi driver can deposit one renminbi in a money-market fund and get interest, that\u2019s a big breakthrough,\u201d says a former Alibaba executive. \u201cJack feels what Ant is doing is good for society.\u201d
\nMr Ma\u2019s companies have rebounded strongly from regulatory disputes before, although Ant and Alibaba never faced scrutiny as intense as they now do. Ant\u2019s run-in with banks and regulators over Yu\u2019E Bao, for example, did little to hinder its overall business or influence.
\nAnt\u2019s credit business grew so large that it now facilitates about one-tenth of all of China\u2019s non-mortgage consumer loans.
\nThe group also aligned its interests with those of powerful investors. Ant\u2019s first fundraising in 2015 brought in a slew of well-connected shareholders, all of whom were set to be rewarded handsomely in the IPO. The Chinese government\u2019s social security fund and a group of state-owned insurers held stakes in Ant valued at, respectively, Rmb48bn and Rmb45bn at the IPO price.
\nShares belonging to an investment vehicle put together by Boyu Capital, whose executives have included the grandson of former Chinese president Jiang Zemin, were valued at Rmb15bn. Even China Central Television, the country\u2019s state broadcaster, held Ant shares worth Rmb3bn.
\n\u201cFinancial regulators have been very concerned about Ant\u2019s growing power and ability to push back against any attempts to bring it under control,\u201d says one Chinese government adviser. \u201cPrevious attempts to bring Ant under more control were not really working because it was so big and so powerful. There is now clearly a very dramatic shift.\u201d Jack Ma in 2018 at a ceremony in Beijing to mark the 40th anniversary of China\u2019s opening up. Mr Ma fell foul of the authorities after giving a speech in which he was critical of state-owned banks and regulators in October last year \u00a9 Mark Schiefelbein\/AP
\nBill Deng, a former Ant executive and co-founder of XTransfer, a cross-border payments platform, says Mr Ma may have become too confident.
\n\u201cFor a long time, regulators let Ant expand and I think [management] became a bit too complacent,\u201d he says. \u201cIf there are hundreds of people praising you, you can get overly optimistic. Financial deleveraging policies have been a trend for several years now and the government is extremely careful when it comes to finance.\u201d Healthy growth
\nThe cancellation of Ant\u2019s IPO triggered a cascade of official and state media criticism of the fintech group. Regulators have also made clear they want the group to shift many of its businesses \u2014 including payments, lending, insurance and wealth management \u2014 into a new, more tightly regulated holding vehicle . This will increase Ant\u2019s capital requirements and lower its valuation.
\nAuthorities see the holding company model as a way to rein in large financial conglomerates while increasing their transparency. They also want Ant to share its vast trove of consumer data with the central bank \u2014 something it has refused to do before. Recommended
\nHaving to wait for a smaller return than they almost locked in a few months ago will be disappointing for Ant\u2019s investors, but there are worse alternatives. \u201cThe Chinese government does not want to kill Ant, but to make sure it grows in a healthy way,\u201d says Mr Deng. \u201cAnt can surpass its current obstacles. If they have patience, they will be able to rise again.\u201d
\nAs for the antitrust investigation into Alibaba, a manageable outcome for the group would include an end to exclusivity arrangements that restrict merchants from selling on rival platforms. Alibaba could also potentially face a large fine \u2014 the maximum allowed would be 10 per cent of its previous year\u2019s revenues \u2014 if it is deemed to have violated China\u2019s anti-monopoly law.
\n\u201cDebates about exclusivity have been going on for years, it\u2019s a competitive market,\u201d says the former Alibaba executive. \u201cI don\u2019t think Alibaba is going to get broken up. It\u2019s just that the methods by which they fight for the market are going to be more regulated.\u201d
\nAdditional reporting by Sherry Fei Ju in Beijing and Jamil Anderlini in Hong Kong<\/p>\n

This data comes from MediaIntel.Asia's Media Intelligence and Media Monitoring Platform<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

Finance January 12, 2021 Techy 0 Four years ago, when Ant Group\u2019s premier money market fund was racing to a peak of more than $260bn worth of assets under management,…
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