The largest IPO in the history of Capital Markets was supposed to be launched by the Ant group this month. The incredible success story of the Chinese financial services industry was co-founded by Jack Ma, the billionaire behind Alibaba group. Ant group was about to embark on an initial public offering of $35 billion. However, the Chinese government stopped the IPO, stating that it was to stop big fintech firms’ monopolistic practices.
Many financial experts don’t believe that the Chinese government halted the IPO less than 48 hours before it began trading in China and Hong Kong due to the threat of Fintech monopolizing Banking, but because Jack Ma criticized the Chinese government in his previous speech that he gave on the 24th of October in a summit in Shanghai. Jack criticized the state-controlled banking sector as he claimed that China couldn’t regulate the future with yesterday’s methods.
Fight against tech giants.
The monopolistic methods used by the tech giant might be the real motive behind the move by the Chinese government and may not have anything to do with Jack Ma’s speech, as they claimed. The big tech companies are always known to have monopolistic tendencies, just like US Tech giants Facebook and Amazon. The Chinese government may have feared that if Ant group gained access to $35 billion from the IPO, that the company may have endowed itself with superpowers in payments systems that may have been enough to take their competitors out of the market. The low-cost loans with almost zero interest rates and access to millions of data from customers might make it difficult for small fintech companies, and therefore dilute competition. The stop might also be a result of concerns for fraud in the digital payments system. Recently there was a scandal that we covered at #DisruptionBanking involving German digital payment giant Wirecard. € 1.9 billion went missing. The story may have led the Chinese government to understand that it needs to scrutinize Fintech companies more; and that fraud does happen in this sector.
Fight against free speech.
There are few fully independent companies in China. Most sectors are state-controlled, including social media. There are growing concerns that the Chinese authorities are afraid of private companies’ growth, especially ones who may be able to replace the state’s traditional banking systems. For example, Ant group’s subsidiary company, Zhima credit, offers a credit scoring system that rates customers according to their creditworthiness, which means a customer with a low credit score will not get loans from the applications. There might be a concern that the credit scoring system might replace the state-controlled credit scoring systems. Many people have criticized the state-owned system for censoring free speech by giving a low score to critics of the Chinese government, which may have led Chinese regulators to do everything in their power to stop the IPO.
Liang Tao, the vice-chairman of China, believes that fintech companies don’t change the financial industry’s nature, and regulators would watch digital payment companies. He said in a conference in Beijing,
“We need to strike a balance between financial development, stability and security,” Tao said. “We need to pay close attention to the risks from internet security, data protection, and market monopoly.”
Tao talked about data protection because it is known that many tech giants sell their customer’s data for the sake of profit. An example of a data breach in data analytics is when Facebook sold user’s data to a British analytics firm, Cambridge analytica, without users’ consent. Perhaps, proper regulations in China might prevent tech giants from tampering with the user’s data. The question that comes to mind is if the Chinese citizens don’t trust their government with their data, why would they trust their government to protect their data?
Legal experts believes that anti-trust and data protection are good for customers and tech companies have to embrace it. Winston Ma, adjunct professor of law at New York University, told CNBC that:
“The increased scrutiny of internet lending is just the beginning, as more regulations such as the anti-trust and the personal data privacy protection, are also coming to the picture […] In short, the age of (exponential) growth in the wilderness for internet finance is over — and that’s the reality the fintech investors have to embrace.”
China’s digital currency launch might cause regulation.
The stop might have been a result of the launch of China’s central bank digital currency. It has been reported widely by local media that the Chinese government has used the prospect of issuing a state-issued digital currency to stall the growth of fintech companies like Alipay and WeChat. Digital currency may allow the Chinese government to provide services offered through fintech companies, making the state a direct competitor. One way of controlling Alipay’s lending business is to require companies to convert cash to digital yuan to underwrite customer loans. It will make it more costly for fintech companies to use digital yuan to lend money to customers. Launching a digital currency is one of the ways that the Chinese government is planning to help the weak traditional banking system that is already declining. Some experts believe that the Chinese government is destroying the growth of Ant group lending subsidiary Huabei so that the government will control the payment market through a blockchain technology state-issued currency.
What’s next for Ant group
Ant group might seek to launch their IPO in other countries to escape the Chinese regulator. The New York stock exchange might be an alternative for their IPO. Still, they certainly won’t be able to escape regulations as #DisruptionBanking covered in our story about Luckin’ Coffee in June. The United States has vowed to scrutinize Chinese companies with the looming trade war between China and the United States. Which might lead to Ant group re-launching in China, but regulators say that it will take up to six months for Ant group to relaunch because of the new set of regulations governing fintech firms that have been rolled out by the Chinese government.
Author: Oluwatobi Joel
#AntGroup #JackMa #IPO #Fintech #China #AliPay