When Jack Ma last week chose to speak truth to power about the failings of China’s financial system, he was aiming very high — perhaps too high.
The founder of ecommerce business Alibaba, already China’s wealthiest man, was set to become substantially richer when his online finance spin-off Ant Group debuted on the Hong Kong and Shanghai stock exchanges on Thursday. At $37bn, it was going to be the world’s largest ever initial public offering.
But after Mr Ma criticised China’s state-dominated banking sector at a public forum, the country’s best-known entrepreneur on Monday was summoned by regulators to discuss hastily issued industry guidelines that could hit Ant’s future profits. On Tuesday night, the Shanghai and Hong Kong stock exchanges both announced Ant’s IPO would be postponed.
According to the Shanghai Stock Exchange, the regulatory changes “may cause your company to fail to meet the issuance and listing conditions or information disclosure requirements”. The dramatic turn of events is a reminder to Chinese businesses and their investors that they still answer to the Communist party — no matter their pedigree.
“Jack Ma clearly miscalculated. After months of keeping his head down, he has made a lot of enemies,” said Chen Zhiwu, a finance professor at the University of Hong Kong.
[Beijing] wants to put Ant on a leash before the monster becomes uncontrollable
Prof Chen added that while private groups such as Ant — which is valued at more than $300bn and offers services including mobile payments and micro credit — do not pose the same level of potential financial risk as China’s big banks, “they need to be subject to a more systematic regulatory framework”.
In a statement on Tuesday issued before the Shanghai Stock Exchange’s bombshell, Ant said Mr Ma and China’s regulators had exchanged views “regarding the health and stability of the financial sector”.
“Ant Group is committed to implementing the [regulations] and . . . will continue to improve our capabilities to provide inclusive services and promote economic development,” it added.
Speaking at a financial summit in Shanghai on October 24, Mr Ma criticised China’s big state-owned banks for their “pawnshop mentality”. What the world’s second-largest economy really needed, he said, were bold new players such as Ant that could extend credit to the innovative but collateral-poor companies and individuals usually shunned by China’s big financial groups.
The summit’s headline speaker, however, had a different message. In his first public appearance in almost a year, China’s vice-president Wang Qishan instead emphasised financial stability. “There should be a fine balance between encouraging financial innovation, invigorating the market, opening up the financial sector and building regulatory capacity,” he said. “Safety always comes first.”
Mr Wang’s turn as President Xi Jinping’s anti-corruption tsar from 2012 to 2017 made him the country’s second most powerful man.
Banks and other vested financial sector interests in China have long protested that they operate under far more constraints than new digital entrants.
While Ant had received assurances from regulators before it announced its plans to IPO, there have long been voices sceptical of Ant within the PBoC and China’s banking and insurance regulator, which views itself as the champion of the country’s biggest lenders.
A senior executive at a big international bank in Hong Kong said Mr Ma’s regulatory summons signalled that Beijing “wants to put Ant on a leash before the monster becomes uncontrollable”.
“When he recently attacked bankers, he was seen as arrogant and unwise,” the executive added. “Banks in China are not just the core of the traditional financial system, they are an extension of monetary policy.”
Edmond Hui, chief executive of brokerage Bright Smart Securities, said Ant Group shares trading on the grey market on Tuesday were fetching about 50 per cent higher than the IPO price.
Investors had been anticipating that Chinese regulators may take a harder line on online finance groups. In its prospectus, Ant said it faced regulatory risks in China and that it would have to establish a central bank-approved holding company in accordance with State Council regulations issued in September.
That could have a direct impact on its future profits. Draft regulations will require Ant to cap loans at either Rmb300,000 ($44,843) or one-third of a borrower’s annual pay — whichever is lower. The rules could also make issuing loans across China’s provinces harder.
“The new draft regulations on micro-online lending will have a significant impact on Ant Group’s main business income and increase their operating costs,” said Shen Meng at Chanson & Co, a Beijing-based investment bank.
The new regulations might force investors to “revisit their assumptions [about Ant’s] growth given the clear signs of regulatory intervention”, said Kevin Kwek, an analyst at Bernstein Research, in a note on Tuesday.
Additional reporting by Hudson Lockett, Primrose Riordan, Sherry Fei Ju, Nian Liu and Yuan Yang
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