Beijing Tempers Jack Ma

Ma's ambition to have the world's largest IPO was deflated

 

Ant Financial is refunding investors who had applied for the record US$39.67 billion IPO after the offering was suspended yesterday. The dual Shanghai and Hong Kong listing, which would have been the world's largest IPO was suspended less than 48 hours before listing because it may not meet listing and disclosure requirements due to changes in the regulatory environment in China.

Ant Financial focuses on small lenders

It's a shocking development for Ant Financial and founder Jack Ma Yun, and one he could not salvage. But it also shows Beijing doesn't want anyone to get bigger or more powerful than the Communist Party and is doing this to temper Ma.

"The party is flexing its muscle," said Victor Shih, associate professor at UC San Diego. "It's saying to Jack Ma, you are going to have the biggest IPO in the world, but that's not a big deal for the CCP, which overseas the world's second-largest economy."

For foreign investors, Bloomberg says the incident raises questions over the viability of Shanghai and Hong Kong as premium financial centres. The suspension of the IPO comes after Chinese President Xi Jinping said China would open up to allow more foreign access and gradually relax controls over the yuan and capital flows.

Maybe "gradual" means glacial gradual.

Xi said China will open up to foreign markets

The conflicting signals will make foreign investors question China's commitment to greater transparency that is needed in modern, open markets.

But there is also the problem of regulating an innovative hi-tech banking giant Ant Financial. 

Ma, who owns 50.5 percent of Ant Financial has said traditional lenders are run like "pawn shops", as banks always demand collateral before lending. In the future, he said, lending decisions should be decided by big data analysis.

Currently it allows people to pay for goods using Alipay, but it can also help clients, particularly small businesses get access to small loans. Ant's strategy is to earn fees by providing a digital platform for banks to reach small borrowers, and more accurately assess the credit risk.  

But perhaps this concept is too risky -- and it does sound risky -- for Beijing. 

Xiao Jianhua was kidnapped from HK in 2017

As a result Ma was summoned to Beijing on Monday for a rare meeting, and the IPO suspended the following day.

Ant Financial is not the first company to be tempered by Beijing. There are numerous previous examples such as Anbang Insurance Group, HNA Group, Tomorrrow Holding (where the founder was kidnapped from the Four Seasons Hong Kong in 2017), and China Evergrande Group.

Will Ma recover from this? He will have to surrender and lick his wounds, but perhaps Ant Financial is too far ahead of its time. Ma may have to bide his time and keep his head down for a while...