Jack Ma is a very busy man.
China’s richest man has been busy launching the world’s largest initial public offering. He’s been busy preparing for Alibaba Group Holding Ltd.’s big four-day Double Eleven shopping extravaganza, and yet two weeks ago, Ma somehow found the time to weigh in on China’s banking system in a financial forum on high profile in Shanghai, throwing himself once more into the eye of the storm.
In that speech, in addition to labeling the global banking Basel Accords as a “club of old men”, Ma said that “systemic risk” is not the problem in China. Rather, China’s biggest risk is that it “lacks a financial ecosystem.” Chinese banks are like “pawnshops”, where collateral and collateral are hard currency. As a result, some decided to go so big that they are not allowed to fail. “As the Chinese like to say, if you borrow 100,000 yuan from the bank, you are a little scared; if you borrow a million yuan, both you and the bank are a little nervous; But if you ask for a billion yuan loan, you are not afraid, the bank is, ”Ma said.
The consequences came this week. On Monday, Beijing’s top financial guardians called Ma and dressed him. Beijing also issued draft rules on online microcredit, stipulating stricter capital requirements and operating rules for some of Ant Group Co.’s consumer credit businesses. But the big surprise came Tuesday night. The Shanghai Stock Exchange suspended Ant’s listing on its Star board, citing Monday’s meeting and subsequent regulatory changes. Ant later said in a filing that he would also suspend his Hong Kong IPO. The fintech giant was scheduled to go public on Thursday. The news sent Alibaba shares plummeted in New York on Tuesday, while dragging the shares of other US-listed Chinese companies.
What Mom said was a bit sensational, maybe. But he was right. China’s bankers are so reluctant to extend credit to smaller borrowers that Beijing redefined “inclusive financing” to make its banks’ loan books look prettier. In fact, it has been so difficult for small businesses to obtain bank credit in the last decade that they are programmed not to invest in the future. Here’s the latest piece of evidence: In the third quarter, even as China’s economy rebounded and 86 percent of the 300 smaller manufacturers that CLSA spoke to became profitable, most remained cautious. A record 59 percent of its capital expenditures went to mere “regular maintenance,” the brokerage found.
Mom’s words were forceful, but these phrases, like “pawn shops,” are not her concoctions. The bureaucrats of the People’s Bank of China, for example, had used the same words. So why is Ma being singled out?
Could it be that Ant is too profitable and is now under attack? Ant is raising at least $ 34.5 billion in an IPO that attracted more than $ 3 trillion in retail orders. Meanwhile, regional banks are still in the doghouse, struggling and sometimes being restructured because they lack capital reserves.
In the fast-growing consumer credit business, Ant is essentially a matchmaker, while banks loan and reserve cash in case some loans go bad. The fintech giants are making much more than the moneylenders, the city’s commercial banks complained to local media.
Ant’s broad consumer base appreciates his small loan offers. But in the future, to appease its banks, Beijing may want to level the regulatory playing field. For example, Ant may no longer operate solely as a matchmaker and could be asked to keep 30 percent of the loans on his balance sheet, compared to only about 2 percent now. That shouldn’t have been a problem because Ant’s IPO would have provided billions of dollars of capital for loan provisions.
In its statement, the Shanghai Stock Exchange cited the changing regulatory landscape as one of the reasons why Ant was no longer qualifying for listing. But in reality, nothing has changed. Since 2017, Beijing watchdogs have been debating whether to allow online microlenders to adopt a simple loan facilitation model or require them to remove loan provisions. This new exposure draft is just a continuation of the discussion.
At the opening of her speech, Ma admitted that she was in conflict over whether to attend the forum and speak. Now he will probably regret it. But here’s the thing: If China is serious about financial innovation, “inclusive finance,” or the digital yuan, let the man who pioneered the business and made billions along the way share his experiences and thoughts. If Ma says that systemic risk is not China’s Achilles heel, listen to him. You know where the real problem is and it could be part of the solution.
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