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In Jack Ma’s Ant IPO, Political and Economic Problems Intertwine for Xi

◎ The WSJ report alludes to serious splits in the CCP elite, something that parties with vested interest will be keen to exploit.

On Feb. 16, The Wall Street Journal published an article claiming that “a big reason Xi Jinping blocked Ant’s enormous IPO is because it would have enriched politically connected families he views as potential rivals,” according to the summary of another Journal reporter. 

Key information in the piece include: 

  • “In the weeks before the financial-technology giant was scheduled to go public, a previously unreported central-government investigation found that Ant’s IPO prospectus obscured the complexity of the firm’s ownership, according to the officials and government advisers, who had knowledge of the probe. Behind layers of opaque investment vehicles that own stakes in the firm are a coterie of well-connected Chinese power players, including some with links to political families that represent a potential challenge to President Xi and his inner circle.”
  • “Those individuals, along with Mr. Ma and the company’s top managers, stood to pocket billions of dollars from a listing that would have valued the company at more than $300 billion.”
  • “Before the probe, regulators at the central bank were already worried about Ant’s business mode. The company owns a mobile payments app called Alipay that is used by more than a billion people. It gives Ant voluminous data on consumers’ spending habits, borrowing behaviors and bill- and loan-payment histories, which the company has used to build a financial-services giant …  But it hasn’t had to follow the tough regulations and capital requirements that commercial banks are subject to.”
  • “Some of Ant’s investors and the way their stakes were structured set off alarm bells as regulators … One is Boyu Capital, a private-equity firm founded in part by Jiang Zhicheng, the grandson of former Chinese leader Jiang Zemin. Many of Mr. Jiang’s allies have been purged in Mr. Xi’s anti-corruption campaign, though he remains a force behind the scenes.” 
  • “Another stakeholder with ties to Mr. Jiang, part of what is called the ‘Shanghai faction,’ is a group led by the son-in-law of Jia Qinglin, a former member of the Politburo Standing Committee, the top echelon of the Communist Party.” Jia has “strong ties to Jiang Zemin.”

Our take: 
1. The WSJ report confirms our analysis of why Xi Jinping suspended Ant’s IPO last year. To recap: 

Nov. 4

  • We rejected speculation at the time that Ant’s IPO was scrapped due to a petty feud between Jack Ma and Wang Qishan, Xi’s closest ally, over the former’s seemingly “politically incorrect” remarks. Information in the WSJ piece indicates that Xi is concerned with the Jiang Zemin faction’s involvement in Ant’s IPO because he does not want to “funnel enormously lucrative financial stakes” to chief rivals. 

Nov. 12

  • We wrote that “the rapid development and growing scale of big tech companies in China, as well as their market monopoly, pose a threat to CCP rule.” This is because “private tech companies like Alibaba and Tencent collect and disseminate information and data on a massive scale, and “compete” with the CCP for control over societal surveillance. Also, the scale of capital operations and financial holdings of some fintech companies, like Alipay and WeChat Pay, weaken the central bank’s currency and capital controls.” 
  • Also, “the CCP fears a scenario where Chinese big tech companies accumulate enough money and resources to become serious political challengers. Thus, Beijing is preemptively stepping in to regulate tech companies and their online platforms to mitigate the Party’s financial and political risks, under the guise of safeguarding the Chinese people’s interests.”
  • Information in the WSJ article about how CCP regulators are concerned with Ant’s business model affirms our analysis. 
  • We noted that “China’s big tech companies, backed by members of the ‘red aristocracy,’ have amassed so much capital and assets (data) that are legitimate threats to Party Central.” This is affirmed by the revelation of the Jiang faction’s role in Ant’s IPO in the WSJ report. 

Dec. 22

  • We wrote that Xi Jinping “faces increased political risks by moving against Chinese internet and tech giants. These giants are usually backed by members of the ‘red aristocracy and strong factional forces, and the CCP elite will not take too kindly to Beijing infringing upon their interests. While the Xi leadership regulates internet and tech giants to strike a balance between profit generation and de-risking, vested interests will inevitably be hurt by the central government’s actions. Resentment will likely escalate the CCP factional struggle and hasten the end of the ‘red’ dynasty.” 

Jan. 25

  • In analyzing Xi’s speech to the Fifth Plenary Session of the 19th Central Commission for Discipline Inspection, we wrote, “Xi is also very specific in detailing how corruption/factional struggle will endanger the regime in his observation that ‘political problems and economic problems are intertwined’ and its threat towards the regime’s ‘political security.’ This could be an oblique reference to the phenomenon of monopolistic, ‘too big to fail’ private Chinese companies like Alibaba and Ant Group engaging in risky financial activities with serious implications for regime security, and how these companies and their top executives have the backing of powerful CCP elites, some of whom are Xi’s bitter rivals and are willing to engage in ‘perish together’ tactics to win the CCP factional struggle.”


2. The Xi-Jiang factional struggle has been the most consequential political development in CCP elite politics since 2012. We have elaborated on the Xi-Jiang struggle at length in earlier special reports (see here and here) and in past articles. A brief recap, however, is required to contextualize the information in the WSJ piece. 

Many big players in the PRC financial sector are either Jiang faction members or associates. They made their wealth during the Jiang faction’s era of dominance (1997 to 2012), where corruption (“以貪治國”) and “making a fortune while keeping a low profile” (“悶聲發大財”) were the political orthodoxies of the day. Those political orthodoxies and the deficiencies of the CCP’s authoritarian state capitalist system laid the foundation for severe problems to develop in China’s economy and financial sector, leaving Xi Jinping to inherit a basket case situation when he took office in 2012. 

Xi needed to institute economic and financial reforms to turn things around in the regime, but could barely do anything with the Jiang faction still in control over key sectors in the PRC, as well as crucial Party and state organs. Hence, Xi launched his anti-corruption campaign to purge the Jiang faction, “rectify” the CCP regime, and consolidate power to facilitate the successful implementation of his policies. While Xi appears to be all-powerful and “unrivaled” today, his recent speeches reveal a deep concern with “political security” and the “intertwining” of “political and economic problems.” This suggests that Xi lacks “quan wei” and is far less powerful than depicted by the mainstream media and scholars. Like his predecessor Hu Jintao, Xi has not quite resolved the problem of getting his orders beyond the gates of CCP headquarters in Zhongnanhai (政令不出中南海).

Xi’s power consolidation efforts were also not unchallenged by the Jiang faction and others in the “anti-Xi coalition.” Specific to the economic and financial sphere, the Jiang faction attempted what many Chinese observers believe to be a “financial coup” against Xi during the 2015 stock market turbulence. The “financial coup” led Xi Jinping to step up purges in the financial sector, particularly before and after the 19th Party Congress in 2017, and arrest “white gloves” of the CCP elite like Lai Xiaomin, Ye Jianming, and Xiao Jianhua. The WSJ report cited above indicates that the suspension of Ant’s IPO in November 2020 is the latest high-profile financial case in the PRC to be connected with the “perish together” factional struggle between the Jiang faction and the Xi camp. 

3. As with virtually all reporting on CCP elite politics, the identity of the WSJ’s sources with knowledge of what actually happened with Ant’s IPO are kept anonymous. However, subtle “tells” in the article suggest that the sources are more likely to be associated with the Jiang faction rather than the Xi camp: 

  • The WSJ article notes that Jiang Zemin “remains a force behind the scenes.” It is highly irregular for a mainstream publication to characterize Jiang’s political power in this manner, especially since the nonagenarian has been written off as a political force in the regime by establishment journalists, pundits, and scholars in recent years. Instead, the establishment view is that Xi Jinping is literally “unrivaled” in the regime, with no serious political forces left to challenge him. Put another way, the WSJ’s characterization of Jiang Zemin would not pass the establishment’s “giggle test,” but they went ahead with it anyway. 
  • The WSJ reveals that the family of key Jiang faction members, including those from the clan of faction “godfather” Jiang Zemin, are hurt by Xi’s decision to suspend the Ant IPO. Meanwhile, the Jiang faction is described as a “potential challenge to President Xi and his inner circle.” In other words, WSJ’s sources want the article’s readers to know that there is serious division in the CCP elite and Xi has power rivals. Those sources also want the world to know that the interests of one of the main players in the factional struggle was so badly hurt that they saw a need to go “public” about the feud, even if it means hurting the Party’s image of monolithic “unity” and Xi Jinping; information in the WSJ article is bound to elude censorship and spread back in mainland China. 

We wrote earlier that the various CCP factions tend to leak damaging information about each other in overseas media to gain leverage in factional struggles. The information revealed in the WSJ report is more damaging than helpful to Xi Jinping. For instance, CCP officials are inclined to inaction and procrastination, or “bu zuo wei” (“不作爲”), when they realize that the Party boss is facing a stern political challenge and is less in control than it seems; a key reason why Xi scrapped presidential term limits back in 2018 was to overcome bureaucratic inertia stemming from factional struggle problems. We expect that Xi will face similar “bu zuo wei” problems leading up to the 20th Party Congress, especially if the WSJ’s factional struggle revelations become common knowledge in the CCP officialdom and officials sit on their hands. 

Perhaps more crucially, the WSJ report alludes to serious splits in the CCP elite, something that parties with vested interest will be keen to exploit. The emergence of the “Longer Telegram” report reveals that Western establishment elites want Xi Jinping replaced with a “moderate collective leadership” and see “China return to its pre-2013 path—i.e., the pre-Xi strategic status quo.” If the factional struggle information in the WSJ piece originated from the Jiang faction, then the latter could be signaling to Wall Street and the establishment elites that they welcome the implementation of an “anti-Xi, not anti-CCP” China strategy by the United States.

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