Lessons for Aust in Ma’s downfall

Business

It’s likely that Canberra will be watching the punishment that Beijing has meted out to Chinese tech billionaire Jack Ma with huge interest and not a little anxiety.
Ma, the founder of Chinese e-commerce giant Alibaba, has disappeared from public view since late October, after his ill-fated appearance at a financial conference in Shanghai, which also featured speeches from a number of top Chinese officials, including China’s vice-president, Wang Qishan, and Yi Gang, the boss of China’s central bank.
When it was his turn on the podium, Ma – who is China’s richest person – took aim at China’s financial regulators for their obsession with minimising risk, even though, he argued, “there is no innovation in this world without risk”.
And he panned China’s banks for behaving as “pawn shops” by only lending to people who had security for their borrowings.
Ma’s comments were swiftly punished, with China’s state-run media criticising his remarks, while Ma and two senior officials of Ant Group – the fintech giant that Ma spun out of Alibaba – were summoned to a meeting with Chinese regulators.
But Beijing went much, much further.
In November, the proposed initial public offering of Ant Group – which was set to debut on the Hong Kong and Shanghai stock exchanges – was pulled.
At US$37 billion (K127.38bil), the Ant IPO was to have been the largest the world had ever seen.

Bigger attack
By pulling the pin on the Ant IPO, Beijing made it clear that it would not tolerate such open defiance of its authority. Private companies, no matter how successful, still had to play by the political rules of the game, which include showing due deference for the state’s authority.
What’s more, Beijing now appears to be gearing up for a more fundamental attack on Ant’s entire business model, no doubt with the blessing of the country’s massive state-owned commercial banks.
Many observers believe that this process will leave Ant either being controlled or perhaps even majority-owned by the Chinese government.
China’s banks have watched closely as Alibaba created its Alipay service in the early 2000s, in which payments for online purchases were held in escrow.
But Alipay expanded its offering, allowing users to keep their money in a separate account called Yu’ebao, where they could earn a higher interest rate than the low government-mandated rates offered by the banks.
To the banks’ chagrin, Yu’ebao proved massively popular, becoming one of the country’s largest money market funds.
Chinese banks also watched helplessly as Alipay, which was spun out as Ant in 2014, developed the largest payments business in the world, with some 730 million monthly users.
But in addition to being a payment tool, Ant’s Alipay has become a major portal for personal credit, loans, investment and insurance.
And this has given Ant unparalleled access to personal credit data, including on people’s spending habits, their borrowing behaviour, and their track records in repaying their bills and loans.
Last month, Chinese regulators signalled that they had opened an antitrust investigation into Ant.
They believe the huge trove of personal credit information that the fintech giant has amassed gives it an unfair competitive advantage against the commercial banks.
To level the playing field, Chinese regulators want Ant to provide its data to a broader, nationwide credit reporting system, which would effectively be controlled by the Chinese central bank, the People’s Bank of China.
In this way, Chinese banks would get access to the same detailed personal financial information that Ant enjoys.
At the same time, Chinese regulators were scrutinising Ant’s funding model.
At present, Ant had provided loans to some 500 million people, using funding that it obtains either from commercial banks, or by packaging the loans into financial instruments, such as bonds, that were sold to investors.
This arrangement is very advantageous to Ant because the banks and bondholders take on most of the risk of borrowers defaulting, while the fintech giant pockets a profit for arranging the loan.
But Chinese regulators seem determined to make Ant operate more as a traditional bank, using more of its own funds to make loans.
There’s no doubt that Canberra will be watching Beijing’s prolonged punishment of Ma, and the Ant Group, with some trepidation.
Last year, Prime Minister Scott Morrison exacerbated the already strained relationship with Beijing by calling for an independent investigation into the origins of the coronavirus pandemic.
Beijing wasted little time in expressing its displeasure.
In April, the Chinese ambassador to Australia, Cheng Jingye, warned the Morrison government that its pursuit of an independent inquiry could spark a Chinese consumer boycott of students and tourists visiting Australia, as well as sales of popular agricultural exports such as beef and wine.
In an interview with The Australian Financial Review, he described Morrison’s push for an inquiry as “dangerous” and predicted it would fail to garner support among global leaders.
“Resorting to suspicion, recrimination or division at such a critical time could only undermine global efforts to fight against this pandemic,” Cheng said.
China quickly followed through with its threat, moving to punish Australia economically by imposing tariffs or bans on wine, timber, beef, seafood and barley.
Last month, China ramped up the pressure even further, banning Australian coal.
Beijing’s actions have triggered understandable consternation in Australia, given that China is the country’s largest trading partner.
Despite these restrictions, however, Australia’s export earnings have been supported by the surging iron ore price.
Still, there were concerns that, as with Ant Group, Beijing was preparing a broader attack that would eventually spread to Australia’s tourism and education sectors.
China is the largest source of overseas students at Australian universities, and any decline could jeopardise an estimated AU$3.1 billion (K8.29bil) in fees paid by Chinese students to the Group of Eight universities, the University of Technology Sydney and RMIT.
Last June, the Chinese ministry of culture and tourism issued an alert warning against travel to Australia, citing a “significant increase” in racist attacks on “Chinese and Asian people”.
The warning came after China’s state-owned media outlet, The Global Times, published an editorial telling Chinese students to “be cautious about studying in Australia”.
Economists point out that a concerted campaign by Beijing to dissuade its citizens from visiting Australia, or studying in Australia, will inflict a greater economic cost than the restrictions and bans that have been imposed on commodities.
That’s because it’s relatively easy for Australian commodity producers to find alternative markets for their goods.
But it will be much more difficult to fill the gap in demand if Chinese tourists and students abandon Australia. – Financial Review

One thought on “Lessons for Aust in Ma’s downfall

Leave a Reply