Question: What lessons should we draw from the decision to halt the Ant Financial IPO?

Douglas A. Jaffe

This Ant decision feels like an opening salvo in the battle between the Chinese banks/regulators/leadership and its powerful tech firms. The CCP is trying to figure out how to regulate these tech giants who are increasingly dominant in so many areas, not least of which is underwriting loans, for which they do not take on much actual risk themselves. Interestingly, this is something Western countries are going to have to tackle as their tech and fintech leaders start to get more deeply entwined in the financial services sector. These Western firms, like their Chinese counterparts, also dominate social media and personal data collection/analysis, which adds a further layer of complexity and risk to their remaining outside formal regulatory structures.

This IPO decision seems unique to China and we should not extrapolate this out to the broader IPO market. It is unlikely to have a material impact on the pace of listings in Hong Kong/China or in foreign investor interest in China. The hunt for yield and growth tends to outweigh tail risk events like a cancelled IPO. However, foreign firms in partnership with Ant or Tencent will be re-evaluating those relationships and would do well to track closely the changing regulatory environment as regards all things fintech.

Alastair Campbell

The financial regulators in China are keenly aware of the risks inherent in the rapidly evolving digitally enabled financial platforms of which Ant is unquestionably market leader. As in other jurisdictions, it is a challenge for regulation to keep pace with technology, and Jack Ma’s ill-considered remarks in March effectively accusing regulators of slowing the pace of innovation were bound to give rise to intense scrutiny of the Ant IPO.

The IPO prospectus shows clearly that Ant subsidiaries involve very many sectors of financial services: Payment and lending platforms including microfinance, insurance, and asset management, and provided extensive access to the personal data of clients. Yet Ant had failed to register a financial holding company with adequate reserves to act as the umbrella for these multiple entities and multiple risk factors, creating radical uncertainty about the group’s risk management capacity. A failure by one or more subsidiaries could therefore dramatically impact the stability of the group and its stakeholders, not to speak of its huge customer base.

William Hay

At first look, the decision to block the Ant IPO reflects official concern that the pace of regulation has not kept up with innovations in the marketplace. Jack Ma created what would have been the world’s most valuable bank by challenging China’s asset-based, SOE-focused financing model. Ant Financial’s explosive growth has relied on big-data and artificial intelligence to allow banks to offer an expanded range of financial products to consumers based on their capacity to pay, rather than the assets they may have to pledge.

Recent regulatory initiatives represent a rational attempt to create an effective framework to effectively manage Ant Financial’s explosive growth. It also seems likely that the suspension of the IPO reflects official concern over the emergence of a powerful economic force that is not fully part of the Communist party structure. While Ant Financial may yet complete an IPO, it is likely to do so at less than half the expected valuation, and with the party more thoroughly in charge.

Tim Clissold

The cancellation of the Ant IPO exposes a deep theme in Chinese financial regulation. China experienced its first banking crisis in the eleventh century and since then it has been ingrained in the minds of all officials that ‘finance should serve the real economy’ rather than the other way round. Chinese regulators are still deeply wary of integrating China’s financial system into the global economy, with all the complexity of the financial instruments that preceded the GFC. Meanwhile, we can see push back against the bonus culture in the investments made by Chinese financial players in Hong Kong.

In China’s struggle to make finance serve the real economy, a major concern is the avoidance of ‘regulatory capture.’ Ant was just too big and too new for the regulators to take the risk, so it has been squashed before it was ever unleashed. That is consistent with the broader concepts of Chinese regulation. What is more surprising is the timing. But the collegiate style of Chinese decision making often becomes bogged down in the face of complex and subtle decisions, with individual officials reluctant to show their heads above the parapet. Mr. Ma’s unusually candid remarks may have galvanised the system and removed the blockage by freeing deadlocked officials to coalesce around a decision – or it might have attracted the attention of people so high up that the collegiate system didn’t matter. Whatever the real reason, Mr. Ma has been left to sweep up the wreckage.