SinoInsight 1
March 1
Highlights from the Bloomberg article include:
- “Ant is bracing for departures after it pays bonuses in April, people familiar with matter said …”
- “… several Chinese tech giants that compete with Jack Ma’s businesses for talent have seen their shares soar in recent months, generating big gains for employees with stock options. Arch-rival Tencent Holdings Ltd. has climbed about 16 percent in Hong Kong trading over the past four months, while E-commerce giant Meituan has jumped 25 percent. Kuaishou Technology has surged 173 percent since its February listing.”
- According to Bloomberg’s sources, “Some Ant employees who joined the company in the run-up to the planned IPO have quit rather than hold out for a revival of the listing … Others are stressing over their personal finances after buying cars or paying down payments on new homes in anticipation that the IPO would be a success …”
- Bloomberg Intelligence analyst Francis Chan “lowered his estimate for Ant’s valuation three times since the IPO was scuttled. He now pegs the company’s net worth at less than $108 billion, about 60 percent lower than the level implied by Ant’s listing plan last year.”
Key points in the article include:
- “Ant had agreed to provide some information to a state-backed database on the 500 million customers who have taken out loans, including their personal identities, monthly borrowing amounts and debt repayment statuses … But the company has shared little of its data and the PBoC is unhappy with its progress, according to people with knowledge of the matter.”
- “Chinese officials have also complained of a lack of detail in the data Ant has shared and the frequency with which it does so … ‘A person who borrows once a month has a different risk profile from a person who borrows 10 times,’ said a former PBoC official involved in fintech policymaking. ‘The current data sharing schedule isn’t enough for us to figure out who is more creditworthy.’”
- “Beijing has asked Ant for greater disclosure, with the PBoC calling data collected by internet platforms a “public good” that should be regulated more closely … Ant has agreed to share its consumer credit data on Jiebei and Huabei with the CRC in a ‘step-by-step’ manner, said people with knowledge of the situation.”
The Hong Kong Lands Department’s unannounced land sale to Jack Ma alludes to special privilege, and qualifies as a mini-scandal for the latter.
3. After being named China’s richest man for two consecutive years (2019 and 2020), Jack Ma slipped to fourth position in the 2021 Hurun Global Rich List, falling behind Nongfu Spring’s Zhong Shanshan, Tencent Holding’s Pony Ma, and Pinduoduo’s Colin Huang. Hurun noted that Jack Ma did not make the top three “after China’s regulators reined in Ant Group and Alibaba on anti-trust issues.”
OUR TAKE
1. Increasing government regulation and scrutiny are taking their toll on Jack Ma and Ant Group.
Things will only grow more difficult for Ant when new draft rules regulating online micro-lending business in China are put in place. According to draft rules announced by the central bank and the China Banking and Insurance Regulatory Commission on Nov. 2, small online lenders must provide at least 30 percent of any loan they fund jointly with banks. At the time the draft rules were announced, Ant was self-funding only 1 to 2 percent of its loans, or driving 1.8 trillion yuan in joint loans through 36 billion yuan in on-balance sheet loans. To meet the 30 percent ratio, Ant would require nearly 20 times what it has now in capital (540 billion yuan in on-balance sheet loans plus 170 billion yuan worth of asset-backed securities) to offer 1.8 trillion yuan in joint loans. Also, to meet existing loan leverage requirements, Ant would require a capital adequacy ratio similar to that of banks.
As we previously explained, Beijing is regulating Ant to avoid being saddled with immense financial risks generated by the latter’s business model, while Ant and Jack Ma retain all the upsides. Meanwhile, Ant and Ma are holding out on handing over the entirety of its consumer data to the Chinese Communist Party authorities, so as to preserve its business secrets and advantage.
2. Factional struggle in the CCP is another reason why Jack Ma and Ant Group are showing “reluctance” in cooperating properly with Beijing.
We wrote in December 2020 that Xi Jinping faces increasing political risks in moving against China’s internet and tech giants because they 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.” In particular, Jack Ma is connected to the Jiang faction by way of former Party boss Jiang Zemin’s grandson Jiang Zhicheng (or Alvin Jiang), whose Boyu Capital invested in Alibaba and Ant and stood to profit substantially from Ant’s suspended IPO. The Jiang faction was the dominant political force in the CCP regime from 1997 to 2012, and almost certainly had a hand in the massive success of big and older financial or tech giants in China.
We noted earlier that damaging information about CCP elites often finds its way to overseas media around crucial periods such as key political conclaves (see here and here). It is thus unsurprising that news indirectly alluding to the fierce factional struggle between the Jiang faction and the Xi camp are being reported by mainstream Western and overseas Chinese news outlets in the lead up to the Two Sessions this week (see here and here).
News that Jack Ma and Ant are “defying” Beijing counts as damaging information for Xi Jinping. Ma’s reported defiance, along with news about how Jiang Zemin remains “a force behind the scenes,” could have originated from sources connected with the Jiang faction.
Such “trial balloons” could be intended to inform Western establishment elites that the Jiang faction and Xi’s other factional rivals approve of the recently released plan for the U.S. and its allies to be “anti-Xi, not anti-CCP.” American elites on Wall Street and in politics—whom PRC scholar Di Dongsheng referred to in bragging about the CCP’s elite capture—established more ties with Jiang faction officials than Xi camp officials given the former’s nearly two decade-long dominance over the CCP regime. Further, overseas media “leaks” that benefit the Jiang faction will find their way back on the mainland and encourage domestic resistance against the Xi leadership; for instance, Party princeling Cai Xia revealed that 70 percent or more of CCP officials support “reform” and disapprove of the direction in which Xi has taken the Party.
Meanwhile, news of Jack Ma enjoying special privileges in Hong Kong signal that he is losing political clout and “untouchability” with the Xi leadership. While Ma did not technically break any Hong Kong laws in his land purchase mini-scandal, the fact that the news was “leaked” in the first place indicates that he is being put on notice. Should Ma continue to resist the authorities or if Xi moves more boldly against Ant and Ma, the overseas press could find itself privy to even more damaging information about the various parties embroiled in the Xi-Jiang struggle.
3. Ant Group and Jack Ma’s prospects are bleak as politics dominates financial and economic considerations in the CCP regime.
On the one hand, Ma and Xi’s factional rivals are not inclined to surrender easily to Beijing’s regulations and demands. Huge business, financial, and political interests are at stake, and Xi’s opponents risk ceding ground and leverage that they may never regain by caving too readily to regulators. Besides, despite having consolidated power to a great degree, Xi is not automatically assured a third term because he lacks “quan wei.” Put another way, Xi does not have the stature or accomplishments of Mao or Deng despite holding more titles and positions than either. He still needs to justify to the Party why he is deserving of another five more years at the 20th Party Congress in 2022 despite a dearth of achievements and the implementation of policies that have severely set the regime back both domestically and on the international scene. Hence, Xi’s rivals and Jack Ma have strong incentive to “wait out” the end of Xi’s second term, and even engineer his exit from office.
On the other hand, Xi Jinping cannot allow Ant to go forward with its IPO under its current business model, and will not allow his factional rivals to gain an advantage over him. To do so will saddle the CCP regime with massive financial risks and enrich Xi’s rivals, two developments that cut against Xi’s interests as the factional struggle comes to a head in the lead up to sensitive periods for the regime like the CCP centennial celebrations in July and the decisive 20th Party Congress next year. Xi would rather greatly weaken Ant and deny his factional rivals, even if it means that the PRC’s prestige and finances will take a hit. Securing a third term necessitates harsh, unpopular actions, and Xi has shown that he will make them in imposing a national security law over Hong Kong and targeting Chinese business elites with risky operations like Wanda’s Wang Jianlin and Anbang’s Wu Xiaohui.
Ant Group and Jack Ma’s future is uncertain. Continued, unjustifiable resistance to Beijing could see Ant and Ma suffer the fate of Anbang or Tomorrow Group, where the leading executive is detained or “disappeared,” and regulators take over the company’s operations. Ant could survive a take over if it is lucky, but would have to become more like a bank or traditional financial institution. In the worst case scenario, Ant could find itself being split up and “restructured” like Tomorrow Group or Anbang. Xi Jinping can expect to face massive pushback from the Jiang faction and other powerful Party interest groups should he be forced to take drastic measures to rein in Jack Ma and Ant Group, especially with the Xi-Jiang struggle entering the “perish together” (同歸於盡) phase.
SinoInsight 2
Yin Zonghua, a deputy director of the Hong Kong, Macau, Taiwan and overseas Chinese committee of the Chinese People’s Political Consultative Conference, is being tapped for a position in the Hong Kong Liaison Office, according to Hong Kong media reports.
Yin, 56, could replace retiring official Qiu Hong as Liaison Office deputy director in charge of economic affairs, trade, and PRC-run institutions.
OUR TAKE
1. Qiu Hong (60), the official whom Yin Zonghua is reportedly replacing, did economic and trade work in the PRC State Council before serving as assistant to the commerce minister from 2008 to 2013. After Xi Jinping took office, Qiu became a deputy director at the Macau Liaison Office, before being appointed to her current position in the Hong Kong Liaison Office in 2014.
Yin Zonghua spent the bulk of his career in the PRC commerce ministry, where he gained international experience at the PRC mission to the European Union and the World Trade Organization. In August 2014, he returned from the WTO to serve as deputy chairman of the China Council for the Promotion of International Trade, before being appointed to his current position in March 2019. If reports about Yin Zonghua’s upcoming transfer to the Hong Kong Liaison Office are accurate, then it somewhat parallels Hong Kong and Macau Affairs Office director Xia Baolong’s move last February; Xia was a CPPCC vice chairman before his transfer to the Hong Kong and Macau apparatus.
The personnel reshuffles in the PRC’s Hong Kong and Macau apparatus since early 2020 indicates that Xi Jinping is prioritizing loyalty over working experience. While Xia Baolong and Yin Zonghua were CPPCC deputy directors with the Hong Kong, Macau, Taiwan and overseas Chinese portfolio, they are not part of the Hong Kong and Macau apparatus per se because “sinecure,” “second line” (二綫) CPPCC officials are not involved in day-to-day “frontline” (前綫) Hong Kong and Macau operations. Factional struggle factors (see the next point) compel Xi to pick officials with low or no political allegiances to the Jiang Zemin faction and who are loyal to him for key positions in the Hong Kong and Macau apparatus. Officials with prior working experience in the Hong Kong and Macau apparatus are suspect as they are more likely to be aligned with Jiang faction interests and could potentially sabotage Xi’s interests. By picking officials with no background in Hong Kong and Macau apparatus work, Xi is better assured that the Hong Kong intelligence he receives is more reliable and that his orders are more faithfully executed.
The personnel reshuffles in Hong Kong affirm a trend that we identified in our China 2020 Outlook.
2. To most observers, Xi Jinping and the CCP’s recent sharp crackdown in Hong Kong seems like the naked ambition and dictatorial tendencies of one man. This conclusion, however, does not account for CCP elite politics and the “perish together” factional struggle between the Jiang faction and the Xi camp.
At the onset of the anti-extradition bill movement in 2019, we laid out the factional struggle dimension in Hong Kong that has been playing out in the background since Xi took office in 2012. The Jiang faction, which long controls Hong Kong, sought to engineer or leverage various crises in the city to put pressure on Xi and force him to step down. A potential “nightmare scenario” that the Jiang faction would love to deliver Xi is “counter-revolutionary” (pro-democracy) chaos in Hong Kong that spirals out of control, forcing Beijing to order a Tiananmen-style suppression leading to major bloodshed. The Jiang faction and the “anti-Xi coalition” would then take advantage of international pressure to call for Xi’s resignation.
Even allowing moderate “counter-revolutionary” resistance in Hong Kong is too risky for Xi. The pro-democracy camp’s landslide victory in the 2019 district councillor elections was a stark warning to Xi that the city could very well wriggle out of Beijing’s grasp. The incident would also have sharply raised Xi’s suspicions of the Jiang faction-swayed PRC intelligence institution and Hong Kong and Macau apparatus; it is unlikely that Beijing would have “allowed” the district councillor elections to be held if it was not led by the aforementioned organs to believe that a majority of the Hong Kong people still supported the pro-establishment camp and the PRC central government. Prominent personnel reshuffles in Hong Kong began shortly after the 2019 local elections, and continue to this day.
Xi Jinping is undoubtedly aware of the disaster that his factional rivals could bring to his reign so long as the Hong Kong situation is not brought under control. When juxtaposed with another Tiananmen in Hong Kong, the de facto revocation of the “one country, two systems” arrangement and evisceration of the territory’s freedoms is the lesser of two evils for Xi. The result is Beijing’s ever tightening control over Hong Kong, including the imposition of the National Security Law over the city and the creation of a “supra-authority” regime security apparatus. Simultaneously, Xi is purging the Hong Kong and Macau apparatus of the lingering “toxic influence” (餘毒) of the Jiang faction and installing officials in Hong Kong whom he is more inclined to trust. With the 20th Party Congress coming up in 2022 and a third office term on the line, the only politically sensible choice for Xi is to strengthen authoritarian rule over Hong Kong and deny the Jiang faction any opportunities to turn the city into a “counter-revolutionary” and “anti-Xi” base.
