After speculation of billionaire entrepreneur Jack Ma missing for two months, reports now claim that the Chinese government is seeking to nationalize his billion-dollar companies, Alibaba and the Ant Group. The rumors come in the backdrop of a Chinese regulatory probe into the former.
Things seem to have begun unravelling after Mr Ma, during a speech in Shanghai in October last year, hinted that China’s President Xi Jinping-led Communist government was stifling innovation in the country and called for reforming “the current system”.
The rocky relationship between the top businessman and the Chinese government, however, isn’t a new occurrence and can be roughly traced back to the Yu’e Bao incident around 2017.
Long History of Tensions Between Jack Ma & Xi Jinping
About four years ago, notices from state-run bank regulators saw Jack Ma rein in Ant Financial's money market fund Yu'e Bao, which was soaring to record heights with a total of about US$ 260 billion assets under management (AUM) at that time. After being forced to impose limits on new deposits by customers, its assets dropped to US$ 168 billion in the nine months ending December 2018.
More recently, the Chinese government announced in December that it will be closely monitoring “monopoly businesses” to make sure there is no “disorderly expansion of capital”. Soon after, an anti-monopoly probe was initiated into the Alibaba Group last month, while the Ant Group was reportedly asked to restructure its operations.
Not to forget, the Ant Group IPO, which was projected to raise US$ 37 billion in the biggest stock market debut ever, was suspended by Chinese regulatory bodies last year, weeks after it had already been approved for a dual listing in Shanghai and Hong Kong Stock Exchanges.
Since the initiation of the probe in October last year, Alibaba stocks have fallen by over 25 per cent.
As a result, Jack Ma’s net worth has also seen a decline over the past three months. He was replaced by bottled water tycoon Zhong Shanshan as China’s richest person around September last year.
Chinese Govt Vs Chinese Tech Industry
With the regulatory bodies barreling down upon Ant and Alibaba, the country’s entire digital economy and user base is likely to take a hit. As per Ant Group’s IPO prospectus, its payment app Alipay sees over 80 million active merchants and about 711 million active users on a monthly basis, while providing digital payment services to over 200 countries and regions. The app also recorded a total payment volume of a whopping RMB 118 trillion in mainland China.
Experts opine that the regulatory measures are pressing down upon China’s fintech giants to put a check on their growth.
All this in-house scrutiny comes at a time when China is not on the best of terms with most major economies around the world. While the US perceives it as a “security threat” and is coaxing the UK, EU, Canada, and other nations to do the same, it is also almost constantly butting heads with Asian neighbors India, Japan, Taiwan, etc. To top it all, the country is also under pressure from international bodies such as WHO and other economies to allow investigation into the origins of COVID-19 virus in China's Wuhan, which has led to a raging worldwide pandemic.
Beijing’s global infrastructure project of Belt and Road Initiative, aka One Belt One Road (OBOR), is also under the scope as experts believe that it could lead to a restrain in global economic growth.
Keeping these factors in mind, China’s economic growth via a flourishing international export network may be tough to count on. As the second largest economy in the world, its second option is a homegrown infrastructure-driven domestic growth.
For now, it is difficult to predict whether the current regulatory showdown on homegrown mega tech titans is a wrong move or ends up benefitting the state-driven Chinese economy in the long run.