This previously unplanned post will review a historic event in China’s tech and financial markets.
In late 2020, after a super controversial speech by Jack Ma at a high-profile finance summit criticizing China’s banking sector, the highly anticipated IPO of Ant Group (the parent company of Alipay) was abruptly canceled. Later, Jack Ma was placed under a shadow ban and almost never appeared publicly since then.
To be sure, he was not imprisoned, nor had he gotten some hefty fines on his head, nor was his multi-billion stake in Alibaba taken away from him. He was merely sidelined from a public image perspective. (Socialism with Chinese characteristics, where some of the out-of-favor businessmen are basically forced to go on vacation.) Nor did the market blink too much back then. There was an initial shock, but the market shrugged it off and had a good run of a “crazy bull,” which only peaked several months later, in early 2021.
Only then did the super bear market, which lasted for 4 years, begin, and a narrative began to take hold that China is cracking down on the private sector, aided by the nasty optics of the botched education crackdown.
Jack Ma sat at the center of that narrative. For years, he was used as the poster child by Western media to reinforce the “private economy crackdown” narrative, to the point that many folks in the outside world actually believed Jack Ma was arrested. (He was not.)
But then we start to see more people questioning that narrative. For example, yesterday, I saw another interesting X post comparing Jack Ma to Elon Musk:
Okay, I am now beginning to understand why Xi Jinping cut Jack Ma down to size. (Jack Ma's net worth is $25 billion, still enormous, but not large enough to buy enough influence to form a parallel Government).
This X post really triggers a memory floodgate for me. For many years, I have shared sporadically my non-consensus views about the Jack Ma episode with the people I know. This is a chance for me to consolidate these thoughts.
Jack Ma, as the political man
My conclusion first: Jack Ma’s prison-less and penalty-less “downfall” was the result of his own failed political gambit, not of China’s crackdown on the private sector.
For many years, he had been successful at seeking power, and he tried to seek more, but he failed this time and got punished. That’s the crux of it.
Instead of being the face of private business, Jack Ma had way more political ambitions than the Western world cared to recognize. At his height, he was nicknamed “Governor Ma马省长,” as the Alibaba economy that he commanded was more than the GDP of any province in China. His clout was also comparable to a provincial boss, proven by several high-profile “victories” against similar levels of officials. In one instance, in a highly publicized 2015 argument between Alibaba and the State Administration of Industry and Commerce, he was powerful enough to make that ministry-level body retract a criticism and to make the minister at the time visit him as a token of goodwill.
Kevin Xu also echoed some of my thoughts:
Ma was a translator for government officials before Alibaba; he supposedly discovered the Internet on an official trip to the US, as the lore goes His company was initially based in Beijing. He was the most politically astute of that generation of Chinese tech founders, though Robin Li of Baidu was also politically savvy (kinda have to be to run a search engine there)
His Bund Finance Summit speech, the one that sunk Ma, if you read it carefully, was a high-wired well-crafted political speech that would've been a campaign speech in an alternative parallel universe. Alas...
Jack Ma’s unusual political power stemmed from a combination of
He seemed to be always on the right side of history (for example, his catchy slogan of 让天下没有难做的生意).
Eloquence in both Chinese and English, giving him huge limelight both domestically and internationally.
A deep web of elite interests and investments in his business empire, so he is well-protected.
Very importantly, he had a keen desire to affect politics and policy-making.
Sometimes, his business decisions and intentions to affect politics were closely intertwined.
You could even argue that bravely breaking the rules and incurring risk was the key secret to Alipay/Ant Financial’s success. When Alipay was first created, there was no regulation for payment, and it could well be argued what they did in the highly sensitive finance sector was illegal then (there was an easy crime for them: the illegal collection of public money非法集资). Jack was bold enough to say to his people that if they got caught, he would hand himself in. And it was only after Alipay became successful, inspiring a slew of copycats, that the People’s Bank of China started to introduce regulations on the payment industry. Jack Ma won that battle. Instead of being criminalized by the rules, he made the rules bend for him.
You could also argue the episode of "taking away" of Alipay from Alibaba against the interests of the majority shareholders Yahoo and Softbank (I won't call it “theft”. Shhh) was also claimed under the spurious pretext that China's central bank didn't allow payment license to owned by a foreign entity, even with a VIE structure. This was a highly questionable claim since 1) Tencent and many other foreign-listed companies have a payment license through VIE, and 2) the central bank actually never said that, but since Jack Ma said so, they couldn’t come out and dispute him either. That controversy was eventually settled between Jack Ma and Yahoo.
It was a pattern of doing it first and fixing the mess later, of testing the rules, playing with the rules, sometimes outright breaking the rules, and eventually rallying his overwhelming influence and commercial success to bend the rules to serve his interests (or fulfilling his vision, depending on how cynical or how romantic you are.)
And don’t forget, when he had the power to let the rules bend for him, he was in politics. It was very likely that he even enjoyed being in it. Just look at his happy face when he met with Trump 1.0 even before his inauguration, where he joyfully promised “1 million jobs”. In hindsight, I am not even 100% sure if this meeting came with the blessing of Xi or if it was just Ma’s own initiative.
Whether our economy needs some of these bold, rule-bending people and whether the business community can’t affect politics is a whole another topic. And I am honestly ambivalent about this question. Our economy may actually need more, not fewer, Jack Ma to stay innovative. But that’s the topic for another day.
But is Jack Ma a powerful political figure under the disguise of a private businessman?
Does he have political ambitions?
With so many of his Zhejiang allies in the top job, did he ever feel it was his moment to shine?
Has he ever, ever fancied for even the top job?
I don't doubt about it at all.
Let me also play the devil’s advocate here (thanks to Kaiser Y Kuo for raising it):
Do you really think it was the result of a "political struggle," or just the simple fact that regulators (CBRC, CSRC) recognized the inherent moral hazard in Ant Financial's business — lending not based on creditworthiness, but rather on the propensity to spend, and lending not its own funds but funds from small local banks? I think that's what prompted his ill-advised Bund outburst. Neither a political struggle nor a crackdown on the private sector, just sensible regulation.
Regulatory concerns alone would not prompt the highly irregular cancellation of an IPO after the IPO was both APPROVED and PRICED and investor money PAID. From a technical perspective the IPO was as good as finished, it just took a few more days to trade. But even with that, it was taken down.
It can be because of one reason only: his political posturing and “campaign messaging” finally reached a breaking point, and the explosive combination of 1) genuine long-running regulatory concerns about his group, 2) collective bureaucratic backlash against him for always being able to over-power the bureaucracy, and 3) the anger from the Top Guy about Jack’s Bund speech, joined forces to create this highly irregular event.
The risks you mentioned were long recognized and were nothing new. However, it was not enough for regulators to disapprove of their IPO. Because Jack was politically too “powerful,” he could always power his way through until that point. Also, a good IPO could have been the way to lessen the risk, not increase the risk.
This could well be another round of “do it first, fix it later”, and Jack obviously believed with a successful, multi-trillion IPO under his belt, he would get away with it this time again.
I was and is an Alibaba shareholder when the IPO was cancelled. My own view was that China did foreign investors a favour by cancelling the Ant IPO, vs letting the IPO go ahead at an undoubtedly inflated price. Also, I personally found Ma’s speech somewhat arrogant, about how financial regulation was inapplicable to fintech. I was waiting for him to provide a reasoned explanation how the regulations could be improved. In the end he offered no reasoned argument, and I can only conclude that he had no basis for the claim. Financial bubbles have plagued even sophisticated economies since the Dutch Tulip bubble and it’s unlikely that no regulation is needed at all.
BTW, the wealthy will always feel “persecuted”. It’s hard for them to understand there is a difference between social goals and private interests. The wealthy conflate the two, thinking that any restraint on their pursuit of financial wealth is illegitimate.
There was another event, mostly forgotten that helped precipitate his downfall. About a week before his ill fated speech, someone put a poll up on Weibo asking who the top 10 individuals had the most respect in China. Jack Ma was #1 by a long shot, followed by Wang Jianling, a couple other business people I forget, and guess who wasn't even in the list? Big Daddy Xi. The poll lasted about 1 hour and was taken down and all mention of it scrubbed. Someone didn't like a mere business person upstaging him in popularity.