Jack Ma’s $7 Billion Loss Is China’s, Too. And A Growing One

If China’s 2020 were a person it would be Jack Ma.

Asia’s biggest economy started the year with huge ambitions to buttress its technological clout. Ma’s ginormous Ant Group initial public offering was at the center of that marketing campaign. It was to be history’s biggest IPO. And Ma’s journey from Hangzhou English teacher to China’s Jeff Bezos personified the meritocratic future China’s leaders are said to be plotting.

Ant wasn’t listing in New York, where Ma’s Alibaba Group went public in 2014. The dual listing in Shanghai and Hong Kong signaled China Inc.’s dominance.

To punctuate the point: the listing was to coincide with Nov. 3, the day of the U.S. election. It would’ve been quite a way to troll Donald Trump, who lost the U.S. presidency to Joe Biden that day. Ma and Trump, after all, have a bit of history.

In January 2017, 10 days before Trump moved to the White House, Ma made a very public visit to Trump Tower in New York. Ma discussed plans for his empire to create 1 million U.S. jobs, delighting the highly transactional Trump. The bromance wouldn’t last, though. The trade war and disruptions to supply chains had Ma distancing himself from Trump 20 months later.

“The promise,” Ma said in September 2018, “was made on the premise of friendly U.S.-China partnership and rational trade relations. That premise no longer exists today, so our promise cannot be fulfilled.”

Ma focused instead on the home market—and the ways in which fintech giant Ant would expand from payments to investments to insurance and beyond. Ma’s ambitions, though, unraveled in the time it took him to make an October 24 speech in Shanghai. 

There, Ma expressed what may be recorded as the costliest comments in history. Ma accused Beijing regulators of stifling innovation. China’s regulatory empire struck back in spectacular fashion, causing Ma to shelve his IPO. In the two months after his speech, Ma lost about $7 billion of net worth, according to the Forbes Real-Time Billionaire’s List.

Beijing puts on a great show of letting market forces play a “decisive” role, but the Ant putsch is more Vladimir Putin than Adam Smith. It’s meant to silence other tech disruptors hoping to influence regulation.

Ma may have built an e-commerce and fintech universe. And he may think he answers to New York Stock Exchange investors. But as Jeffrey Halley of Oanda puts it, “there’s only one big boss in China, and it’s not Jack Ma.” And as Andrew Batson of Gavekal Research headlined a recent report: “Ant Stomped.”

This will be a hard act to live down in 2021. The shockwaves from China’s government suddenly turning its anti-trust guns on Ma got lost a bit in Covid-19 confusion. Admittedly, when millions risk dying amid a once-in-a-century pandemic, it’s hard to get too worked up about corporate intrigue.

But Ma’s downfall raises so many questions about China “state capitalism” model. One, of course, is where the lines-not-to-be-crossed exist. Tech outfits from Ant to Tencent to Baidu now know it’s best not to call Chinese banks “pawnshops,” as Ma did on Oct. 24. On a more basic level, though, tech CEOs are learning it’s dangerous to encroach on the turf of China’s state banks.

Ant aims to upend virtually every corner of mainland finance. That raises questions about where Ant’s ambitions leave behemoths like Industrial and Commercial Bank of China, China Construction Bank and Agricultural Bank of China. China’s leaders frequently tout how these giants have so quickly eclipsed the likes of Deutsche Bank, JPMorgan Chase and Mitsubishi UFJ Financial Group. They also touted, for a time, how Ant’s market capitalization would dwarf Goldman Sachs.

As Ant and an explosion of copycat fintech disrupters grow in size, they will naturally endanger the market share of the conventional banking industry. They will as a matter of course cut out the middlemen role bricks and mortar institutions long took for granted. What happens, too, when Ant, Tencent, Baidu, JD.com and others angle to issue their own digital currencies?

An argument can be made that Xi’s Ant clampdown has merit. As Felix Salmon of Washington-based news and analysis portal Axios points out, Ant represents a kind of financial schizophrenia. Ma’s creation is becoming one of the most systemically vital financial institutions in the world, but one that’s barely regulated.

“The lack of an Ant Group IPO is bad news for global investors who wanted a slice of a fast-growing financial giant, and is also bad news for the nascent Shanghai stock exchange,” Salmon says. “But if a delay of a couple of months helps to bring pre-IPO clarity with regard to Ant’s future regulatory regime, no long-term damage will have been done.”

Fair enough. But why, it’s worth asking, did Chinese regulators only seem to realize on Oct. 24 that Ant’s aspirations were a big deal? Beijing regulators had been going back and forth for a couple of years about whether fintech startups will be considered mere middlemen or proper lenders required to set aside capital buffers. Ant’s business model, one detailed in the IPO prospectus for all to see, was a surprise to exactly no one. 

The only debate now is the fallout for China’s capitalist credentials. Might global investors think twice before wading into Shanghai’s STAR Market? This Nasdaq-like market saw the Ant IPO, estimated to be about $35 billion, as its big moment in the spotlight to recruit tech “unicorns” to list there.

Viewed through this lens, the $7 billion Ma just lost is the big story as 2020 ends. The real one, though, is how much Chinese leaders end up leaving on the table in 2021 and beyond as it betrays an unreadiness for global primetime.