Chinese regulators take an ax to the house that Jack built

Jack Ma has already lost his title as China’s richest man. Now, he has seen his Ant Group business model ripped up by the Chinese regulator.

The founder of e-commerce juggernaut Alibaba, the affiliated company of the fintech giant, has held the top spot in the Hurun Global Rich List since 2019. But after the IPO fiasco with Ant last year, he dropped to fourth place with 360 billion yuan or US$55.6 billion.

Bottled water baron Zhong Shanshan, who runs Nongfu Spring, is number one with 550 billion yuan or $85 billion.

For Ma, the decision by regulators to rein in Ant and Alibaba on “anti-trust issues” has hit his personal fortune. In November, Beijing blocked what would have been a world record $37-billion initial public offering for Ant, which runs the hugely popular Alipay mobile wallet.

Days before the decision, Ma had taken a verbal pickax to the regulatory system in a major speech at the Bund Summit 2020 in Shanghai.

“Today’s financial system is the legacy of the Industrial Age. We must set up a new one for the next generation and young people,” he said, infuriating the old guard of the ruling Communist Party.

Since then, he has been persona non grata.

The facts:

• Ant’s lending model was to match its 500 million borrowers with small regional banks.
• In a shake-up of fintech regulations, that plan has been consigned to the online bin.
• New rules that take effect next January will mean Ant will have to shrink its business with regional lenders.
• Instead, it will have to link up with the big state-owned banks.
• This will radically reduce its competitiveness.

Reaction to the news: “The regulators were surprised that Ant would have a larger market capitalization than China’s largest state-owned banks. When the IPO was priced they looked at it and said: ‘What, this thing is bigger than JPMorgan?’” one banker, who advises the Chinese government on financial policy issues but declined to be named, told the Financial Times.

The speech that left them speechless: Ma created a stir during his Shanghai address when he compared major banks to “pawnshops.” “We must reform the current system. We must do away with the ‘pawnshop’ mentality of today’s finance. We must rely on the development of a credit system,” he said.

Delve deeper: Media reports have revealed rumblings of discontent among senior staff at Ant. Many would have raked in millions of dollars from the IPO. “In a lengthy post on Ant’s internal website, Executive Chairman Eric Jing said the company’s management is reviewing its remuneration and incentive policy for employees that would take effect in April, according to people who saw his message,” The Wall Street Journal reported.

China Factor comment: Even though Ma has stepped down from the day-to-day business at Alibaba, he is still a national icon. His followers see him as a Chinese version of the late Steve Jobs of Apple fame. But there are concerns that Ma has become too outspoken for the CCP after cashing in on the government’s tech policy, which spawned the BAT big three of Baidu, Alibaba and Tencent.