Why China Halted Ant’s I.P.O., Dealing Jack Ma a Blow

This was supposed to be the week that one of China’s biggest tech companies threw the most lucrative coming-out party in history, sending a swaggering message about the country’s economic might during the pandemic.

Instead, China sent a different message: No private business gets to swagger unless the government is on board with it.

Regulators pulled the plug Tuesday on the initial public offering of Ant Group, the internet finance giant, which had been all but ready to press “Go” on its $34 billion stock debut in Shanghai and Hong Kong.

The I.P.O. would have brought in more cash than did Saudi Aramco, the state-run oil giant, when it went public last year. And Ant would have raised the money on the opposite side of the planet from New York, which has long been the favored listing destination for Chinese tech groups.

But by firing a last-minute torpedo at Ant and Jack Ma, the company’s controlling shareholder and celebrity founder of the e-commerce titan Alibaba, the authorities made clear that international bragging rights mattered less than ensuring private companies know where they stand next to the state.

Ant sits at the intersection of two industries — finance and tech — that are facing intense scrutiny everywhere. American officials are circling the giants of Silicon Valley, plotting a reckoning for the power they wield over commerce and society.

Yet in China, the authorities under Xi Jinping, the country’s top leader, have brought a steely, uncompromising edge to their tactics for enforcing the Communist Party’s will.

Globe-straddling conglomerates have been leashed. A tycoon was disappeared into custody. In September, Ren Zhiqiang, a wealthy, politically connected property developer, was sentenced to 18 years in prison after he criticized Mr. Xi for the government’s handling of the coronavirus.

After Mr. Xi declared war on food waste this year, the official news media and video platforms turned against streamers who recorded themselves chowing down on extravagant spreads — a niche category of internet fame, but a remunerative one for its stars.

“What happened to Ant reinforces that sense that it’s really essential to show respect for party-state authority,” said Kellee S. Tsai, the dean of the School of Humanities and Social Science at the Hong Kong University of Science and Technology. “Capitalists have to play by the political rules of the game.”

For many businesses in China, this has been a year to be thankful — all things considered — for the government. Economic growth is bounding back. The authorities are keeping the virus largely under control.

Ant filed to go public in August, nearly a decade after the company was spun out of Alibaba. Ant’s Alipay app is used by more than 730 million people every month. It has become a major portal for personal credit, loans, investments and insurance in addition to a payment tool. But getting to this point was a long journey for Ant, one with numerous dust-ups with regulators.

More controls were already on the way. China’s banking and insurance regulator discussed new rules for online lenders in September. Tighter supervision of financial holding companies was scheduled to go into effect on Nov. 1.

Late last month, as Ant’s mega I.P.O. was coming together, Mr. Ma made an appearance at a financial conference, the Bund Summit in Shanghai. He spoke after bigwigs including Wang Qishan, China’s vice president, and Yi Gang, the central bank governor.

“Our next speaker needs little introduction,” the host said. “He says he came to the Bund Summit today to throw a bomb.”

A camera catches Mr. Ma standing up from his seat and shrugging, as if caught off guard.

“I’m not throwing any bombs,” he said once he reached the podium. “Who would dare throw a bomb?”

He then proceeded to throw several bombs. He roasted financial regulators for being obsessed with minimizing risk, even though, he said, “there is no innovation in this world without risk.” He accused China’s banks of behaving like “pawnshops” by lending only to those who could put up collateral.

The audience applauded politely as he left the stage. But state-run news outlets criticized his remarks in the days that followed.

After Ant set the listing price for its stock, investors stampeded to place orders. More than five million people applied in Shanghai alone. The total number of shares they wanted to buy was 870 times the number being offered.

But on Monday evening, financial regulators announced that they had summoned Mr. Ma and other company executives for a meeting. In a shock announcement the next night, the Shanghai Stock Exchange called time on the I.P.O.

One wag on social media called Mr. Ma’s remarks in Shanghai “the most expensive speech in history.”

It was not a speech he had been under any obvious obligation to give. Mr. Ma retired from Alibaba last year and has no formal role in Ant’s management. His net worth has been estimated to be more than $50 billion.

In recent months, his public work has had to do with fighting the pandemic, improving rural education and empowering entrepreneurs in Africa. At the Shanghai summit, he was introduced as a chairman of the U.N. High-Level Panel on Digital Cooperation and a U.N. Sustainable Development Goals advocate.

By opining on financial regulation, Mr. Ma struck at a sensitive subject. In recent years, China has reined in a proliferation of fly-by-night online loan operations. The country had 5,000 such lenders not long ago, according to regulators. By the end of September, there were only six.

This week, the state news media framed the decision to suspend Ant’s I.P.O. as a prudent one taken to protect investors.

Andrew Collier, the founder and managing director of Orient Capital Research, said he believed that protecting China’s big government-run banks was a factor in the move. Banks pay Ant fees to help them extend credit to customers they might not otherwise serve, but at a cost to their own profitability.

“My personal view is that the banks were looking for an excuse to nip this in the bud and also give them adequate time to try to get their own online operations up to speed,” he said.

Mr. Collier added: “Twenty years ago, when China needed global capital more, and was also much less confident about its own scope in the world,” the leadership “would have been very loath to do this, because it would make them look indecisive.”

Today, China’s leaders care less about how their actions look overseas than about fulfilling domestic priorities. The rupture with the United States on trade, technology and other fronts has led the Communist Party to reaffirm Mr. Xi’s broad mandate to steer China through turbulent times.

“They are trying to figure out a balanced course between opening and maintaining control in this entirely new environment,” said Minxin Pei, a professor of government at Claremont McKenna College. “Coming out of Covid, even though China has done well, there’s a lot of unknowns ahead.”

“The sentiment is one of uncertainty, caution,” Mr. Pei said. “When you have Ant, which is truly gigantic, which will allow people to move money around a lot more easily, with very little transparency, really — that can worry the hell out of them.”

On Friday, Ant was in the process of refunding investors who put down money for a piece of the thwarted I.P.O.

Sha Sha, 33, an insurance broker in Hong Kong, borrowed more than $20,000 to get in on the action. She applied to buy 2,500 Hong Kong shares at around $10.30 apiece, but was allotted only 50 shares.

She had been excited to take part in such a historically significant listing. Now she is more circumspect.

“It definitely feels like there are greater uncertainties,” Ms. Sha said. “In half a year, if there are new listing plans, I will be more careful and put more thought into it.”

Cao Li contributed reporting.

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