The Wall Street Journal on Thursday quoted Chinese officials who said dictator Xi Jinping personally intervened to block the $37 billion IPO for Ant Group, the online finance company established by China’s richest man, Jack Ma.
Xi was reportedly upset at Ma for criticizing the Chinese government and worried about the amount of influence China’s “private” corporations, which are run by members of the Communist Party, are accumulating.
“The rebuke was the culmination of years of tense relations between China’s most celebrated entrepreneur and a government uneasy about his influence and the rapid growth of the digital-payments behemoth he controlled,” the Wall Street Journal (WSJ) wrote.
Things apparently came to a head when Ma gave a speech in Shanghai on October 24 in which he said companies like Ant Group and its parent company, e-commerce titan Alibaba, could solve China’s financial difficulties by developing new technologies and techniques. To that end, Ma called on the Chinese Communist government to loosen up on regulations that have frustrated innovation in China’s tech sector, quoting Xi himself when the dictatorial leader said “success does not have to come from me.”
“What we need is to build a healthy financial system, not systematic financial risks. To innovate without risks is to kill innovation. There’s no innovation without risks in the world,” Ma said in Shanghai.
According to the WSJ’s sources, Ma’s speech infuriated Xi, who promptly unleashed a swarm of regulators to quash the Ant Group public offering. Within a week, Ma found himself dragged into uncomfortable interviews with the People’s Bank of China and several regulatory agencies, during which “views regarding the health and stability of the financial sector were exchanged,” as a statement from Ant Group put it.
The deal was officially suspended on November 3 with over $3 trillion in orders for Ant Group stock already on the table, making it the largest IPO in history. Orders were so brisk they overwhelmed some brokerages, even though Chinese regulators were signaling they might investigate the firm, and the U.S. government was considering a ban on American investment in the company.
The Chinese Foreign Ministry said on Wednesday that regulators were simply “fulfilling their responsibility” by shutting down the much-anticipated Ant Group stock offering.
“It is a decision made to better safeguard the capital market stability and protect investors’ rights and interests,” a Foreign Ministry spokesman said, leaving open the possibility of resuming the IPO sometime in 2021, even though the suspension has already rattled investors badly enough to vaporize $68 billion of parent company Alibaba’s stock value and $3 billion of Ma’s personal net worth.
Observers within and outside China immediately suspected the IPO was blocked to teach Ma a lesson in humility. Various folk sayings were bandied about, many of them playing on the name of the Ant Group: “The tallest nail gets hammered down,” “Wealth is an ant in front of power,” “There is never a good ending for big Chinese businessmen,” and so forth. Chinese state media assailed Ma as irresponsible, reckless, and disrespectful of Communist Party leadership.
Many suspected what the Wall Street Journal confirmed on Friday with its Chinese government sources: Xi Jinping was personally involved with scuttling the Ant Group IPO, motivated by personal irritation with Ma and a need to assert his supremacy over even the wealthiest and most indispensable of Chinese businessmen.
“There’s only one big boss in China, and it’s not Jack Ma,” senior market analyst Jeffrey Halley of Oanda said in a note on Wednesday quoted by CNN.
“The [Chinese Communist Party] has once again reminded all private entrepreneurs that no matter how rich and successful you are it can pull the rug out from under your feet at any time,” observed Bill Bishop, author of the Sinocism newsletter.
Ma’s wealth combines with an inspiring life story, personal charisma, and flamboyant style to make him one of the few figures in Chinese life who could challenge Xi’s violently enforced stature. Ma is only 56 years old, he founded Alibaba in his apartment twenty years ago, and he has enthusiastic interests ranging from martial arts to rock music. Compared to Xi, he’s rich, he’s smart, and he’s fun.
Xi has unintentionally cultivated an image as thin-skinned paranoid tyrant who wants to be seen as the ultimate rags-to-riches story in modern China, a humble peasant boy who grew up to become a grandfatherly visionary genius. Ma performs in rock concerts wearing silly costumes and hair extensions. Xi throws people in jail for comparing him to a cartoon bear.
In addition to fearing the personal influence of immensely rich and highly respected business leaders like Ma, Xi and his apparatchiks are reportedly also concerned about losing control of Chinese mega-corporations that accept too much foreign investment. Alibaba and the Ant Group are ubiquitous features of Chinese life, handling everything from electronic payment systems to insurance plans. The WSJ noted that about 70 percent of China’s vast population uses Ant’s mobile payment system Alipay.
China’s authoritarian leader and his vast army of regulators can scarcely comprehend everything Ma’s corporations do, let alone control all of it, and their control would slip even further with foreigners investing billions in the companies.
Isaac Stone Fish at the Washington Post ominously noted on Wednesday that the normally outgoing Ma “hasn’t made a public announcement in more than a week,” so the shutdown of Ant Group’s IPO may represent “the acceleration of a process that could lead to his arrest.” Important people in China who become inconvenient to Xi Jinping are almost invariably prosecuted for corruption, sometimes long after they have been arrested, which can happen long after they disappear.
Fish suggested the downfall of Ma and Ant Group should be a wake-up call for Western investors who stubbornly refuse to accept that every Chinese corporation is an extension of the Chinese Communist Party, no matter how bold, innovative, and capitalist it might seem.
Fish suggested one reason for crushing Ma’s IPO was that Xi wanted to remind investors around the world that he is the boss of everything, and will never allow the interests of either foreign magnates or Chinese billionaires to take precedence over his notion of China’s national interests. The great delusion of globalism is that economic engagement might liberalize authoritarian regimes. China’s dictator just sent a $3 trillion memo to the contrary.