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HONG KONG: Investors are still trying to weigh the consequences of the recent decision to withdraw Ant Group’s successful IPO.
China’s largest fintech group had planned to raise $ 37 billion in the world’s largest IPO before Beijing’s intervention this month.
Now, China watchers are analyzing what the far-reaching ripple effects of the unexpected political move will be, and its future victims and beneficiaries.
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The answer is not very simple.
The official decision was part of a growing initiative to control all microlenders with proposed new rules that require Internet platforms to provide more of their own funds for the loans they organize.
Second, it was clearly a response to the size of Ant, potentially posing systemic risk, be it in digital payments, loans, or wealth management.
And finally, some believe that Jack Ma, the founder of Alibaba and Ant’s majority shareholder, had become too visible and too wealthy in the eyes of the party.
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INCORRECT BUSINESS MODEL FOR UNCERTAIN TIMES
It’s easy to come to the pessimistic conclusion that Beijing is signaling its determination to “turn back the clock,” said a prominent Hong Kong-based fintech investor close to Alibaba.
“Beijing is concerned about social stability and since it does not know how to regulate these companies, it simply decided to close them. Everyone today is cautious. Nobody wants to touch consumer finance and [small and medium-sized enterprise] loan.”
In this Friday, Oct. 23, 2020 photo, an employee walks past an Ant Group logo at their Hong Kong office. (AP Photo / Kin Cheung)
That however may be too bleak. A large part of Ant’s problem is more likely to have the wrong business model at a time of macro uncertainty. Its rapidly growing credit platform serves as a high-tech mediator between borrowers and banks.
It is far better to postpone, or more likely, delist, than to see Ant’s stock plunge in value as the market digests the implication of unfavorable new rules.
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Consider, by way of contrast, Alibaba’s big rival, Tencent. Tencent’s fintech efforts are built on fully digital WeBank, in which it has a minority stake of less than 30 percent.
“Because we are a licensed bank, everything we do is under the existing regulatory framework,” said Henry Ma, WeBank’s chief information officer.
“Regulators see the benefits for the financial system of fintech companies and their emphasis on inclusion. It is when there is a lack of proper supervision that risk is created. “
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As a bank with its own funds at risk, WeBank has held up well amid the impact of the coronavirus crisis. That is partly due to its strategy of lending only small amounts, Ma said.
“The size of the loans is the determining factor,” he added.
“When the loan amount is less than 200,000 yuan (US $ 30,350), or as little as 8,000 yuan, there is less incentive to flee or speculate. SME owners treasure their credit history. “
OLD ECONOMY VERSUS NEW
The continent has always been subject to oscillations between reform and reaction. Rather than being ruled by a monolith, China is a battlefield where the vested interests of the old economy clash with those of the new.
Travelers wearing face masks to help slow the spread of the coronavirus walk past commercial buildings in the Central Business District as they exit a subway station during morning rush hour in Beijing, Thursday, Oct. 29, 2020 (AP Photo / Andy Wong).
This contest is fought with special intensity in the financial field and sometimes limits are drawn in the regulation.
Local governments like Shenzhen’s have launched rear-guard actions, trying to fight Beijing’s apparent war against microlenders, even when they have the proper licenses.
For example, when an SME lender in Shenzhen was de facto closed at the behest of national regulators, an appeal to the local government earned the lender at least a temporary reprieve, according to its chief executive.
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One lesson from Ant’s IPO is undoubtedly that the best position for private entrepreneurs is to remain discreet. The time when being seen as rich was glorious is over, at least for private entrepreneurs.
Tencent’s Pony Ma rarely makes public appearances and when she does it is to support initiatives that Beijing embraces.
It would be strange for him to make movies of himself with Hollywood stars or don a rock star outfit to serenade thousands of fans like the founder of Alibaba has done.
“Everything is under the control of the Chinese government; good relationships are essential, ”said Chibo Tang of venture capital firm Gobi Partners. “Everyone can see what happens if you don’t manage the relationship.”
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However, Beijing must also understand that if it fails to manage its own excesses and those of its startups, China’s economy will be the biggest victim.
