When Jack Ma last week chose to speak truth to power about the failings of China’s financial system, he was aiming very high — perhaps too high.
The founder of ecommerce business Alibaba, already China’s wealthiest man, is set to become substantially richer when his online finance spin-off Ant Group debuts on the Hong Kong and Shanghai stock exchanges on Thursday. At $37bn, it is the world’s largest ever initial public offering.
But after Mr Ma criticised China’s state-dominated banking sector at a public forum, the country’s best-known entrepreneur on Monday was summoned by regulators to discuss hastily issued industry guidelines that could hit Ant’s future profits.
While the dramatic turn of events is unlikely to derail Ant Group’s IPO, it is a reminder to Chinese businesses and their investors that they still answer to the Communist party — no matter their pedigree.
“Jack Ma clearly miscalculated. After months of keeping his head down, he has made a lot of enemies,” said Chen Zhiwu, a finance professor at the University of Hong Kong.
Prof Chen added that while private groups such as Ant — which is valued at more than $300bn and offers services including mobile payments and micro credit — do not pose the same level of potential financial risk as China’s big banks, “they need to be subject to a more systematic regulatory framework”.
In a statement on Tuesday, Ant said Mr Ma and China’s regulators had exchanged views “regarding the health and stability of the financial sector”.
“Ant Group is committed to implementing the [regulations] and . . . will continue to improve our capabilities to provide inclusive services and promote economic development,” it added.
Speaking at a financial summit in Shanghai on October 24, Mr Ma criticised China’s big state-owned banks for their “pawnshop mentality”. What the world’s second-largest economy really needed, he said, were bold new players such as Ant that could extend credit to the innovative but collateral-poor companies and individuals usually shunned by China’s big financial groups.
The summit’s headline speaker, however, had a different message. In his first public appearance in almost a year, China’s vice-president Wang Qishan instead emphasised financial stability. “There should be a fine balance between encouraging financial innovation, invigorating the market, opening up the financial sector and building regulatory capacity,” he said. “Safety always comes first.”
Mr Wang’s turn as President Xi Jinping’s anti-corruption tsar from 2012 to 2017 made him the country’s second most powerful man.
Banks and other vested financial sector interests in China have long protested that they operate under far more constraints than new digital entrants.
Before announcing the timing of the IPO, Ant executives met with People’s Bank of China officials to seek their blessing, according to two senior group executives. Despite receiving assurances, there have long been voices sceptical of Ant within the PBoC and China’s banking and insurance regulator, which views itself as the champion of the country’s biggest lenders.
A senior executive at a big international bank in Hong Kong said Mr Ma’s regulatory summons signalled that Beijing “wants to put Ant on a leash before the monster becomes uncontrollable”.
“When he recently attacked bankers, he was seen as arrogant and unwise,” the executive added. “Banks in China are not just the core of the traditional financial system, they are an extension of monetary policy.”
Investors do not expect this week’s developments to thwart Ant’s trading debut. Edmond Hui, chief executive of brokerage Bright Smart Securities, said Ant Group shares trading on the grey market were fetching about 50 per cent higher than the IPO price.
Dickie Wong, head of research at Kingston Securities in Hong Kong, estimated that the stock would jump between 20 and 30 per cent on its first day of trading in the city — although it may have soared further without this week’s events. “I don’t think the Chinese government wants the Ant IPO to fail.”
Investors had been anticipating that Chinese regulators may take a harder line on online finance groups. In its prospectus, Ant said it faced regulatory risks in China and that it would have to establish a central bank-approved holding company in accordance with State Council regulations issued in September.
That could have a direct impact on its future profits. Draft regulations will require Ant to cap loans at either Rmb300,000 ($44,843) or one-third of a borrower’s annual pay — whichever is lower. The rules could also make issuing loans across China’s provinces harder.
Oliver Rui, a finance professor at China Europe International Business School, noted that Ant could previously leverage Rmb3bn in capital into Rmb300bn in loans. But under the new guidelines, Ant will need to keep at least 30 per cent of its capital on its balance sheet. “Their future profit will not be as good as it is now,” said Prof Rui.
The new regulations might force investors to “revisit their assumptions [about Ant’s] growth given the clear signs of regulatory intervention”, said Kevin Kwek, an analyst at Bernstein Research, in a note on Tuesday.
But Mr Kwek — who remains sanguine on Ant’s prospects — said they were simply a reminder that the company “will be under regulatory scrutiny — as any player in financial services will be”.
Additional reporting by Hudson Lockett, Primrose Riordan, Sherry Fei Ju, Nian Liu and Yuan Yang