Jack Ma makes an ant offer to place Chinese regulators

The offer, which was not previously reported, emerged as a kind of fault on the part of Mr Ma, as he found himself face to face with officials of China’s central bank and securities, banking and insurance agencies. The November 2 meeting took place a few days before Ant was made public, which would have been the largest initial public offering in the world.

Mr Ma angered Beijing by attacking President Xi Jinping’s campaign to control financial risks in a speech in October, saying he had stifled innovation. Now, regulators have convened the meeting to express concerns about Ant’s business model.

Its olive branch offer at the meeting failed to save the IPO, and Beijing has stepped up its efforts to dominate China’s Big Tech giants.

“Ant Group cannot confirm the details of the meeting with regulators that took place on November 2, 2020, because it is confidential,” a company spokesman said.

Mr Ma’s effort highlights how one of China’s most renowned entrepreneurs has tried to escape his situation as he and some of his colleagues try to navigate a political landscape where priorities have shifted to greater control. of the state on companies considered to have grown too strongly.

The suspension of the sale of Ant’s shares of over $ 34 billion that followed the November 2 meeting was just the beginning. It was followed by a series of actions against what is called the “platform economy” or internet-based business promoted by large technology companies.

Mr Xi has personally ordered Chinese regulators to investigate the risks posed by the Ant, according to Chinese officials with knowledge of the matter, and to close the Ant’s IPO.

People close to China’s financial regulators say there is no decision yet to take Mr Ma on his offer. A plan that is being considered involves subjecting Ant to stricter capital and leverage regulation, according to the people. In this scenario, state-owned banks or other types of state investors would buy in Ant to help cover any capital shortfalls due to tightening rules.

“The Chinese state has already nationalized some of Ant’s financial infrastructure, such as the interbank payment system that became NetsUnion,” said Martin Chorzempa, a researcher at the Peterson Institute for International Economics, which specializes in China’s fintech sector. now controlled by the central bank, which eliminates transactions between banks and third-party payment providers. “Therefore, there is a precedent for the nationalization of platforms that are seen as serving a critical purpose of politics.”

The government led by Mr Xi in recent years has shown determination to highlight private conglomerates that are seen as undisciplined – no matter how politically invincible their founders may have been.

Tycoon Dalian Wanda, property tycoon Wang Jianlin, for example, was forced to sell assets, shrink his business and repay bank loans. Anbang Insurance Group, another private player, was taken over by the state, while its founder Wu Xiaohui in 2018 was sentenced to 18 years in prison for fraud and embezzlement. In addition, HNA Group, a conglomerate of airlines and hotels, had to give up aggressive acquisitions abroad and sell assets.

Until recently, Mr. Ma also had a reputation for well-cultivated political ties. He has not made any public appearances since his October 24 speech.

For years, companies, including the ant giant and e-commerce, Alibaba Group Holding Ltd.

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, both controlled by Mr Ma, and the internet conglomerate Tencent Holdings have largely enjoyed relatively little government oversight of their attempt to build and expand payments, loans and other internet-based businesses.

With Tencent WeChat and other applications developed by these companies, millions of Chinese consumers and small business owners can make a purchase, greet a taxi, make an investment or even take out a loan with a blank on their smartphones. Firms such as Alibaba and Tencent have become so successful that Chinese leaders, including Premier Li Keqiang, regularly view the use of the Internet and big data as key to stimulating future economic growth.

However, the Beijing leadership has also shown growing concern about the wealth and influence these firms have built, as well as the risks posed by their tightly regulated activities, such as online loans, popularized by Mr. Ma Ant. In addition, large technology companies have, in some cases, complicated the government’s effort to use data and technology to strengthen social control.

In November, China launched draft regulations aimed at preventing these firms from collaborating to share sensitive consumer data, forming agreements to block smaller rivals and engage in other anti-competitive behavior. Earlier this month, a meeting chaired by Mr Xi of the Communist Party’s Political Bureau pledged to step up antitrust efforts next year and “prevent the disorderly expansion of capital” – a message seen as predicting greater repression against internet giants.

Chinese officials say management is particularly concerned that high-flying entrepreneurs, such as Mr Ma, continue to raise capital while exposing the financial system to higher risks.

Even before the Ant IPO was stopped, for example, regulators were already worried about the frenzy of the agreement. The sale of shares would have valued the company at more than JPMorgan Chase & Co. and Goldman Sachs Group.

Shortly after the Political Bureau meeting, China’s antitrust regulator fined Alibaba and a Tencent subsidiary for some acquisitions in recent years – again signaling that the laissez-faire days are over.

The trend has its parallel in another part of the world. The US, for example, is stepping up its antitrust investigations on Facebook Inc.

and Alphabet Inc.

Google to determine if they have abused their social media position, namely online search and advertising, in the internet economy.

However, in the case of China, state-owned enterprises dominate the country’s telecommunications, financial services, airlines, energy and other sectors. Emphasizing the “antitrust” now, Mr. Xi is clearly targeting China’s internet giants who have capitalized on unprecedented data on millions of Chinese consumers and companies.

Alibaba and Tencent have sometimes taken into account requests from law enforcement and other authorities to access user data, but so far have resisted the usual sharing of data that could help the government in other ways, such as building a system of security. rating of consumer loans similar to FICO used in the USA

The country’s central bank and traditional creditors do not have the direct line to young consumers with free spending in China, as Ant. The company’s Alipay application is used by one billion Chinese, which has allowed it to collect consumer data and use proprietary algorithms to assess people’s creditworthiness. But its data so far have not been fully integrated into the central bank’s credit rating system, and such information gaps have positioned Ant as a valuable partner in generating microcredit for banks, especially for smaller ones. Instead, Ant made nice profits.

For now, regulators are debating whether Alipay or any other part of Ant’s business is monopolistic competition and, if so, what action should be taken against the company.

“The probability of nationalization of at least parts of the company is not zero,” says a government adviser in Beijing.

“Jing Yang contributed to this article.”

Write to Lingling Wei at [email protected]