Ant’s gigantic, over-subscribed IPO is just around the corner – trading will start later this week but the attention it has been receiving is just second to the US election.
Then something happened yesterday (Mon 2 Nov). A short information bulletin on the web site of China Securities regulatory Commission (CSRC) appeared:
“Today, People’s Bank of China (PBOC), China Banking & Insurance Regulatory Commission (CBIRC), CSRC and State Administration of Foreign Exchange (SAFE) have conducted regulatory chat with Ant Group actual controller Jack Ma, Chairman Eric Jing and CEO Simon Hu.”
Actual controller is a term in China which usually refers to the person who exercises real control over a listed company. The person might or might not be a shareholder.
Vice president offended? Not that simple
Some speculate that it has something to do with Jack Ma’s speech last week, where he attacked global financial regulations, said banks had the ‘pawnshop mentality’.
“China doesn’t have a systemic financial risk, China’s finance basically doesn’t have risk, the risk is instead from lacking a system,” he said.
It is worth noting that Ma spoke immediately after the speech of Wang Qishan, Vice President of China (yes officially deputy of Xi), who warned that while fintech brings innovation globally, it also amplifies the risk the whole financial system is facing.
Some are suspecting that Jack Ma’s speech actually angered some at the top. Well, it is more likely that the ongoing tussle between innovation and regulations.
What do regulators think
China’s regulators are especially careful about systemic risk to the financial system, having seen the havoc that brought to China (over the entire history) and other countries (in more recent episodes).
By and large, Chinese regulators are actually pro-innovation, despite complaints from industry players (which are expected unless they are given a free rein). As other regulators in the world, they are playing a dedicate balancing act of innovation and risk. So far, from the innovation that is coming out of China, the balancing act is producing good results.
The ongoing tussle that will keep ongoing
However, the tussle will, and shall, not stop.
The same night of the CSRC announcement, the regulators also released a new set of draft regulations, with terms including:
- In principle internet based micro loan companies are not allowed to operate outside the province of its licence;
- Individuals can’t borrow more than 1/3 of their average annual income over the last three years, with an in principle total cap of CNY 300,000;
- In a joint loan issuance, the internet based micro loan company itself has to provide at least 30% of the total funding;
- Internet micro loan companies need to have a registered capital of at least CNY 1 billion; and with cross-province operations, this requirement goes up to CNY 5 billion
While 1 and 4 combined would probably not hard for Ant to comply, 2 and 3 are probably able to limit the business and leverage significant.
Do note that 4 could harm the whole industry, as most such licensed companies are not as well-capitalised as Ant is.
Anyway, this is just a draft – and haggling is expected. Though the timing of its release, coinciding with the regulatory interview of Ant head honchos, is interesting.
No dent to Ant
Our sense is that this will not impact Ant’s IPO. A warning usually means that you have reached the boundary, but not that you have crossed it. It is not in the interest of Chinese regulators to derail this IPO – and financial regulators are more professional and international-minded than other regulators (which I shall not name).
The boundary can move, as long as the trust and dialogue between the regulators and Ant are healthy and ongoing, nobody should worry too much. Jack Ma has years of experience dealing with regulators, and the only worry is when he is not wearing the execution hard, he might become detached from reality. But he has good, competent lieutenants to handle these.
Ant Group said it would “fully implement the meeting opinions in depth”, and cited a sixteen character guiding principal: 稳妥创新、拥抱监管、服务实体、开放共赢 which looses translates as “Safe and stable innovation, embracing regulators, serving the real economy, open up and win-win”.