About a year before Beijing suspended Ant Group’s monster IPO, the Communist Party’s official mouthpiece broadcast a stark message to Jack Ma, founder of the Alibaba tech empire that launched the fintech giant.
“There is no so-called Ma Yun era, but only an era that has Ma Yun in it…no matter whether it’s Ma Yun, Ma Huateng, Elon Musk, or we ordinary people, those who achieve their greatest potential are those who seize the opportunities that already exist within the era,” said an online People’s Daily editorial. (Ma Yun is Jack Ma’s Chinese name, and Ma Huateng is the founder of Alibaba’s rival, the social media and gaming giant Tencent.)
“We believe, as long as entrepreneurs can have a clear understanding of the era, and embrace and grab the current opportunities, there will be more great enterprises and entrepreneurs in China,” it concluded.
The message came shortly after Ma signed off as Alibaba’s chairman at a ceremony attended by tens of thousands of employees, and was seen by many as signaling the Communist Party’s increasing concern about Ma’s superstar status, and the enormous influence of his e-commerce and fintech businesses on everything from how China shops, to how it spends, and saves. As the face of China tech, and almost an unofficial ambassador for China, Ma was the first Chinese businessman to enjoy international recognition—many of his remarks have become motivational memes on YouTube—thanks to his fluent English and freewheeling personality. He regularly attended international conferences like Davos where he gave politician-like speeches, enchanted employees by dancing dressed up as Michael Jackson at a company event, and even showed off his kung fu skills in a short film in 2017.
“Ma’s not afraid of attention, indeed, he seems to crave it and uses it in order to project his beliefs, including in terms of open markets and trade,” said William Plummer, a former vice president of external affairs at Chinese telecom giant Huawei. “All of these characteristics set him aside from most other Chinese business leaders, even the reserved Chinese culture in general.”
But Ma’s outspokenness eventually cost him. In November, just days before Ant’s shares were to start trading in Hong Kong and Shanghai in an IPO expected to raise $37 billion, regulators summoned Ma and top Ant executives. Then, the Shanghai Stock Exchange suspended the flotation, citing “material changes” in financial regulations that would affect the company’s operation. Although it is no secret that financial regulators have long been worried about Ant’s influence, a bold speech Ma gave in October seems to have been the final straw.
Speaking at a forum attended by some of China’s most powerful figures in politics and finance, Ma heavily criticized the “pawnshop mentality” of Chinese banks, and accused global authorities’ old-school financial regulation of slowing down innovation. The criticism eventually reached Chinese president Xi Jinping, who was furious about the remarks and personally ordered the suspension, according to the Wall Street Journal.
Days later, China unveiled new antitrust rules that shaved billions of dollars off Alibaba’s market cap, and this month regulators conducted an antitrust probe into the company. On Sunday (Dec. 27), China’s central bank announced that it had ordered Ant executives (link in Chinese) to overhaul its businesses to address compliance issues with its credit, insurance, and wealth management segments, and desist from engaging in “regulatory arbitrage.” The demands could lead to a major restructuring of the world’s most valuable fintech unicorn—and crimp its expansion into lending. Ant said it appreciated the regulators’ “guidance and help,” and would establish a “rectification working group” to address their concerns.
The concerted actions aimed at the Alibaba empire are a fresh reminder of the Communist Party’s shifting priorities amid a slowing Chinese economy and a more complicated international environment, with rising scrutiny of Chinese tech firms from the US to Europe and India. It’s clear that Beijing’s enhanced focus on preventing systematic financial risks and curtailing the country’s rising debt levels, concerns that had already derailed some other flamboyant and powerful tycoons, now also extends to its tech champions. As poster boys for China’s new economy, they were previously allowed to flourish in a relatively more relaxed atmosphere before Xi came to power in 2012 and in the early days of his rule.
As such, it may be difficult to witness the emergence of another “Jack Ma” in this changed environment, noted Plummer. “I do not imagine any Ma-like personalities in the Xi era, and, as China seeks to replace the US as the pre-eminent global economic power, I expect the current political environment to persist beyond Xi,” he said.
The Party vs. entrepreneurs
The Party has long had a love-hate relationship with its private entrepreneurs. In the 1950s, Mao Zedong vowed to “root out” (link in Chinese) capitalism not only in China but globally, while his successor, Deng Xiaoping, encouraged free enterprise as he embarked on a policy of reform and opening up credited with turning China into an economic superpower. Since Deng, many business people, whose predecessors were decried as “blood-sucking capitalists” under Mao, grew to be influential, with some of the greatest opportunities available to the first wave of tech entrepreneurs who started businesses in the late 1990s.
Ma, who founded Alibaba with partners in a small apartment in Hangzhou in 1999, on the eve of China joining the World Trade Organization, was among them. “Following that, Alibaba rode the wave of China’s economic expansion in the 2000s…[and] benefited from the economic liberalization under Jiang [Zemin],” said Valarie Tan, an analyst at German think tank Merics whose research focuses on Chinese elites and global entrepreneurs. Under Jiang, China’s leader from 1989 to 2002, the Party officially allowed private businessmen to join it for the first time, citing the need to expand its representation across all social ranks.
It was under this relatively relaxed climate that Ma in 2004 founded Alipay to help online shoppers make payments on Alibaba more easily. As it grew into a mobile payment behemoth that today serves over 1.3 billion global users, he spun it off into a new company called Ant, which also sells banking and insurance technology to financial institutions. “China’s business elites like Ma have an entwined relationship with the Party…His businesses have thrived with backing from the government, [for example] in the form of relaxed oversight,” said Tan. Beijing’s blocking of foreign competitors like Facebook, partly because of the regime’s need to control information, also helped the likes of Alibaba grow at a breakneck speed.
Nevertheless, he publicly voiced criticism of what he saw as weaknesses in China’s system. Back in 2013, the same state-run People’s Daily that sent Ma the warning last year carried an interview in which the entrepreneur chastised authorities for excessive regulation, and criticized a financial system that “only serves 20%.”
When it came to his business, Ma’s determination could even sound like a challenge to authorities. “If someone has to go to jail, I’ll go,” Ma told colleagues when they first launched Alipay, at a time when China didn’t have clear rules on third-party payments services. And in what seems unthinkable for a Chinese entrepreneur today, Ma said at a 2015 event in Hong Kong, when Alibaba was setting up a fund for young entrepreneurs, that it would not exclude those who participated in Occupy Central protests the previous year to demand the right to elect the city’s leader.
This situation started to change after Xi took power in 2012. Since then, China’s private business has started to give way to the resurgence of the role of the state, according to a study by US economist Nicholas Lardy. “Increasingly ambitious industrial policies carried out by bureaucrats and Party officials have been directing investment decisions,” wrote Lardy.
Alongside Xi’s emphasis on the importance of state-owned entities and the all-encompassing role of the Party to ensure stability, he also launched a ruthless anti-corruption campaign that brought down high-flying business tycoons, including Wu Xiaohui, the former chairman of insurance giant Anbang Group which had embarked on an overseas spending spree that included the 2014 purchase of New York’s iconic Waldorf Astoria hotel. Wu first went on a mysterious leave of absence in 2017, and was sentenced to 18 years in prison the following year for illegal fund-raising and other charges.
Even for entrepreneurs whose actions haven’t drawn the ire of the authorities to the same extent as Wu, Xi’s message is clear. The government in September publicized guidelines requiring the private sector and entrepreneurs to align ever more closely with Beijing’s goals of advancing China’s development and “rejuvenating” the Chinese nation, citing an increase in risks and challenges for the Party with the expansion of the private economy.
Perhaps Jack Ma should have read it more closely.
The Party vs. big tech
To be sure, Ma, a Party member, always knew there were boundaries when dealing with the Chinese government. He famously told employees they should be “in love with the government [but] don’t marry them,” and also praised the country’s one-party system for its stability at the World Internet Conference in Wuzhen, an annual event where Beijing champions its own model of internet governance. And while Ma once said his philosophy was to say “no” to government projects, last year, Reuters reported that the company had helped develop an app to promote Xi Jinping’s political philosophy.
But somewhere along the way he miscalculated. “Ant’s suspended IPO is very much a sign of the times and a reflection of things to come. Beijing has clearly woken to the fact that Alibaba-like companies have grown ‘too big’ to be allowed to extend their economic power, and that characters like Ma should be reined in,” said Plummer, the former Huawei PR executive.
The international environment also turned more negative for tech firms, as an ongoing global backlash against big tech’s increasing monopoly and grip on citizens has extended to China, where both regulators and the public have become more suspicious of their own tech champions. In addition to Alibaba and Tencent, Chinese regulators have fined other tech companies for failing to report deals for anti-trust reviews, and over consumer pricing complaints.
“In China and globally, we can see tech companies have become ever more powerful, and have infringed on the so-called ‘cyber sovereignty’ of governments. It is just that the authorities are more aware of this situation now, as the conflicts have intensified between them and the companies,” said Xiaomeng Lu, senior geotechnology analyst at political risk consultancy Eurasia Group.
Shortly before Ant’s scheduled public offering, there was an online backlash (link in Chinese) against Huabei, a major micro-lending product of Ant. Internet users said one of Huabei’s advertisements, in which a construction worker used the money he borrowed on the platform to celebrate his daughter’s birthday, was advocating consumerism to trick working-class people to take on excessive debt.
For regulators, the risks mainly lie within Ant’s credit business, the company’s largest source of revenue. The draft rules for online lenders issued two days before the abolished flotation require lenders to provide at least 30% of the loans they facilitate. As Ant passes the vast majority of the loans onto partners, normally banks, and keeps just 2% on its own balance sheet, complying with the rule would require a large increase in capital, hurting its profitability.
For regulators, the concern is how much financial risk is piling up in the system as online lenders play by one set of rules, and traditional banks by another. Yet their efforts to rein in that risk could also hurt China by spooking overseas investors at a time when regulators abroad are already taking steps that could make it harder for Chinese firms to raise money overseas.
“Is Ant passing on too much risk to banks? Yes. Should there be oversight? Yes,” said Tan, of Merics. “That said though, could the regulators have handled the situation better? Yes as well. Pulling the plug at the very last minute only goes to show how unstable and unpredictable it is to do business in China.”
Ant seems to have got the message. Eric Jing, its executive chairman, broke weeks of silence after the suspended IPO earlier this month to say the fintech giant is “looking in the mirror” to find its shortcomings. Yet despite the harsh scrutiny on Ant and its parent, experts on China’s economy say Alibaba is still far away from fully falling out of favor of Beijing, which is also counting on these homegrown tech champions to advance economic growth, create jobs, and support its strategic policy of self-reliance in advanced technology.
“Based on the statements from Ant expressing its willingness to comply with regulations, I don’t expect Ma to go down the same path as fallen tycoons like Anbang’s Wu,” said Eurasia’s Lu. “Beijing mostly just wants to give Ma a warning to stop him from running rampant.”