January 4, 2021 - 11:38am
Jack Ma, flamboyant Chinese billionaire co-founder of ecommerce colossus Alibaba.com and of fintech group Ant Holdings, appears to have gone missing after criticising China’s financial regulations.
Ma has not appeared in public since a controversial speech given at the Bund Finance Summit in Shanghai in October last year, in which he criticised China’s banking regulations. Ma made the speech on 24 October, the day after Ant Group’s IPO listing was priced, and on 3 November, Ant Group’s record-breaking $37bn IPO was suspended. Then on Christmas Eve the Chinese government announced an antitrust probe into Alibaba, citing concerns over ‘monopolistic practices’. Ma has not been seen since.
The prevailing narrative in this story has been one about an autocratic Chinese regime punishing a prominent business figure who dared to speak out. But there are other dynamics at play too. In a commentary in People’s Daily (one of the CCP’s official newspapers) on the Alibaba antitrust probe, Yu Chao notes the importance of the ‘platform economy’ to China’s development, but also its tendency toward market concentration. The picture that emerges has striking parallels in the West — see for example recent antitrust action against Google — and implies a brutal high-level struggle over where power lies in the world’s emerging digital economy.
The Chinese context is distinct from the Western one. Ma’s empire sits across both retail (Alibaba) and finance (Ant Group) and his Bund Finance speech came in the context of the 2018 collapse of Chinese peer-to-peer (P2P) lending platforms, which impoverished many small investors and drove a flurry of suicides. The P2P crisis, Kevin Xu argues, occurred in a lending environment that favours big companies and institutional investors, leaving small businesses limited avenues to access finance and small investors little opportunity to lend.
Hence Ma’s challenge both to the Western regulatory model for finance, which he sees as anti-innovation, as well as to the Chinese government model that he sees as overly centralised. Ma argues instead for ‘orderly regulation’ fit for 21st-century finance, that would enable net-native finance to flourish built around cryptocurrencies.
But as Peter Zeihan notes, “In China, money — capital, to be more technical – is considered a political good, and it only has value if it can be used to achieve political goals.” The Chinese central bank has been instrumental in driving the country’s double-digit annual growth since 1990. The bottomless capacity of a state-backed bank to lend has created an effectively nationalised Chinese economy, which reduced poverty from 88% in 1981 to less than 1% by 2015. This approach has cemented a Chinese social contract that’s broadly accepted heavy social repression in exchange for rocketing living standards.
Now, as the jaws of pandemic-driven global recession begin to close, the model may not be viable for much longer. And yet even as the scope for state-backed finance is shrinking, the prospect of decentralising lending may be too much for a regime that’s long recognised the political power of holding the purse-strings. The attendant risk of creating alternate centres of power, in the form of ‘platform economy’ oligarchs resistant to Party leverage, may have driven the CCP to see Ma’s championing of digital finance as a step too far.
In the West, meanwhile, the US appears to be waking up — somewhat belatedly — to the need for tighter regulation on cryptocurrencies. It’s plausible that the coming decade will see net-native fintech, and associated regulatory environments, emerge as a battleground in the developing cold war between the US and China for position as global hegemon.
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SubscribeI don’t think it is fully appreciated the extent to which the Chinese economy’s winners, particularly in tech, are likely on a collision course with the CPC. I have been saying this for a while. The top-end strata in China will not necessarily view China (and it’s political system) as the vehicle for their goals, precisely because… they are the top-end strata and will have their own personal agendas that will be much more Internationalist.
The Chinese tech giants will all want to expand globally, and they won’t be allowed that if they remain inextricably linked to the CPC. For example Jack Ma is known to be a CPC member, but that wasn’t enough to prevent this setback. It would not be a surprise if many of the founders of China’s tech giants have (secret) ties into the party. There are rumours of Huawei owner’s family in a tangle with the CPC.
The core of the coming global tension is not between nations, but between the globally mobile high-skills, high-end strata and the much much bigger numbers of left behinds. The CPC is not the type of entity to give way in power without a vicious fight. So I suspect the power struggle is just starting between the Chinese tech giants and the CPC. It will play out “two ways – gradually, then suddenly”. And this is not a given, but my money nevertheless is on the tech giants ultimately winning out. Over a half decade timescale. Many playouts are possible. At one extreme, the tech giants in effect almost silently take control of the party machinary and people see no discernible change except different leaders at the top – unlikely I would say. At the other extreme, it all gets very messy indeed with a large number of tech CEOs prosecuted, for everything from tax fraud to sedition in very public trials – with the state grabbing their assets and empires – a throwback to the days of Mao Zedong. The CPC will no doubt aim to pick them off one by one rather than confront all of them at once. I doubt that will be possible.
In any case the fight will have negligible effect on China’s (further) rise as a tech superpower – but it will have some effect on what type relations China has with the rest of the world.
The party leadership and core support is old and traumatised by history. They may have a grip on finance but they can’t understand tech like younger generations and will lose here. Half a decade sounds very fast but you might be right. Another factor will be whose side the nation’s poor take.
China’s tech companies are not on a collision course with the CCP. Jack Ma has had a big mouth for a long time, and his disparaging and self-inflated comments in November in a Chinese public forum, in front of senior Parry officials, could not be overlooked. Given his big mouth, why hasn’t Ma been disciplined earlier? Because many Party officials understand that the new tech in China is a big driver of economic progress, employment, consumer choice and China’s global profile. They are not going to junk all that.
This gives a somewhat rosy view of the Chinese system: the measure is that of extreme poverty, defined as an income of less than $1.90 per diem (in 2011 purchasing power). Welcome news, but not quite as great as it sounds: in 2017 there was still 27% of population living on less than $5.50 per diem.
By contrast, the measures of poverty usually discussed for the UK are strictly speaking measures of inequality: the Child Poverty Act 2010 definition is less than 60% of median household income, for example.
Whichever method of poverty measure you use, the Chinese economic achievement is undeniable, and remarkable. That is the point, however much we may hate their political system. .
Chinese economic achievement is best compared to South Korea, Taiwan and (less directly comparably) Japan. Starting from similar post WW2 living standards those country’s stellar rise makes the Chicom’s rise look pretty sick, never mind the repressive destruction of liberty and the tens of millions of deaths through starvation and murder.
China’s communist government was able to industrialize rapidly through centralized control and technology appropriation. Having acquired the low hanging fruit future growth will test the communist model. Can they maintain innovation, efficiency, growth and centralized control? History suggests not.
This is surreal analysis which seems to miss the point of the story. When the US vanishes Tim Cook or Sergey Brin then we can start making comparisons about the battle between government and tech. Until then some honesty about the real dangers of the Chinese system is required. change.org/searchforjackma
As the article notes: there is a regulatory angle to the move against Jack Ma and Alibaba, in two separate arenas: monopoly, and financial prudence. But neither would have appeared without the third, vital ingredient: namely, the CCP’s anger with Jack Ma’s comments at a conference in November, and their desire to squash him in a very public way. The politics came before the regulatory stuff.
The prevailing narrative in this story has been one about an autocratic Chinese regime punishing a prominent business figure who dared to speak out.
is there a problem with that? Maybe folks in the West have become too comfortable with speech codes, the wokerati, and Big Tech silencing non-leftist viewpoints, but in a sane world, a guy being disappeared is notable.
Especially such a rich powerful man, who else can they Disappear, how many have they already disappeared?
Simplistic analysis. There is no comparison between West and China. West has always frowned on market concentration regardless of industry. Biz elites in the West, in fact any man and his dog, can brutally disparage political leaders with impunity. In a fascist regime like China’s, you do so at your organs’ peril. CCP gangsters will not share power. They have set themselves up pretty: Chinese labor toiled for 4 decades to gain export revenue, with the gangsters sitting atop expropriating labor’s surplus value. This theft is kept in check in the West thanks to free market, secular society and division of political power. To be fair, the CCP pirates have helped Chinese biz grow by banning foreign competition on Chinese soil. The pirates let foreign cos in to enjoy the Chinese market for a while then as soon as IP has been stolen they stop allowing foreign biz operating there freely. Chinese biz got protection from the devil hence must adhere to the devil’s dictates. The real kick in the gut to the West is that protected Chinese biz grew and expanded into the free markets of the West. It’s this access, facilitated by Kissinger and Clinton that gave the CCP wolves the key to the hen house. Once the gangsters are in WTO and other UN bodies, they bought every high end official to serve them. World bank and Wall St financiers taught the gangsters how to rape and pillage Western industries and capital market, circumventing rules and regulations. Then it’s unmitigated access to Western consumer markets that made China the fastest rising economy. Nothing to do with how economic policy at home might have impacted Chinese industry.
Ma is gone coz he lives in a fascist state, the same as Rommel under Hitler. Talent means zip. As far as CCP is concerned, Ma had flourished coz Alibaba had been protected by CCP ban of foreign tech cos. The state giveth and the state can taketh away. Those Western biz that still self delude to try to get into the China market should have ready exit plan. They are not smarter than those that had gone in and got spat out. Their time will come. Given the lessons of the pandemic, decoupling from China is the only rational course. But this must be driven by the people, not elites, coz Western elites already have their snout in the CCP’s trough. Transfer supply chains out of China and prepare for war. Don’t listen to China appeasers. This is the only way to hopefully prevent war – by clipping the CCP’s capacity to wage war and by raising the cost to China if it goes to war. Remember, Xi, a Mao reincarnate, will have his war one way or another before his term is up. It’s best not to grant him capacity to go kinetic. Every dollar the West gives China now is potentially a bullet to be fired at an American or Allied soldier later on soon.