Rather than ending things after Xi Jinping personally called a halt to Ant Group’s IPO listing, he called for a thorough investigation into the political forces behind the IPO Ant Group’s rapid listing and a “review of Ma’s ties to these state stalwarts.” On top of that, Xi has repeatedly stressed the need to prevent large tech companies from using their size, capital and vast amounts of data to engage in anti-competitive behavior.
Back in 2011, it was a troubled year for Jack Ma, with a big tree and Alibaba becoming the focus of regulation. But in 2012, Ma sold his Ali shares to a powerful family and bought back Yahoo’s holdings, turning the tide and not only shaking off all the trouble, but also singing all the way to a rapid listing in New York in 2014. The role of “no one dares to mess with”.
This time, the highest level of the Chinese Communist Party is really serious. It is worth waiting and seeing whether Ma can escape a new round of regulatory purges, or whether, as most experts predict, the Ma Yun-style fintech model has come to an end.
I. 2011, the year of Ma’s disaster
In 2011, Jack Ma’s Alibaba encountered three crises: first, Taobao was jointly cracked down on counterfeiting by various ministries; second, Alipay was divested from Alibaba and accused of “trampling on the principle of contract”; third, thousands of small businesses formed an “anti-Taobao alliance” and rallied at Third, thousands of small businesses formed an “anti-Taobao coalition” and rallied at Alibaba’s headquarters to protest Taobao Mall’s fee hikes through a “revolution” of “violence against violence.
In April of that year, CCTV’s Focus Interview aired a special report on the sale of counterfeit goods on Taobao, interviewing a person who sold counterfeit goods on Taobao. The man said he thought it would be difficult to sell counterfeit goods, but it turned out that with an ID card and a bank card, he was able to open a store on Taobao, and no one cared whether he sold real or fake goods.
This public crisis hit Jack Ma very hard. In a 2012 interview with Bloomberg Businessweek, Ma felt that he was “very lonely, no one wanted to believe Ma, only my team was supporting me” and that “I didn’t win the support of the government, I didn’t have the support of the external public.”
Alibaba had 40 or 50 meetings with government officials, and the local government in Hangzhou was very supportive of them at the time, and Ma said, “You are really fighting, but there are no reinforcements. The good thing is that there was still the understanding of the local government, and they sent people and verified everything. They said: Ma Yun, stand firm. They communicated with the Ministry of Commerce, they communicated with all the ministries, and then things calmed down.”
This incident has at least taught Ma that after business gets big, it has been closely watched by the government, the media and others, and that doing business is no longer just about satisfying customers, but also about communicating with government regulators and needing someone to cover your back at the top. Jack Ma told Bloomberg Businessweek that the most missing talent is no longer competent customer service personnel, but “legal experts, economists and policy makers” who can respond to public crises, point to policy and deal with the government.
Second, the Jiang faction into a “red capitalist”
But Jack Ma soon had a big turnaround. In September 2012, Alibaba Group announced that it had completed a deal to buy back half of Yahoo’s shares in Alibaba. The deal put a golden feather in Ma’s cap to enter the national team, hitching a ride on this ladder of power and wealth and no longer fearing regulatory pressure.
The Wall Street Times reported that it was Jiang Zhicheng who helped Ma negotiate the deal to buy half of Yahoo’s stake in Alibaba in 2012. Jiang Zhicheng’s Boyu Capital, as well as the private equity arms of state-owned China Investment Corp, China Development Bank and CITIC Group, formed a consortium of investors that provided some of the $7.1 billion needed. From the disclosed information, other red descendants involved include Wang Jun, son of Wang Zhen, He Jinlei, son of He Guoqiang, Liu Lefei, son of Liu Yunshan, and so on.
At that time, China’s e-commerce has become the “meat and potatoes” of the market, so that all kinds of investors coveted, UBS once made a statistic, in 11 years, Yahoo’s investment in Alibaba’s asset income, rose by 55% each year, a geometric growth.
The land media has reported that Ma’s business empire, has become the golden hen of billionaires, but want to share in Ma’s business group, not money can be arbitrary. Ma’s financing is by invitation only, and only a dozen target organizations were invited when he decided to launch the financing.
Whether Ma invited these red two generations, or red two generations found Ma Yun, in any case, after Alibaba listed, these powerful capital earn a lot of money. Jiang Zhicheng Boyu Capital’s $400 million investment in Alibaba yielded a return of over $1 billion.
Ms. He Qinglian writes that in 2011, when the power struggle at the top of the Chinese Communist Party was heating up, information on the business dealings of many family members of top leaders was sent to foreign media reporters through various channels. To do so, they need to find the right company.
At this point, Jack Ma’s Alibaba was in a lot of trouble. After Ma got on this ladder to the top of China, he not only got out of trouble, but also started to plan for a U.S. IPO. At this point, what kind of lobbying team would it take to get the U.S. to accept a $200 billion U.S. IPO for Jack Ma’s Alibaba in China? Ms. He Qinglian said.
After Jack Ma befriended the second generation of Reds, good things came in quick succession. Dovetail News has mentioned Huang Qifan’s public recollection at the Bund Financial Summit that Ma came to Chongqing in 2013 and told him he wanted to start a loan company, saying that small loan companies in Yiwu and Wenzhou, Zhejiang province, were undergoing consolidation and were all frozen at the time. Huang Qifan promised Ma that as long as he didn’t engage in P2P (person-to-person lending), “I’ll help you do it all in three days.” As a result, of Ant Financial’s current profit of more than 10 billion yuan (1 yuan is about $0.15), 4.5 billion came from the two microfinance companies Huang approved to set up that year.
The Wall Street Times reports that Ma is politically savvy, but if he hadn’t enriched all of these people, he wouldn’t have drawn attention to himself. With the political connections he has made over the years, Ma has become one of the best-known of the “red capitalists.
The Wall Street Times also reported that Ant Group, which was preparing to go public last year, also benefited from the participation of these powerful investors, which helped Ant Group’s application to go public last summer to pass all levels of securities regulators. The application was approved within a month.
According to business records seen by The Wall Street Journal, Beijing Jingguan Investment Center, run by Jiang Zhicheng’s Boyu Capital, was among the top 10 shareholders with two investments that gave it nearly 1 percent of Ant’s shares.
Third, the bottom of the barrel to call the Xi Central Administration of Industry and Commerce
After being listed in the United States and tied to the state-owned and powerful capital, Alibaba has a lot of strength, and when the State Administration for Industry and Commerce investigated Taobao again in 2015 for selling counterfeit goods, Taobao was no longer a young bride, but a giant that was “too big to fail” and had millions of Taobao “store boys” to back him up. “back him up, directly called on the General Administration of Industry and Commerce.
On January 25 of that year, China’s Administration for Industry and Commerce in the announcement of the “second half of 2014 online trading goods targeted monitoring results” showed that Taobao authentic rate was the lowest, only 37.25%.
Two days after the report was released (Jan. 27), Taobao’s website forwarded an open letter from an 80-year-old Taobao operations officer criticizing the report for procedural, technical and logical flaws, and also found the person directly responsible for the incident, Liu Hongliang, director of the Department of Internet Commodity Transaction Supervision at the SAIC, saying he was “blowing black whistles” The company also found the person directly responsible for the incident, Liu Hongliang, director of the Department of Internet Commodity Transaction Supervision of the State Administration for Industry and Commerce, saying that he “blew a black whistle.
On January 28, the SAIC issued a white paper, and Alibaba, not to be outdone, issued an official statement on Taobao in the afternoon of the same day, stating a formal complaint against Liu Hongliang’s “procedural misconduct and emotional enforcement”.
In just five days, Alibaba won a beautiful quick battle against the SAIC, which is rare.
On January 30, Zhang Mao, director of the SAIC, met with Ma Yun and told him that Ma Yun is not extra-legal, that seems to mean to say that many people think that Ma Yun is indeed untouchable and extra-legal.
Hong Kong’s Ming Pao posted an article saying that Ant’s growth and expansion has been aided by a number of valued people in the system. The source revealed that several years ago when Xia Baolong was in charge of Zhejiang, in a video conference about big data in the province, Ma had criticized a director of the provincial government by name in front of provincial, municipal and county officials, just because the director had questioned whether it was fair to other companies to have so much data in the hands of Ali only.
Commentator Shi Shan in his program “there is wrong” mentioned a past incident, “previously in the United States to interview a Chinese entrepreneur, his a big project, because of a fraudulent sale on Taobao and a complete failure, he went to sue Taobao, the results to receive him, of course, the police in Zhejiang, and finally he was forced to flee to the United States. To be honest, this entrepreneur has quite a background, according to his words, he used to feel that he could not do anything in mainland China, but it was Ma Yun’s Taobao that made him lose all his money. Because Ma Yun is not a person fighting, he has a large number of officials behind him, a large number of local governments, a large number of princelings, the second generation of officials. This is the reason why Ma is proud of the mainland and does not even put Wang Qishan in his eyes.”
Fourth, hiring former officials to counteract central regulation
Faced with increasing regulatory pressure, another way Ma has resisted is by hiring former regulators to lobby.
One of the most high-profile officials poached by the private sector is Cui Shufeng, formerly deputy director of the enforcement division of the Anti-Monopoly Bureau of the Ministry of Commerce, who has been director of the Competition Policy Research Center at the Ali Research Institute since 2019, according to an April 21 article in the Financial Times, “Chinese Tech Firms Hire Former Officials to Counter Regulatory Overhaul.
Just days before China’s competition regulator issued a record fine against Alibaba, Cui Shufeng told Chinese government officials that they should not be too harsh on the company, the report said.
According to a statement seen by the Financial Times, Cui Shufeng told a group of senior Chinese deputies and government advisers on April 1, “In China’s platform economy, competition among companies is fierce. Therefore, regulation of the platform economy sector needs to prevent a ‘one-size-fits-all’ phenomenon.”
The land media reports that these officials who have gone to sea have been in charge of industry policy making and have a good understanding of where policy is going, how to respond to interviews, how to grasp the direction, and how to play ball. In addition, these officials have a wide range of contacts and intricate relationships, so as long as there is a slight change in policy, they will soon be able to receive relevant news, so as to avoid the upcoming policy risks.
Some analysts say that the delay in implementing many provisions of the Anti-Monopoly Law, which was implemented in 2008, is due in part to lobbying by former regulatory officials representing corporate interests. This raises the question of the extent to which Xi’s government can restrain these companies.
V. Poking Xi Jinping in the Gas Tube: Is Ma’s Fintech Model Coming to an End?
At the Bund Summit in Shanghai, Jack Ma criticized the pawnshop idea of mortgages and argued that the future of finance is based on a credit system using big data as a foundation. He also criticized the regulator: “Good innovation is not afraid of regulation, but afraid of the way to regulate yesterday, we can not use the management of the railway station to manage the airport.” “China is not a financial systemic risk, China’s finance is basically risk-free, it’s the lack of a systemic risk.”
This now pokes Xi Jinping’s windpipe, and since the stock market turmoil of 2015, systemic financial risk has become a problem for Xi Jinping, who has hosted a succession of meetings, repeatedly emphasizing precisely the prevention of large technology companies from using their size, capital and vast amounts of data to engage in anti-competitive behavior.
Regulators argue that Ma’s credit system of so-called big data, with data on the spending habits, borrowing behavior and billing and loan payment histories of 1 billion users, creates an unfair advantage over smaller lenders and even big banks. Without taking risks themselves, they are able to take advantage of the trading platform to sit back and collect huge profits, amassing huge wealth and transferring the risks to the commercial banks and countries they work with.
The latest moves by Beijing to crack down on big tech companies like Jack Ma include disconnecting payment instruments from other financial products inappropriately, accepting higher capital and reserve requirements, handing over consumer credit data to a government-controlled credit scoring company, and more.
Bloomberg commented that for Jack Ma and his fellow web giants, these actions reveal the message that a decade of unfettered expansion by large Chinese tech companies that could even challenge Facebook and Google has come to an end. Gone are the days when Web giants like Alibaba, Ant or Tencent could leverage their financial strength and vast amounts of data to outsmart rivals in other sectors.
Gone are the days of reckless expansion and frenzied growth, according to Shen Meng, a director at Beijing-based investment bank Chanson & Co. From now on, the growth of these companies may be strictly controlled by the government, and companies will have to face the reality that they need to streamline their non-core businesses and reduce their influence in the industry as a whole. The case of Alibaba and Ant Group will make peers refer to the initiative to restructure.
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