HONG KONG -- Three years ago, on Nov. 11 -- the date of Singles' Day, the Alibaba-led shopping extravaganza -- Jack Ma released a short film. A slick, 22-minute production titled "Gong Shou Dao," it follows the diminutive Ma as he encounters a series of ever-more towering opponents, from screen idol Jet Li to a Mongolian sumo wrestler.
In the concluding frames, Ma, co-founder of e-commerce juggernaut Alibaba and its financial unit Ant, strikes tai chi poses as phrases flash across the screen: "Following no doctrine, only karma"; "Brave, but not brash."
This is how Ma has always seen himself -- a humble teacher, taking his inspiration from Taoist monastic ideals and martial arts novels to build what has become the most valuable company in China. But this self-image is at odds with how he is viewed by the ruling Communist Party -- a symbol of all the ills of global capitalism, and one with an attitude problem to boot. Ma is someone who, in other words, might gather the world's most famous actors and martial artists to make a movie about what a humble man he is.
Those two contradictory ideas -- modest teacher and billionaire egomaniac -- have existed in uncomfortable tension for two decades, ever since Alibaba's earliest beginnings in a Hangzhou apartment. In the decades since, Ma and a handful of other tech billionaires have managed to carve a space inside China's statist, communist system for their foreign-listed, avowedly private companies, whose valuations have steadily narrowed the gap with Amazon and Alphabet.
In early November, Ma's view of Ma and the party's view of Ma collided. But who would prevail was never in doubt. Regulators stepped in to suspend, and may well cancel, the $37 billion initial public offering for Alibaba's Ant Group on the Shanghai Stock Exchange. The combined market value of the two Jack Ma vehicles would have been $1.1 trillion. Since the decision was taken, Alibaba's share price has tumbled 12% on the Hong Kong stock exchange, as investors price in official disfavor.
Rather than viewing Ma as a brilliant visionary and entrepreneur, "they see him as a parasite on the regulated financial system," said the head of China for a large international asset management company. "And also they see him as a symbol of income inequality and wealth disparities."
Indeed, it was Chinese President Xi Jinping who personally built up a consensus to take action against the Ant IPO just days before its debut, according to two sources with knowledge of the matter. "Only he could have made the decision," said one. "Nobody else would have the authority to do so."
The unfortunate timing, so close to the planned listing, might well have been due to political maneuvering. "It took time for Xi to build the consensus required," said the China asset manager, who implied that the China Securities Regulatory Commission (CSRC) should never have signed off on the listing in the first place.
In retrospect, it is clear that the clash with regulators and the Party leadership had been building up for some time. On one level, it involved a broad rethink on the rules governing microfinance in China. On another, it was about how big Ant had grown, and the systemic risk it posed to the entire financial system. But there was also a very personal note to the antagonism.
When Ma took to the stage at the Bund financial forum in Shanghai just a few days after receiving approval to list Ant in that city, he specifically targeted proposed rules that would require Ant to hold much more capital on its balance sheet. If implemented, this would have made Ant a lot less profitable, and would have put it on an essentially equal footing with banks themselves.
Ma, however, saw the new regulations as a direct threat to his business model, weighing down Ant with heavy capital requirements that would sap its ability to lend. He criticized regulators, the Chinese banking system and even the Basel financial regulatory system.
"Basel is more like a seniors' club ... about solving the problem of an aging financial system that has been operating for decades... But the problem in China is the opposite... Its risk is actually a lack of financial system," he said.
"The essence of finance is credit management. We must change the pawnshop mentality of today's finance and rely on the development of a credit-based system. Today's banks continue to have a pawnshop mentality. Collaterals and warranties are pawnshops."
Those comments, while largely accurate, were a direct attack on the way that China's banks lend money under the subservient eye of the central bank, and ultimately at the behest of the Party. Previously, Alibaba's relations with regulators had been testy, but Ma had mostly been able to ignore them on issues ranging from value-added tax to car-sharing to counterfeit goods. This time, Ma had pushed his luck too far.
"Why did he make this aggressive speech?" asks Chen Zhiwu, a professor at the University of Hong Kong. "For months, he laid low and kept his head down. When he got approval to list in China, he thought it was okay to be aggressive. He miscalculated. The message will be negative for Ant's future business -- and for all private business on the mainland."
On Nov 17, the government broke its silence on future plans for Ant's listing. Fang Xinghai, vice chairman of the CSRC told a financial forum the listing "depends on how the [Chinese] government restructures the regulatory framework in terms of financial technology, and it also depends on how the company reacts to the changing regulatory environment."
Fear and loathing
In some ways, the decision to at least postpone -- but more likely to cancel -- Ant's listing represents the revenge taken by traditional financial institutions, who have long regarded internet finance, known in the industry as fintech, with suspicion and loathing for being able to skirt the same regulations that chain the banks down. This was why Ant had been able to grow so fast: "A big hole in the system allowed Ant to grow into a monster," said the head of Asian economics for one major international bank in Hong Kong with deep connections to the central bank's thinking.
"For a while, they got special love from the central bank, and now it is incredibly difficult to rein them back in" he said.
Chinese banks, for example, have few incentives to find new customers. Risk-averse loan officers extended credit only to state-owned enterprises, confident that they could never be blamed for defaults or charged with corruption. Small and medium-size enterprises, seen as the backbone of the economy, were starved of funds. Service was highhanded and inefficient. Depositors had little incentive to keep their money in the banks when they were paid such a pittance on their savings. Moreover, the banks were reluctant to innovate in areas such as payments.
Frustrated regulators welcomed reform and competition as a spur to get the banks to change their conservative and complacent ways. Alibaba moved quickly to fill the gaps left by the banks. One example was its Yu'E Bao money-market fund, which, within a year of launch in mid-2013, had swelled to become the biggest public fund. This was partly because the minimum amount required was 1 yuan, and also in part because customers could redeem instantly.
But things went too far. Loose regulations in fintech created a climate in which scams and fraud flourished at many peer to peer lenders. Ordinary people who entrusted their savings to these outfits saw their money wiped out, jeopardizing social stability. The experiments in such hands-off reform were reversed.
And as far back as two years ago, it was clear that the warning signs were building up across a range of Ant's operations. The "light touch" shown by state regulators was ending.
In 2018, for example, when Ant raised capital from foreign investors, it acknowledged that regulations going forward were likely to mean that the Yu'E Bao fund would register slower growth in the future, according to documents seen by this journalist.
Over time, regulators became concerned. Internet finance was becoming too successful, too big to fail, and too likely to get in trouble. "The regulatory authorities have legitimate worries about Ant's business model," said Bo Zhuang, chief China economist at TS Lombard. "Giants like Alibaba have grown rapidly, often by exploiting inefficiencies in the state-led economy and scant government oversight."
The state-owned banks appealed to their regulator, the China Banking and Insurance Regulatory Commission. If they were losing market share, they argued, it was because they had to hold five times as much capital as their rivals in the fintech world.
"The banks were right to complain," said Chen of the University of Hong Kong. "They were so tightly regulated, while Ant could do whatever it wanted."
Senior executives at Ant were not oblivious to the threat. Eric Jing, then-CEO of Ant, took every opportunity to tell audiences, including this journalist, that he believed in Ant because fintech meant financial inclusion. And what could be a more worthy goal in the eyes of the Party?
When Ant released its offer memo, it took pains to underscore its role as a partner, not competitor, of the banks -- one that would enable them to lend to the small and medium-size companies that they had previously shunned. Still, Ma clearly underestimated the extent to which he was regarded as a threat. The backlash was inevitable -- but far harsher than anyone at Ant could have anticipated.
One of the first signs that the powers that be were not on Jack Ma's side was when the central bank announced a digital currency last spring. That was a clear indication it saw the dominance of Alipay, Alibaba's digital payment system, as a systemic risk.
But it was the microlending that was to prove the more serious challenge for Ant on the eve of the listing. New draft rules from the CBIRC, which Ma had criticized at the Bund forum, meant that Ant will now have to contribute at least 30% to any loan it makes alongside partnering financial institutions. Currently, Ant only retains about 2% of the outstanding credit balance for loans it originates, according to its prospectus. The remaining 98% is underwritten by partner financial institutions or securitised, the company said.
"This will require a complete overhaul of its existing business model, under which it has acted as a facilitator of the loan rather than the provider of credit," said Bo.
Too visible, too wealthy
Ma's great strength was his ability to see past the dull reality. That allowed him to envision an e-commerce empire in China long before the internet had even made headway there. He was born in 1964 in Hangzhou, the capital of Zhejiang Province near Shanghai, to a simple, working-class family and was educated locally. That would allow him to argue later in life that, in contrast to so many of the elite figures in the mainland business world, he was 100% "made in China."
A love of English literature acquired by listening to shortwave radio made him decide to major in English at a local college (after failing the entrance exam twice), honing his skill by practicing on foreign tourists who flocked to his still-unspoiled home city on West Lake with its temples and tea gardens. Inevitably, his first startup in Hangzhou was a translation agency.
A trip to the U.S. in 1995, sponsored by the Hangzhou government, exposed him to the internet and inspired him to establish his second venture, a company creating websites for local businesses. But competition with a rival company backed by state-owned Hangzhou Telecom was too severe, prompting the frustrated entrepreneur to move to Beijing and join an internet company there with backing from the Ministry of Foreign Trade and Economic Cooperation. There, he found himself a "fish out of water," as his biographer Duncan Clark describes it.
He returned to Hangzhou, and in 1999 established Alibaba. Shortly thereafter, he convinced Joe Tsai, a Taiwan-born, Yale-educated lawyer, to join him in building the young company. The two have built Alibaba together, Tsai's common sense and attention to execution balancing the mercurial temperament and visionary instincts of Ma himself. When the investment arm of Goldman Sachs approached the pair as they considered taking a stake in Alibaba, that same year, it was Tsai who convinced the investment bank to do so.
In the early years, Ma and Tsai were able to attract money both from Yahoo's Jerry Yang and Masayoshi Son of SoftBank Group, even when it was by no means obvious that Alibaba would become the juggernaut it is today.
But Tsai could not always control his less down-to-earth partner. On one of the Chinese Entrepreneur Association's outings on West Lake, Ma boasted of his relationship with President Xi Jinping. When word eventually made its way back to Beijing, the leader was not amused, according to one person who was there.
Many years later, when Ma was the speaker at the Economic Club of New York, the person seated next to him at the lunch preceding the event asked him whether businesspeople in China had much contact with political leaders such as Xi Jinping. Ma replied in the affirmative, explaining that because Xi was once party secretary of Zhejiang the two were quite close.
A corporate minder immediately denied the account, even though several attendees had heard the remarks.
Yet Ma has also been a wonderful public face for China. He hosts international leaders, who make a special point of visiting Alibaba's headquarters in Hangzhou for a glimpse of the internet's future. From time to time, he shows up at the annual government-sponsored Boao Forum in Hainan. He gives inspiring speeches about creating jobs for small entrepreneurs globally. His actions can support the government, such as in his 2016 purchase of Hong Kong's leading English-language newspaper, the South China Morning Post.
At the end of the day, though, this was never quite enough.
Indeed, the suspension of the Ant IPO sends a chilling warning to numerous entrepreneurs about the dangers of becoming too conspicuous and too wealthy. Ma is merely the latest in a series of entrepreneurs who suffered sudden misfortune at the hands of the authorities. In virtually all cases, they had made powerful enemies whose vested interests they had damaged. In some cases, they fell afoul of Beijing because of relationships with other business or political figures that were the subject of anti-corruption investigations.
Five years ago, for example, Guo Guangchang, a co-founder of Fosun International, the Chinese conglomerate which owns stakes in international assets such as Club Med, Cirque du Soleil, and Deutsche Bank, disappeared for four days. It later transpired that he had been held for questioning.
The matter has never been fully explained. Guo has said only that he had been "assisting authorities with an investigation" -- allegedly into the misdeeds of another Shanghai-based businessman or politician, depending on the source of the information.
When he surfaced days later, at a meeting of the Chinese Entrepreneurs Association, he tearfully embraced his peers but remained tight-lipped, several of them said at the time.
Since then, he has remained low-key. In the summer of 2017, regulators questioned the banks on their financing offshore trophy transactions for a quartet of sprawling companies including Anbang Insurance Group, HNA Group and Dalian Wanda Group along with Fosun. "The recent scrutiny on overseas investments and financial irregularities is necessary, timely and can eradicate a lot of irrational investment. If we do not take measures, foreigners will see us as 'silly people with lots of money,'" he penned supportively on an official Fosun social media account.
Wu Xiaohui, the founder of Anbang, was not so fortunate. The growth of his insurance company came at the expense of his rivals as he issued countless wealth management products to fund his overseas forays. One trophy purchase was the Waldorf Astoria hotel in New York, for which he paid $1.95 billion in late 2014 and gave its operator, Hilton Worldwide Hotels, a 100-year management contract. In addition he snapped up insurers and a bank in Europe, an insurer in Korea, stakes in Chinese banks and properties including a portfolio in Japan and a Long Island mansion at which he rarely stayed.
Today, the CBIRC is selling down most of these assets. Wu himself was jailed in 2018 for 18 years on charges of fraud and embezzlement.
Going after Ant and Ma, its controlling shareholder, is an entirely different matter, given its huge scale and powerful investors. The list of shareholders hoping to reap vast gains from the promised listing includes the great and the good of global finance: Canada Pension Plan Investment Board, Carlyle Group, GGV, General Atlantic, Sequoia Capital and Warburg Pincus on the international side. The domestic side, meanwhile, embraces the heart of China Inc.: China Investment Corp., the country's sovereign wealth fund, China Life, China Pacific Life Insurance, China Post Group, National Social Security Fund, all according to the offer memo for the now-aborted listing.
"Dramatic as the suspension was, it forms part of a wider political drive as the leadership seeks to widen and consolidate its control over finance and technology," said TS Lombard's Bo.
Ma, now 56, had long told associates that he wished to retire early, to focus on philanthropy and education. He voiced dismay when he returned from a trip to New York about six years ago, saying that he visited with aging executives who refused to move on, and that he himself planned to relinquish the stage while he was still relatively young.
Precisely because Ma was such a visionary, he could see the future. But precisely because he was creating something without precedent, he never saw that the rules of the old world he was challenging might one day apply to his new world. In the end, what he considered bravery, the powers that be considered too brash for their liking.