Commentary: Jack Ma brought the wrath of Chinese regulators down on Alibaba
HONG KONG: Ever since Alibaba founder Jack Ma criticised Chinese fiscal regulation in a voice communication last October, a regulatory tempest has pummelled the country'due south entire online financial and consumer sector.
The Shanghai Stock Exchange suspended the planned initial public offering of fintech conglomerate Ant Group – an Alibaba affiliate – just two days before its launch, and regulators afterward launched a massive crackdown on Chinese Big Tech.
While Ma's speech appears to have been an unforeseeable random upshot, the logic of Chinese bureaucratic politics made Ant's IPO debacle inevitable.
FRAGMENTED Bureaucracy
Ability within the Chinese hierarchy is fragmented among cardinal ministries and levels of government. A department's mission and objectives decide its stance and arroyo toward regulating businesses.
China previously regulated its financial arrangement using a "i banking concern and three commissions" structure.
The People'southward Banking company of Mainland china (PBOC), the cardinal bank, was responsible for monetary policy and macro-prudential regulation, while separate cyberbanking and insurance regulators and the Red china Securities Regulatory Commission (CSRC) oversaw their respective sectors.
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But these institutions' overlapping functions and lack of coordination immune some non-fiscal firms to seek regulatory arbitrage, every bit the fallout from financial scandals involving the Anbang Insurance Grouping and Tomorrow Grouping made clear.
After these scandals came to lite, the Chinese government implemented a series of organisational shakeups to address regulatory failures.
In 2017, the 19th National Congress of the Communist Party of People's republic of china made reducing financial risk a top economic priority, and emphasised "high-quality" rather than "high-speed" growth.
The State Quango likewise established the Fiscal Stability and Development Committee, a super-regulator headed past Vice Premier Liu He, to exercise comprehensive oversight, particularly over financial activities that fall through the cracks of traditional regulation.
A massive government overhaul in 2022 further consolidated financial regulatory power by merging the banking and insurance regulators into the China Banking and Insurance Regulatory Committee (CBIRC).
Meanwhile, the PBOC took over the CBIRC'south legislative functions, further solidifying the central banking company's leading role in maintaining fiscal stability.
In improver, CBIRC Chairman Guo Shuqing was too appointed party secretarial assistant of the PBOC, a move widely viewed as a footstep toward facilitating coordination between the two cyberbanking regulators.
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By 2018, therefore, the balance was already tilting toward tighter regulation of not-financial businesses.
Ant NOT A Small TARGET
Pismire is one of those targets. From the start, the grouping has marketed itself equally an internet technology house that uses Alipay, its highly popular mobile-payment app, to provide a wide range of financial services.
Only Ant presents Chinese regulators with unprecedented challenges because many of its services autumn exterior the telescopic of existing fiscal rules.
Moreover, Ant'southward exponential growth and aggressive expansion into new business lines have put regulators on high alarm.
One of the PBOC'southward most important monetary policy tools is adjusting banks' capital reserve requirements, but Emmet did not need to satisfy these requirements, because it is non a banking company.
Regulators became even more alarmed when Ant's IPO filing revealed further details about the scale and risk model of its lending business concern.
The highly oversubscribed offering, and the huge valuation premium Emmet obtained by being a tech firm rather than a bank, stoked fears of a bubble.
Although the default rate on Ant's loans is relatively low, the group's short history - six years - and vast size pose potential unforeseen perils – which, from the PBOC's standpoint, could corporeality to systemic risk.
As the lender of last resort, the central banking company is naturally hazard balky; if Ant fails, the bank would have to bond it out.
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Other Chinese financial regulators may take a completely different risk profile.
The CSRC reportedly approved Ant's IPO application within but two months, compared to the usual seven months or more for other listings, in order to heave confidence in Cathay's stock market amid deteriorating relations with the United States.
WHEN Information technology ALL TURNED SOUR
Ant's planned dual listing in Shanghai and Hong Kong was intended non only to entice more Chinese tech firms to list domestically, merely also to counter Us threats to delist Chinese companies from its stock exchanges.
But the PBOC has other priorities. Its mission to ensure financial stability makes it a persistent regulator, and Ma's speech gave the central depository financial institution exactly the opening it needed to rein in Ant.
His scathing criticisms of Chinese financial regulation straight irked many senior officials who previously had voiced contrasting opinions on the same regulatory issues.
These policymakers soon revealed their displeasure with Ma and Ant. A few days subsequently the speech, the PBOC-affiliated newspaper Financial News published three consecutive commentaries criticizing Pismire's business model.
Once the powerful central bank publicly turned against Ant, bureaucrats who had endorsed the group fell silent and other departments began to jump on the bandwagon.
For example, China'southward antitrust potency has ever had a clear interest in regulating the country's large tech firms in order to expand its policy domain, simply had been taking a lax approach because it was uncertain whether to put innovation or regulation get-go.
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The top leadership'southward agin reaction to Ma's speech gave the authority the green light to act against tech giants like Alibaba.
Ant's rapid growth and emergence as an net finance titan reflected not just regulatory lag but as well the firm's agile adaptation to rule changes.
"We ever stride ahead of the regulators – we have to," Ma said in 2017. "Otherwise, nosotros go nowhere."
This time, though, information technology seems the regulators have finally defenseless up.
Angela Huyue Zhang is Director of The Middle for Chinese Police force and Acquaintance Professor at the Academy of Hong Kong. She is the writer of Chinese Antitrust Exceptionalism: How the Rise of Prc Challenges Global Regulation.
Source: https://cnalifestyle.channelnewsasia.com/commentary/commentary-jack-ma-brought-wrath-chinese-regulators-down-alibaba-295046
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