There is a popular joke on social media \”If you owe a bank few thousand rupees in loan it is your problem. But if you owe a bank a few hundred crores it is the bank\’s problem.\”
Jack Ma, the multi-billionaire poster boy of China\’s tech dreams, said the same thing differently in his speech on 24th October 2020 at a summit attended by elite in China\’s power circles \”As the Chinese like to say, if you borrow 100,000 yuan from the bank, you are a bit scared; if you borrow a million, both you & the bank are a little nervous; but if you take a loan of 1 billion yuan , you are not scared at all, the bank is,\”
Jack Ma’s blunt words cost him USD 35 billion as in the aftermath, the Chinese government pulled the plug on Ma’s Ant Group IPO and he was reportedly missing from the public domain for over two months.
The Alibaba founder has been all over the news lately for multiple reasons.
Ant Group is a Chinese financial services company co-founded by Jack Ma, which offers a one-stop solution for bill payments, financial investment, loans, and other financial services with over 700 million monthly users. The proposed Ant Group IPO in November 2020 was set to be the largest IPO in history, beating even Saudi Aramco’s USD 29.4 billion IPO.
What went wrong for the Ant Group IPO?
A few weeks before the Ant Group IPO, Jack Ma criticized the Chinese-run banking industry in a summit held in Shanghai on 24th October 2020. In his speech, Jack compared the country\’s banking industry to those with a \’pawn shop mentality\’. With these words, he meant that the government is too risk-averse and slow to innovate.
However, these words did not go too well with the top officials from China’s financial, regulatory and political establishment and set off a chain of events.
A few days later, the government pulled the plug on Jack Ma’s Ant Group\’s IPO.
Alibaba Founder, Jack Ma’s rags to riches story
According to Forbes, Jack Ma is one of the wealthiest people in China with a net worth of USD 58.4 billion. But he was not born with a silver spoon in his mouth. He had worked up his way to success and built a colossal empire brick by brick.
Early life, education and career
Born as Ma Yun on 10th September, 1964 in Hangzhou, one of the most populous cities in China\’s Zhejiang, province. His interest in studying the English language at an early age helped him work as a guide for foreign tourists. It is believed that one such foreign penpal nicknamed him Jack considering the difficulty in pronouncing his Chinese name.
After completing his graduation, Jack Ma took up teaching English and international trade at Hangzhou Dianzi University. His dream of studying at Harvard Business School, never materialized as was rejected over ten times.
Despite applying for over 30 different jobs, including KFC and the police service, Jack had to face rejection. At KFC, 23 out of 24 applicants who had applied with him got selected. He was the only one who was rejected.
Early rejections had taught him many important business lessons. In a speech at the University of Nairobi, Jack Ma once said: \”You have to get used to failure\”.
On a trip to America in 1995, when he searched for the word \”beer\’ online, Jack saw multiple pages in English and even few in other languages in the search results, but no information related to Chinese websites on the same topic. Jack realised the internet\’s potential and saw the dearth of domestic web sites as a great business opportunity. After returning back, he founded one of China\’s first internet companies that created Chinese businesses websites.
In 1999, Jack Ma co-founded Alibaba with a team of 18 friends and an initial investment USD 60,000 based on his belief that the B2B internet market had much greater potential for growth than the B2C internet market.
To instil greater confidence in online sales, Alipay was created in 2003. The rapid growth of Alibaba was rapid attracted the attention of the American Internet giant Yahoo which bought a 40 percent stake in the company.
Alibaba went public in 2007 by listing on the Hongkong Stock Exchange and raising USD 1.7 billion. Alibaba\’s 2014 IPO on the New York Stock Exchange helped the company raise USD 21.8 billion and gave it a steep market valuation of USD 168 billion, which was unprecedented for any internet company.
In the same year, a holding company called Ant Group was formed to serve as the parent company to Alipay and roll out various financial services, like loans and wealth management.
In September 2018 Jack Ma announced that he would step down as chairman of Alibaba in 2019, though he would remain on the board.
Jack Ma’s fallout with the government
The fallout between the government and Alibaba came out in the limelight soon after Chinese regulators pulled the plug on Ant Group’s IPO days before its launch in November 2020 citing lack of compliance with government regulations including fixing capital shortfalls.
After months of intense speculation about the billionaire\’s plight after his absence from limelight, Jack Ma recently resurfaced during an annual event he hosts to recognize rural educators.
In the video of the event circulated online, Jack revealed his intentions about spending more time on philanthropic activities.
China’s closed internet space which is highly regulated and censored gave a unique platform to companies like Jack Ma’s Alibaba and technology platforms like Weibo, WeChat and Baidu to grow and prosper quickly.
The Chinese online payment system, is mainly dominated by two players, Ant and WeChat Pay with over 80% market share.
According to an article published by the Nikkei Asia, in the year 2019, Ant controlled 55% of China\’s USD 29.9 trillion volume of online payments, whereas its main comeptitor, Tencent’s WeChat Pay\’s share stood at 38.9%.
By using big data and dynamic credit risk management, Ant has managed to keep its loan delinquency rate low at approximately 1-2% which is considered significantly lower than that of financial companies and banks in the country.
Ant Group’s Alipay, manages a giant financial ecosystem which includes investment, lending, and insurance products and caters to vast majority of people in China. Due to its mammoth size, Ant Group’s has become an important entity in the Chinese financial industry. However, being a fintech company it was not subject to the stringent regulatory purview applicable to banks in the country. In a country with government owned or controlled model for large financial institutions, Ant’s exceptional success is unusual. Hence a move to oversee large fintech companies by the country’s regulators was probably in the pipeline from a long time.
On one side, while the regulatory action leading to the Ant Group IPO suspension may be aimed at preventing companies like the Ant from dominating the country\’s financial sector, on the other side, it may be a message to reign in Jack Ma.
As they say \”Be careful with your words. Once they are said, they can be only forgiven, not forgotten”.
But then for a man who is well known to be outspoken and has built a billion-dollar empire from scratch, does it matter?
Check out our previous article: How My Love For Astronomy Made Me A Better Equity Investor here.