The People’s Bank of China announced on Thursday (Dec. 24) that it, together with the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission and the State Administration of Foreign Exchange, “will interview Ant Group in the near future to urge and guide Ant Group to implement the requirements of financial regulation, fair competition and protection of consumers’ legitimate rights and interests in accordance with the principles of marketization and legalization, and regulate the operation and development of financial business. .”
China rectifies tech giants with another heavy hand
China’s General Administration of Market Supervision also announced on the same day that it had “opened a case to investigate Alibaba Group Holding Ltd. for alleged monopolistic practices such as ‘two-for-one’ according to the law, based on reports.
In response, Ant responded through WeChat public number: has received the interview notice, “will seriously study and strictly comply with the requirements of the regulatory authorities, no compromise to do a good job of implementation of the relevant work.” And Alibaba also responded that it “will actively cooperate with the regulator’s investigation.”
However, two major pieces of bearish news came out, and Ali shares fell in response. Among them, parent company Alibaba ended Thursday’s morning trading in Hong Kong with a heavy drop of 8 percent, a five-month low, while Ali health, which is also listed in Hong Kong, closed nearly 11 percent lower, the last trading session before the Hong Kong stock market closed for the Christmas holiday.
Since the temporary suspension of Ant Group’s nearly $35 billion IPO in early November, which was said to raise the most money in its history, China has been facing a wave of reforms on the platform economy, all of which are aimed at Alibaba Group’s businesses. Jack Ma, the founder of Alibaba, has been repeatedly hit by arrows that have cast a shadow over the future of his business.
To appease the authorities, Jack Ma has offered to hold shares of Ant
In this regard, some observers have analyzed the rumors that Ma offered to give part of his Ant Group holdings to the central government in a regulatory meeting as early as Nov. 2, as reported in the Wall Street Journal.
They said that China’s series of reforms to tighten its grip on private Internet companies, while intended to rectify market chaos, could also allow state-owned enterprises to take advantage of the opportunity to acquire stakes in technology giants, including Ant, in order to implement the Communist Party’s so-called “state in, people out” policy or “red capitalism. “The Chinese Communist Party has tightened its control over technology giants. The CCP’s tightening of control over technology giants has not only internal factors to maintain stability, but also external geopolitical considerations.
If the Wall Street Journal’s insider report is true, it means Ma is cognizant that he has offended the authorities with a comment he made at the Bund Financial Summit in Shanghai in late October and must make amends, said Lin Changnian, chief executive of Hong Kong-based Wisdom East Securities Ltd. in an interview with the Voice of America.
Ma criticized the Chinese banking sector’s “pawnshop mentality” of requiring collateral for loans and said that “there is no system in Chinese finance and there is no systemic risk”. He also criticized the Basel Accord as an outdated risk standard set by the “old man’s club”.
Lin Changnian said: “Ma also knows that his speech is too big, he has offended the Communist Party, he wants to appease the Communist Party! This can not be helped! China’s system is as big as the sky and the earth, but not as big as the Communist Party!”
However, in terms of results, Ma’s soft words did not succeed in saving Ant Group’s IPO case. The Wall Street Journal also quoted sources as saying that the Chinese government had no intention of accepting Ma’s offer.
Ant facing nationalization?
However, in light of the Chinese government’s wave of strict control measures and the latest escalating scrutiny of Ant and Alibaba, Lin Changnian concluded that the possibility of Ant being partially “nationalized” in the future is high.
And Fraser Howie, co-author of the book “Red Capitalism,” agrees that the politically astute Ma’s willingness to hand over Ant’s operations once again highlights the totalitarian nature of China’s one-party dominance.
Speaking to Voice of America, Howie said, “In the eyes of (Chinese President) Xi Jinping, the party is the core, it’s all that matters, it’s as simple as that. So private companies, even if they are privately owned, are ultimately controlled by the state and the Communist Party. If the CCP wants to take over, and decides to take over, the business will be taken over. Private entrepreneurs are powerless to resist, especially not (as in the U.S.) through an independent court system that can fight back (against the government), but only through the private wrangling of party factions or their political allies to reach an agreement.”
However, Hoy said, the Chinese Communist Party will not be like the Mafia, blatantly forcible seizure of private property.
He concluded that the Chinese government may strengthen its control over Ant through its shareholding structure, for example, by injecting capital into Ant through the Central Huijin Investment Company, or acquiring new shares issued by Ant, or even buying the holdings of existing shareholders, in order to solve the capital shortage faced by Ant due to regulations on the one hand, and gaining shares and board seats of Ant on the other, further dominating its substantive operation.
This is the ‘red capitalism’ and ‘privatized China’ that we have written about over the years,” he said. China nationalizes private companies through, among other things, a legal structure of board ownership, and uses this structure to control private companies.”
The Central Huijin Investment Company, known as the “Financial State-owned Assets Supervision and Administration Commission,” is a wholly state-owned company funded by China and a shareholder of all state-owned commercial banks in China, exercising its rights and obligations as a financier of these key financial enterprises on behalf of the Chinese government.
Hoy said that as long as the state takes a stake, Ant could become a financial utility like other state-owned commercial banks in the future, with rigid and also fearful prices that are not competitive.
He believes that China called off the Ant listing case and Ma’s arrogant speech at the Bund Financial Summit in Shanghai is not very relevant. But he was surprised that an operator as savvy as Jack Ma and the investment bank handling the IPO did not notice the change in China’s regulatory environment.
The Chinese Communist Party accelerates the “advancement of the state and the retreat of the people”
On the premise that the Chinese Communist Party is accelerating the pace of “the state’s advance and the people’s retreat,” Lin Changnian is also pessimistic about the future of Jack Ma’s business map. He said that once state-owned enterprises take a stake in these Internet private companies, everything will be in the party’s interest and the innovative spirit and investment value of China’s technology stocks will be gone, because, he said, “once the state-owned enterprises come, they will make a mess of it.
The new regulatory measures will make it impossible for Ant to broker loans and earn a commission of about 5%, and its leverage ratio for lending may also drop sharply from the current 20 times to only 5 times, said Lin Changnian. So even if Ant has a chance to go public again in the future, its total market capitalization of about $310 billion could be cut back to one-half or even one-quarter of that level.
Hoy, who has long followed the situation in China, agrees that the tightening of regulations could drastically reduce Ant’s total market capitalization to as little as $100 billion after its future re-listing, so he says that may be one of the reasons why regulators called off Ant’s IPO back in early November, knowing full well that if Ant were allowed to go public as hot as expected, the subsequent regulatory measures that would be introduced could cause Ant’s market capitalization to plummet, which would seriously impact the stability of the financial markets.
According to the Interim Measures for the Administration of Online Small Loans Business, to be legislated by the China Banking and Insurance Regulatory Commission and the Central Bank, future individual online loans cannot exceed 300,000 yuan ($46,000), or one-third of their average annual income in the last three years. Loans to corporate entities or organizations also cannot exceed RMB 1 million.
And the one-time paid-up registered capital for operating an online lending company must not be less than RMB 1 billion, and the minimum capital will be increased to RMB 5 billion if operating across provinces. In addition, in a single joint loan, the approach also provides that the proportion of capital contribution of microfinance companies shall not be less than 30%, which all show that the amount of future network microfinance, the amount of capital contribution and leverage will be strictly regulated and limited.
Many analysts, including Hoy and Lin Changnian, generally believe that there is a need for China to rectify the chaos of the platform economy that has resulted from competition over the years, but they are concerned that too much government regulation may stifle the innovation and future growth of this industry.
Platform economy reform is in full force
The Chinese government’s overhaul of the platform economy has been particularly aggressive since this week, and the effects are visible.
The General Administration of Market Supervision on Tuesday night (Dec. 22) issued a ban on community group-buying platforms of “nine no-no’s”, the first of which stipulates: no abuse of independent pricing power through low-price dumping, price collusion, price inflation, price fraud and other means. In addition, in addition to price reductions in accordance with the law to deal with fresh goods, seasonal goods, backlog of goods and other goods, but also strictly prohibited to crowd out competitors or exclusive use of the market for the purpose of dumping goods below the cost of the price.
Once the ban came out, a number of community group buying platforms, including Meituan and Poundland, were quick to respond to the emergency rectification, although a few goods were reportedly still once suspected of low price dumping.
The Ant users were also recently reported to have their spending limit reduced to below RMB 3,000. Ant confirmed on Wednesday that its online lending platform, Huaxia, “is adjusting the spending limits of some of its younger users to promote more rational spending habits.
Analysts say the Chinese Communist Party’s tightening of control over the tech giant has not only internal factors of market stability, but also external geopolitical considerations.
Abishur Prakash, co-founder of the Center for Innovating the Future, said in an interview with the Voice of America that he believes the main reason the Chinese Communist Party has called a halt to the Ant IPO and even recently escalated its scrutiny of major tech companies like Alibaba and Tencent is not internal, but external geopolitical considerations.
I think the real reason is that China has found opportunities to tighten its grip on large tech companies,” he said. China is using the overhaul as coercion to gain control over private tech giants. This is based most of all on geopolitical considerations, as China needs these large tech companies as a tool for its (future) foreign policy.”
Prakash analysis, Europe and the United States and other Western countries to strengthen regulation, mostly because of the significant growth of technology companies in recent years, the scale is increasingly alarming, and along with the jump in technology standards also allows technology companies to play the role of “gatekeeper (gatekeeper)” of all sectors of society, and even dominate the life choices of individuals, therefore, forcing the government must take action to maintain market order, but also to avoid these companies “too big to manage”.
But China’s calculations are clearly different, he said.
He explained that the Chinese government is more or less in control of the development of technology companies in its territory, whether through direct investment, or public policy in coaching and regulating their development.
China’s geopolitical risks
With that in mind, why is China suddenly tightening its regulations on large technology companies? Prakash said the catalyst actually came from the Anthem IPO, but it wasn’t because China was afraid that Anthem would get too big to manage after it went public, but because it saw the strong geopolitical influence of Chinese tech companies like Anthem.
Prakash said China is reaching out to large technology companies through the overhaul in an attempt to expand its geopolitical footprint outward in the future.
He cited the example of Alibaba in January this year to Malaysia exported an artificial intelligence service “Malaysia city brain (Malaysia city brain)”, the use of cloud computing power, can solve the problem of urban traffic congestion, can also be further transformed into a smart city.
He said that China’s calculation is that if it can further control these large private technology companies, the government can be similar to Alibaba city brain and other export services or goods as a tool to expand its geopolitical influence abroad. If China could effectively control these technology companies, it could use their goods, services and ecosystem as a geopolitical tool to expand its geopolitical influence abroad, he said, adding that this would be a new type of foreign policy manifesto. If China can effectively control these technology companies, it can geopolitically steer the establishment of their goods, services, and ecosystems in a direction or region that meets its geopolitical interests, expanding China’s global geopolitical influence.
In addition, the Center for the Future of Innovation, of which Prakash is a member, predicts that the global technology community will face ten major geopolitical risks in 2021, with governments, including China, using conflicts with technology companies to pursue their geopolitical objectives as one of the risks next year.
Other nine risks include: First, technology wars (tech wars), mainly from the United States and China in the battle for semiconductor chips. Second, the 5G Coalition (5G Coalition), that is, for 5G technology, in addition to some countries began to block China, other countries can also be forced to begin to choose sides between the United States and other major powers. In addition, three, after China began to develop its own blockchain service network (blockchain service network), it also faced the crowding from the United States, Japan and India, and this development trend may also lead to the risk that countries must choose sides in the future, and the formation of another kind of fault (blocked world) and other technology.
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