[ad_1]
(Nov 5): China’s move to abruptly halt the world’s largest stock market debut sends a clear message to global investors: Any financial opening will only be done on terms that benefit President Xi Jinping and the Communist Party.
Lawmakers in Beijing shocked the investment world on Tuesday by suspending an initial public offering (IPO) of Ant Group Co, a fintech company owned by billionaire Jack Ma, China’s second-richest man. The decision was made just two days before the stock began trading at a price that attracted at least $ 3 trillion in orders from individual investors.
The timing of the decision showed once again that, for Xi and the party, financial and political stability takes precedence over handing over control of the economy, especially to a private company. In Beijing’s view, allowing the IPO to go ahead could give Ant too much control over the financial system, posing broader risks that could ultimately undermine the party’s grip on power.
“The party is showing its strength,” said Victor Shih, associate professor at UC San Diego and author of “Factions and Finance in China: Elite Conflict and Inflation.” “He’s telling Jack Ma, you’re going to have the world’s largest initial public offering, but that’s not a big deal for the CCP (Chinese Communist Party), which oversees the world’s second-largest economy.”
While the party has ample tools to quell political dissidents, local officials have sometimes struggled to contain outbursts of anger sparked by core issues like labor disputes, investment fraud and environmental disasters. To mitigate any threats to the party’s financial system or authority, the Xi government has demonstrated over the past decade that it has no problem taking down billionaires and private companies.
For foreign investors, the Ant saga has raised questions about the viability of Hong Kong and Shanghai as premium financial centers. That’s particularly so after China last week signaled further openness in a new five-year plan that set a timeline for moving forward on earlier promises to allow greater foreign access and gradually loosen controls on the yuan and trade flows. capital.
Both the sequence and timing of the events of the IPO’s failure will raise questions among foreign investors about China’s commitment to the kind of transparency needed in modern, open capital markets, said Fraser Howie, author of Red capitalism: the fragile financial foundation of China’s extraordinary boom.
“It sends out a series of signals, often contradictory,” Howie said. “Therefore, investors should be concerned about the listing process in China, they will be concerned about disclosure, they will be concerned about arbitrary movements by regulators.”
Many analysts saw the move as sensible, even if the timing was disturbing. Chinese regulators said Ant’s business model effectively allowed it to charge higher fees for transactions, with state-owned banks bearing most of the risk. At the same time that Ant was looking to list, authorities were rushing to develop rules that would subject financial holding companies to higher capital requirements. He also plans to create a digital yuan, which is part of his drive to maintain control over the stability of his payment system.
The China Securities Regulatory Commission said on Wednesday it supported the Shanghai Stock Exchange’s decision to block a “hasty” initial public offering. Changes in fintech industry regulations have a “great impact” on Ant’s operating structure and earnings model, it said in a statement.
Mom’s risky speech
At a conference in Shanghai on October 24, Ma blamed global regulators for focusing too much on risk and criticized China’s own measures to stifle innovation. The comments came after Vice President Wang Qishan (a Xi confidant) called for a balance between financial innovation and strict regulations to prevent financial risks.
“It appeared that, intentionally or not, Ma was openly challenging and criticizing the Chinese government’s approach to financial regulation,” wrote Andrew Batson, China research director at Gavekal Research Limited, in a note.
Ma’s comments came just before the Communist Party held a key meeting to plan the country’s economy for the next 15 years, bringing the issues of technology, financial stability and economic growth to the top of the national agenda. After last week ended, regulators released new rules affecting Ant’s business and summoned Ma to Beijing for a rare meeting on Monday. The IPO was suspended the next day.
Within China, state media has highlighted Ant’s failures to comply with regulatory requirements while showing strong market oversight mechanisms and government risk controls to protect consumers. In a comment dated Tuesday night, the party backed Economic journal He said that suspending the IPO demonstrated that “every link in the capital market has perfect rules and serious supervisory methods.”
“It is understandable from a regulatory perspective and is still a better outcome for investors than facing a black swan event immediately after listing,” said Lv Changshun, analyst at Beijing Zhonghe Yingtai Management Consultant Co. “Policy makers can tolerate innovation, but that shouldn’t be at the cost of systemic financial risk. Avoiding that risk is an important foundation for driving further capital market reforms. “
Ant’s IPO prospect contributed more to China’s movement synchronization than Ma’s Shanghai speech, according to Gao Zhikai, a former Chinese diplomat and former China policy adviser for the Hong Kong Securities and Futures Commission. Kong. Once regulators saw that Ant could do things that were off limits to commercial lenders, he said, “someone rang the doorbell and reported it to regulators.”
“Traditional financial institutions, banks in particular, would probably welcome this decision when the dust clears,” he said. “Nor does it create a regulatory downside for Ant Group. It reminds Ant that they must treat certain parts of their operation like a commercial bank. “
Increasing scrutiny
The Chinese authorities have stepped up supervision of private companies for several years. In 2018, the central bank identified Ant and other firms as financial holding companies, putting them under increased scrutiny due to their growing role in the country’s money flows and financial pipelines.
That same year, regulators seized Anbang Insurance Group Co, symbolizing the recent era of mega-acquisitive Chinese companies, and jailed its former president for fraud. HNA Group Co and Tomorrow Holding Co were later taken over by the state or dissolved, while China Evergrande Group in September warned of a potential cash crisis that could pose systemic risks for China.
Flashy and forthright, Ma is perhaps China’s best-known businessman in the communist nation. The globetrotting mogul is a special adviser to the United Nations, has debated Elon Musk in international forums and is a regular at annual Davos meetings. He has created two multi-billion dollar companies and has labeled himself a champion for small and small businesses.
However, on Wednesday, posts on Chinese social media platforms showed no sympathy for Ma. An anonymous Weibo poster wrote “if you don’t go out looking for trouble, trouble won’t find you.” Another joked that “it’s time for Jack Ma to wake up, listen often and talk less.”
Despite Ma’s public rebuke and reputational blow to China markets, many investors remain bullish on Ant’s IPO. Higher liquidity requirements would hurt sentiment, but that’s not necessarily a bad thing for a listing. which saw stocks that were sold at a 50% premium on the gray market before the IPO.
Ram Parameswaran, founder of San Francisco-based Octahedron Capital Management, a hedge fund that owns shares in Alibaba Group Holding Ltd. and plans to invest in Ant’s IPO, saw the suspension as positive to seal off speculation in the shares. Shares of Alibaba, which owns a third of Ant, fell 7.5% in Hong Kong, the most since its debut in the city last year.
“What I am clear about is that the loan business will grow more slowly in the coming years,” said Parameswaran. “That in the broader scheme of things is net positive for the sector and Ant. Constant growth is good.”
‘Strings pulled’
For global investors, however, the episode is likely to reinforce the notion that the party makes all the decisions when it comes to important business decisions, and any openness measures will be carefully calibrated for impact on the Communist Party. That could be even more important in the years to come, as China looks to develop its own core technologies in the face of mounting pressure from the United States, which is likely to continue no matter who ends up winning Tuesday’s election.
“This sends a signal to the major tech players not to get too big for their pants and that the party is still in charge,” said Kendra Schaefer, head of digital research at consultancy Trivium China in Beijing. “Internationally, however, measures like this do little to alleviate concerns that exiting tech companies are not being manipulated by Beijing.”
[ad_2]
