Chinese authorities are wary of a shift in people’s choice for loans — from government-controlled commercial banks to private entities like Ant Group.
When in hell, live by the devil’s rules. While China may not be hell for Jack Ma, he now know what it costs to pick up a fight with the Chinese government. When investors placed orders worth a whopping $3 trillion on the IPO of Jack Ma’s Ant Group, no one expected that the week would become a terrible dream for China’s answer to Jeff Bezos.
Two weeks ago, Jack Ma used the opportunity at a top-notch financial forum in Shanghai to speak against the unregulated banking ecosystem of the country.
What followed later was a vicissitude of Ant Group’s predicted grandest entry on the stock market ever. The initial public offering (IPO) of Ant Group worth $34.3 billion that was all set to be dual-listed in Hong Kong and Shanghai on Thursday before it was suspended by Chinese financial regulators. Out of the mentioned figure, Jack Ma’s share worth $17 billion would have again made him the richest man in China. However, once the poster boy of the success stories of Chinese business, Mr. Ma is now at odds with the government.
How The Week Unfolded For Ma And Ant Group’s IPO Hopes?
Jack Ma picked up an impossible fight when he referred to the regulations of financial institutions as ‘the old people’s club’ and went on to compare the Chinese banks to ‘pawn shops’. He said that China lacks a financial ecosystem and that the same is the biggest threat to the country. To quote Ma, “Chinese banks are like pawn shops, where collateral and guarantees are the hard currencies. As a result, some decided to go so big they are not allowed to fail. As the Chinese like to say, if you borrow 100,000 yuan from the bank, you are a bit scared; if you borrow a million yuan, both you and the bank are a little nervous; but if you take a 1 billion yuan loan, you are not scared at all, the bank is.”
Watch: Jack Ma’s speech criticizing the Chinese financial system at the Shanghai 2020 Bund Summit
The country that bars its citizens from condemning the government and curbs freedom of speech through state regulations on media, obviously couldn’t take the honest criticism from the businessman who experienced the loopholes first-hand. What followed later was a simulacrum of vengeance when Ant Group’s billionaire co-founder was summoned by the Chinese government and warned that the company will go through regulations to check it’s increasing power. Details of these regulations weren’t disclosed to the fintech founder in the joint meeting between the three leading financial regulators, the central bank and Jack Ma. Later, authorities laid out drafts defining rules of microlending, specifying stern capital requirements and operational rules for some consumer credit businesses associated with Ant Group Co. However, it was 3rd November, the show day, when the company faced its nightmare.
As a massive reaction, first, the Shanghai Stock Exchange suspended the listing of the fintech giant and then did the same to the Hong Kong IPO.
To make matters worse, as a ripple effect of his fight with the Chinese financial regulators, the shares of Alibaba dipped at the New York Stock Exchange, another company founded by Jack Ma for which he announced his formal retirement last year.
Why Jack Ma’s Fight Against Chinese Financial Regulators Matters?
The company began as the right hand to the financial services for the consumers on the e-commerce platform, Alibaba. Soon, it became one of the biggest fintech ventures in China with more than 700 million monthly users. The fintech giant doesn’t just process payments worth trillion dollars every year, it also provides loans to people and small businesses in the country when the government fails to. Furthermore, Ant Financial provides the utility to people to save, invest, and spend money while also enabling their use like debit and credit cards.
The scheduled IPO would only have made the fintech giant more powerful. With a valuation worth $313 billion, Ant Group would have become bigger than American financial behemoths like JPMorgan Chase, Wells Fargo, and Goldman Sachs.
In a week long grilling and small bombs, Jack Ma was not intimated about the terrible news that awaited him on D-day.
Perhaps the action from the authorities was not just in return for the speech but also the role that Ant Group Co. is playing for the small borrowers. This is because financial institutions aren’t able to do what the company can — providing credit to the small businesses. In what seems like a trick to boost the financial success of the country on the bank’s loan books, the institutions have distorted the concept of inclusive financing by making the path to acquire credit for the big business, much easier than it is for small businesses.
As the fintech giant treads on the road to becoming the biggest success in China, the authorities also fear a complete shift of people’s choice from government-controlled commercial banks to private entities like Ant Group. It already bears the prints of favoritism from the people. This perhaps could be the reason why the government has curbed the company’s power by putting regulations like maintenance of 30 percent of the loans on its balance sheet. So far, it only maintains 2 percent.