Has Jack Ma’s Alibaba crossed red line?

The rare activist moment at China’s central bank was too late and too crude.
For years, when it came to innovative business ideas, Beijing’s stance has been to let them flourish — there’s always room to regulate and rein in later. And thus gig economy superstars have blossomed. China’s version of Uber Technologies Inc, DoorDash Inc and PayPal Holdings Inc are more ubiquitous than their US counterparts at home.
The other side of the coin is that billions of dollars in paper gains can be made and destroyed within days thanks to regulatory whims. Here, Jack Ma’s Ant Group Co is a cautionary tale.
China’s central bank released a statement saying that Ant has “little legal awareness,” “despised” regulators’ compliance requirements and engaged in antitrust behaviour. Ant needs to go back to its core payment business, the People’s Bank of China said.
That’s a further blow to Ma, whose blunt words, likening China’s financial system to pawnshops, cost him the world’s biggest initial public offering in early November. Ant had been on track to raise $35 billion, with a valuation of more than $300 billion, until regulators pulled it two days before its trading debut.
The company’s digital-payment business has become commoditised. The newer, faster growing consumer-lending operation, which the PBOC now seeks to limit, is Ant’s high-margin cash cow. So even if the company can somehow regain Beijing’s favor and look to go public again, its valuation will be questioned. Ant will no longer be China’s MasterCard, but merely its PayPal, which has a lower market value.
As a longtime observer of Ant, I have often marveled that it ventured to become a public company at all, because it operates in such treacherous regulatory waters. In July, it was written that its IPO would run the risk of exposing how volatile and unsteady China’s financial regulations can be. A blockbuster listing felt almost too good to be true.
This isn’t the first time Ant has had a run-in with regulators. The PBOC noticed its flawed lending model as early as 2017. Back then, Ant was packaging consumer loans into asset-backed securities and selling them to institutional investors — often banks. The central bank, worried about the underlying quality of securitized products, which had collapsed Lehman Brothers Holdings Inc, called a halt to that practice.
So Ant found another way to build its business.
Currently, Ant connects banks with consumers, and almost all of the loans it originates sit only on banks’ balance sheets. With China being one of the most indebted nations in the world — its debt-to-GDP ratio is edging close to 300% — the PBOC is justifiably worried about bad loans.
—Bloomberg