Jack Ma’s Future
Today: From Peak China to the derailing of Ant Financial’s IPO. What I liked and disliked in last week’s presidential election.
The Agenda 👇
2018 was Peak China
2020 is… a different story
What will become of Ant Financial?
Thumbs up/down about Biden beating Trump
2018 feels like a long time ago. Interestingly, it was the year of Peak China, as I explained in My Personal Journey With China:
My mind was blown for the second time by China’s potential while reading Evan Osnos’s Making China Great Again in The New Yorker. I increased the pace of my reading (see my 12 Books on China), and dedicated large chunks of my book Hedge to the idea that maybe China would be to the 21st century what the US had been to the 20th. 2018 was also when Mike Moritz of Sequoia published Silicon Valley would be wise to follow China’s lead and Kai-Fu Lee released his landmark book AI Superpowers. Also, Bill Janeway published a new edition of Doing Capitalism in the Innovation Economy, with significant additions about China.
Two years before, only a few days after Donald Trump’s election, Jack Ma visited the President-elect at Trump Tower. He said they mostly talked about the importance of small businesses for growing the US economy, but it was also perceived as a first round of informal diplomatic talks between the new American administration and the People’s Republic of China. Ma, after all, is a member of the CCP.
Now we’re in 2020, only two years after Peak China and almost four after that Trump Tower visit. And the situation is very different:
There’s the New Cold War, with so-called “China Hawks” having the upper hand in Washington and the now-dominant idea that China is a rival on the global stage.
Then there’s the pandemic, which originated in China but now claims the US as its prime victim, reaching the rate of 130,000 new cases every day.
Trump is on his way out and nobody really knows what to expect from Joe Biden when it comes to China. (Here’s Bruno Maçães’s take: Biden your time.)
And Jack Ma was just squashed by China’s financial regulators, who have brought Ant Financial’s IPO to a halt following a bold speech by Ma about the (real) need to upgrade local regulations in financial services.
The episode reminded me about a strange article by a “China hawk” discussing what becomes of successful CEOs in China if they refuse to play along with the CCP and the submission (and occasional kickbacks) demanded by its cadre (I’m not 100% sure about the source, so take it with a pinch of salt):
The Jack Ma’s of China may be entrepreneurs, but they are as much “Chinese Communist Party (CCP) corporate trustees.” And Ma’s usefulness as a CCP corporate trustee has reached the end of its shelf-life.
Something I find intriguing here is how impenetrable the decision-making process is in China. Lillian Li of the remarkable Chinese Characteristics was reluctant to call the whole thing retaliation for Ma’s incendiary remarks about the backwardness of banking regulators in China. Hers is a much more nuanced take:
Most of the media, however, tells us that it’s about the regulators saving face. They can’t let as successful an entrepreneur as Jack Ma get away with such harsh criticism of the Chinese status quo, still enjoying the biggest IPO in the history of the world. That’s especially true given the current state of the Chinese economy, which is slowly recovering following the pandemic, and of its banking industry in particular—one that’s dominated by state-owned banks with a clear mandate regarding their priorities:
The priority is to serve China’s development strategy, not to make money or comply with prudential regulations. If China’s banking system works as it does, it’s likely because the CCP needs it to deliver jobs, growth, infrastructures, etc.
Indeed, China’s state-owned banks are a question mark for more than one expert, as suggested by the following articles:
Caveat victor - If China's economy is so strong, why isn't its currency stronger? (The Economist)
The new state capitalism - Xi Jinping is trying to remake the Chinese economy (The Economist)
China's Scary Bank Bailouts Rely on State-Owned Shareholders (Bloomberg)
Now you would think that this is just a slight delay and that the largest IPO of all time will soon be back on track. But that’s not what is said here (Bloomberg):
Companies often talk about key-man risk in terms of how the business may suffer if the linchpin executive departs. For Ant, this problem is reversed: Ma hanging around could be the liability.
China’s second-richest man had already stepped away from Alibaba after taking too much of the spotlight away from political leaders. He no longer has any official position at the e-commerce behemoth. Yet he holds voting control and a significant stake in Ant. As with Alibaba, Ma is likely to put his vast holdings into a philanthropic trust, set up charities and think tanks, and retire from public life.
Ant could then rise from its IPO ashes like the patriotic fintech phoenix that Beijing ultimately wants.
I’m monitoring it all rather closely because the Chinese model of building large tech companies is one of the benchmarks we in Europe need to understand if we want to find our own way. We might be shocked by China’s authorities preventing Jack Ma from listing his company; yet at the same time, the whole world, starting with Europe, seems to be converting to the Chinese approach to implementing the transition to the Entrepreneurial Age. Have a look at these:
Western Economies Embrace State Intervention, Emulating Asia (The Wall Street Journal)
China shapes a new U.S. economic era: The return of industrial policy (Politico)
What do you think?
😀 Biden won. And Trump’s attempted coup failed miserably. I’m impressed to see how power has slipped out of his hands. It’s enough that networks call the race, people celebrate Biden’s victory, and heads of state congratulate him, from Macron to Merkel to Netanyahu. Also, this:
🙂 Kamala Harris’s rise to the vice-presidency is incredible news. I love that she’s a woman, of course, and also that she’s the daughter of immigrants (from both Indian and Jamaican heritage), and finally that she’s from Oakland, California. Time to re-read my Kamala Harris and the Future of Silicon Valley.
😏 Georgia’s wasn’t critical to Biden’s victory, but it’s an impressive twist having a Democratic presidential candidate win the state for the first time since 1992. It suggests Democrats have at least two paths to winning more: appeal to Republican voters by becoming more centrist or make sure more Democratic voters actually participate in the election. The latter is what made the difference in Georgia.
😐 The Senate still hangs in the balance. As mentioned last week, many observers in finance and the business world like the idea of a divided government, because it’s seen as a way to prevent the left wing of the Democratic party from taking over. But it’s still a mixed bag as recently written by Goldman Sachs:
For fiscal policy, Senate control is at least as important as the White House. Under a narrow Republican Senate majority, we would expect no major tax increases but also a fiscal stimulus package of less than $1 trillion. With a Democratic Senate, we would expect Congress to enact a fiscal stimulus package of at least double that size regardless of White House outcome, though the size could grow a bit further if Biden wins the White House (to $2.5 to $3 trillion). Tax increases that go to fund additional spending increases would likely also occur under a Democratic sweep, but not under a Democratic Senate and Trump White House.
😒 I don’t really know what to expect now when it comes to Silicon Valley and American politics. Companies such as Facebook will have to stop kow-towing to Republicans for fear of endangering their relationship with the administration. On the other hand, I’m not sure if Biden realizes how much the tech industry has become central in America’s political economy. Here’s Bradley Tusk on that one.
😖 Meanwhile, Brexit is still dragging along. People were appalled that Dominic Raab, the British foreign minister, refused to declare that every vote must be counted. Now Johnson and his team will have to make amends and build a working relationship with the new administration.
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From Normandy, France 🇫🇷
Nicolas
