Jack Ma makes Ant offer to placate Chinese regulators

The offer, not previously disclosed, seemed like a mea culpa of Mr. Ma when he came face to face with officials from China’s central bank and securities, banking and insurance oversight agencies. The November 2 meeting took place a few days before Ant was due to go public, in what would have been the world’s largest IPO.

Ma had angered Beijing by lashing out in an October speech on President Xi Jinping’s signature campaign to control financial risks, saying it was stifling innovation. Now the regulators had called the meeting to voice their concerns about Ant’s business model.

His bid for the olive branch at the meeting failed to save the IPO and Beijing has since stepped up its efforts to rein in China’s Big Tech giants.

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

Mr. Ma’s efforts show how one of China’s most famous entrepreneurs tried to get out of his predicament as he and some of his colleagues try to navigate a policy landscape where priorities have shifted to greater state control over companies that are considered too large and powerful. are considered. .

The suspension of Ant’s stock sale of more than $ 34 billion that followed the November 2 meeting was just the beginning. It was followed by a barrage of actions against what has been called the “platform economy,” or Internet companies defended by major technology companies.

Xi has personally ordered Chinese regulators to investigate Ant’s risks, according to knowledgeable Chinese officials, and to halt Ant’s IPO.

People close to China’s financial regulators say there is no decision to reconsider Mr. Ma to accept his offer. One plan under consideration is to subject Ant to stricter capital and leverage rules. In that scenario, state-owned banks or other types of state investors would buy into Ant to help cover a potential capital shortfall due to the tightened rules.

“The Chinese state has already effectively nationalized some of the financial infrastructure Ant has built, such as the interbank payment system that became NetsUnion,” said Martin Chorzempa, a research fellow at the Peterson Institute for International Economics who specializes in Chinese fintech. sector. the company now controlled by the central bank that settles transactions between banks and external payment providers. “So there is precedent for nationalizing platforms that are seen as a critical policy goal.”

The government led by Mr Xi has shown a determination in recent years to test private conglomerates perceived as undisciplined – however politically invincible their founders may seem.

For example, real estate magnate Wang Jianlin’s Dalian Wanda Group has been forced to sell assets, downsize operations and repay bank loans. Anbang Insurance Group, another private high roller, has been acquired by the state, while founder Wu Xiaohui was sentenced to 18 years in prison for fraud and embezzlement in 2018. In addition, HNA Group, a conglomerate of airlines and hotels, has had to pull out of aggressive foreign acquisitions and sell assets.

Until recently, Mr. Ma also had a reputation for well-maintained political ties. He has not appeared in public since his October 24 speech.

For years companies including Ant and e-commerce giant Alibaba Group Holding Ltd.

BABA -1.68%

, both controlled by Mr. Ma, and Internet conglomerate Tencent Holdings had largely enjoyed relatively little government oversight in their quest to establish and expand Internet-based payment, credit and other businesses.

With Tencent’s WeChat and other apps developed by these companies, millions of Chinese consumers and small business owners can make a purchase, hail a taxi, make an investment, or even take out a loan with a swipe of their smartphone. Companies like Alibaba and Tencent have become so successful that Chinese leaders, including Prime Minister Li Keqiang, regularly view the use of the Internet and big data as critical to driving future economic growth.

However, Beijing’s leadership has also shown growing unease about the wealth and influence these companies have built up, as well as the risks that come from their lightly regulated activities, such as online lending made popular by Mr. Ma’s Ant. In addition, in some cases, the big tech companies have complicated government efforts to use data and technology to tighten social control.

In November, China released draft regulations to prevent these companies from colluding to share sensitive consumer data, negotiate deals to exclude smaller rivals, and engage in other anti-competitive behavior. Earlier this month, a meeting chaired by Mr. Xi of the Communist Party’s Politburo to bolster anti-monopoly efforts next year and “prevent the disorderly expansion of capital” – a message seen as a precursor to increased crackdown on internet giants.

Chinese officials say the leadership is particularly concerned that high-flying entrepreneurs like Mr. Ma are continuing to raise capital while exposing the financial system to greater risk.

For example, before the halt of Ant’s IPO, regulators were already concerned about the madness about the deal. The stock sale would have valued the company at more than JPMorgan Chase & Co.’s. and Goldman Sachs Group.

Shortly after the Politburo meeting, Chinese antitrust regulator Alibaba and a subsidiary of Tencent fined some of its acquisitions made in recent years – another sign that the days of laissez-faire are over.

The trend has its parallel elsewhere in the world. For example, the US is ramping up their antitrust investigation into Facebook Inc.

and alphabet Inc.’s

Google to determine if they have abused their dominance of social media and online search and advertising respectively in the internet economy.

In the case of China, however, state-owned companies tower over the telecommunications, financial services, airlines, energy and other sectors of the country. Now emphasizing “anti-monopoly,” Mr. Xi squares the Internet giants of China who have used unprecedented data on millions of Chinese consumers and businesses.

Alibaba and Tencent have at times complied with demands from law enforcement and other authorities to access user data, but so far they have opposed the routine sharing of datasets that could help the government in other ways, such as setting up a consumer credit scoring system similar to FICO. used in the USA.

The country’s central bank and traditional lenders don’t have a direct line to the younger consumers who spend for free in China, like Ant does. The company’s Alipay app is used by a billion Chinese, allowing it to collect vast amounts of consumer data and use proprietary algorithms to assess the creditworthiness of individuals. But the data has not been fully integrated into the central bank’s credit scoring system so far, and such information gaps placed Ant as a valuable partner to generate micro-credits for banks, especially smaller ones. In return, Ant made nice winnings.

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

“The chance to nationalize at least parts of the company is not nil,” said a government adviser in Beijing.

—Jing Yang contributed to this article.

Write to Lingling Wei at [email protected]