Ant Group’s IPO and the Rising Tide of Authoritarianism

November 5, 2020

According to NPR Ant Group, a massive Chinese financial technology company, was suddenly halted from listing on the Shanghai Stock Exchange just days before the IPO date. NPR reports,

“What was supposed to be the world’s largest initial public stock offering has been halted at the last minute. The Chinese financial company, Ant Group, was set to go public on Thursday. The IPO was expected to raise an estimated $37 billion and boost Ant’s market value to in excess of $300 billion.”

The Chinese authorities used vague language in their reasoning to justify stopping the IPO. The official statement from the Chinese regulators (translated using Google Translate) goes as follows

“Recently, it happened that your company’s actual controller, chairman and general manager were jointly conducted supervision interviews by relevant departments, and your company also reported major issues such as changes in the financial technology regulatory environment. This major event may cause your company to fail to meet the issuance and listing conditions or information disclosure requirements.”

The incredibly vague language cites “major issues” and “failure to meet information disclosure requirements.” Majority owner Jack Ma and Ant Chairman Eric Jing were both summoned to talk with regulators.

Alibaba shares dropped 8.1%, its biggest decline since 2015, and sent financial shockwaves throughout the market. Alibaba owns 33% of Ant Group with Alibaba co-founder, Jack Ma, owning another 50%.

Financial Times reports,

One broker in Hong Kong said the suspension would cause “quite profound” damage for retail investors. “I’ve never seen an IPO suspended at this stage,” said a director at one Shanghai-based brokerage, who suggested it was a “very last-minute thing”.

“It’s in no one’s interest to cancel the [completed share] allocations at this stage,” the director said. “I don’t think there’s any precedent for this type of situation.”

Diving Deeper

Although the cancellation of the IPO is certainly a negative development, the move was very likely a political move rather than a legal one.

The problem is that Jack Ma, China’s equivalent of Jeff Bezos, has made plenty of comments disparaging China’s public financial systems, making the case for an innovative company like Ant Group.

NPR reports that Ma remarked

“China does not have a systemic financial risk problem. Chinese finance basically does not carry risk; rather, the risk comes from lacking a system,” he told those gathered for a finance conference in Shanghai. “China today needs policy experts, not paper pushers.” In his comments, Ma also dismissed Chinese banks as “pawnshops” giving loans out to companies “that do not need money. As a result, many good companies have turned into bad companies.”

Such comments happen all the time in a free society. In fact, they are incredibly productive and allow for basic progress. However, in an authoritarian system like China, such comments threaten the egos as well as the legitimacy of the Chinese Communist Party.

CNN Business reports that Ma also made the following comments regarding Chinese state banks,

“What we need is to build a healthy financial system, not systematic financial risks,” the Ant Group co-founder said at a conference in Shanghai. “To innovate without risks is to kill innovation. There’s no innovation without risks in the world.”

Again such remarks here in the United States would be seen as classic and timeless insight from a visionary entrepreneur, at least for now. Jing and Ma’s comments are by no means unfounded. China’s publicly-owned banks have serious problems as would any nationally owned institution, especially those operating under such a system as expansive and arbitrary as China’s. Even here in the United States, we have had our own problems with government intervention in the financial sector. One does not have to look further than the Federal Reserve as well as Fannie Mae and Freddie Mac, which were all instrumental in the 2008 housing crisis.

However, in return for insightful comments Ant Group’s IPO was abruptly stopped and its executives were promptly summoned to have a “talk” with regulators. Suggesting that the Chinese state banks were nothing less than perfection would likely cause more questions to be asked. Such behavior is reminiscent of a Communist regime because, well, it is one.

The Trappings of Authoritarianism

Private entrepreneurship is essential to innovation and prosperity. Although Chinese regulators and even politicians here in the United States might say otherwise, banking also performs best when left to the market.

However, that doesn’t seem to be the point at issue in this situation. CNN Business reports that Chinese media put out statements that read

“Financial Big Techs — increasingly seen as rivals to traditional banks — will inevitably be subject to more supervising curbs,” reported state-run tabloid The Global Times reported, citing experts.

State-run news agency Xinhua was definitive in its assessment: “Each participant in the market must respect the rules, and no one can make exceptions.”

These vague statements do little to mask the authoritarian underpinnings behind the decision to stop the IPO. First and foremost it’s all about power. It challenges the legitimacy of the state when a private firm can outperform the seemingly perfect Chinese Communist Party. Such sentiments are mirrored by those like Senator Bernie Sanders who said that he doesn’t believe in private charity because such services should be carried out by the state.

The vague language to mask the overtly political intentions of the decision is also another facet of authoritarian government. There can be little doubt that Ma and Jing’s critical comments of the Chinese banking apparatus caused concern for the easily offended Communist party. In another article, I discussed how trigger-happy authorities were in the Soviet Union to persecute their own citizens.

Such arbitrary, vague, and undisciplined arguments are making themselves known here in the United States. Although such practices are general features of authoritarianism, we can see such behavior most notably with the way the establishment deals with Covid-19. When an event happens that doesn’t conform to their political desires such as the Sturgis Motorcycle Rally in South Dakota or an anti-lockdown protest it’s labeled a “superspreader event” and every single detail becomes a problem. Meanwhile, attending a racial-justice protest is not a problem, which is what the Governor of Pennsylvania did.

Furthermore, the Chinese Communist Party has launched a new campaign to tighten its group on the private sector calling for more loyalty. Jack Ma has regularly worked with the Chinese government to improve the efficiency of the economy in the past but things are clearly taking a turn for the worst. It is very likely that the Chinese government believes that keeping control of the population will become increasingly difficult given international scrutiny and rising living standards. Economic freedom and personal freedom are closely intertwined. It is very difficult to maintain either without the other and oftentimes the advent of one will lead to a desire for the other.

Such calls for national economic unification are starting to make themselves known here in the United States as well. On the left, there is the Green New Deal along with a myriad of other policies that suggest that private companies should follow a national agenda or risk demise. Sadly, such calls for what is essentially industrial policy have emerged on the right as well. At first, brought into popularity by Trump’s protectionist rhetoric, the national conservative movement seeks to cement such command and control ideas into the intellectual mainstream.

Such policies not only denote a step in the direction of the Chinese but also go against the principles of sound economics. No society ever regulated its way to prosperity and to curb economic freedom requires restrictions on personal freedom as Ant Group just discovered.

Key Takeaways

The abrupt cancellation of the Ant Group IPO was a financially disruptive event that acted as a show of force from the Chinese Communist Party. Ant Group is a highly innovative and successful financial company, which means little to the Chinese government. Jack Ma in particular has often voiced his opinion on how to improve the Chinese economy. However, that privilege seems to be coming to an end. Such an occurrence may signal growing anxiety in China over maintaining control of its population as the economy continues to expand.

Although China may seem like a far-off place, authoritarianism is on the rise here in the United States. The cost of liberty is eternal vigilance, and today there is a growing tide of economic illiberalism that seeks to betray core economic principles. Such an onslaught will not only leave us economically worse off but as we have just seen in China, suppressing economic freedom also requires suppressing personal freedom.

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