Analysis: Beijing hits Jack Ma and Alibaba again. Why?

Katsuji Nakazawa is a Tokyo-based senior writer and columnist at Nikkei. He spent seven years in China as a correspondent and later as the China bureau chief. He is the 2014 recipient of the Vaughn-Ueda International Journalist’s Award for International Reporting.

TOKYO – Chinese e-commerce giant Alibaba Group Holding is in the news again.

On Monday evening, the state-run Xinhua News Agency reported that four government agencies had conducted “joint regulatory negotiations” with the Alibaba Ant Group subsidiary. The four were the People’s Bank of China, the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission, and the State Administration of Foreign Exchange.

One remarkable aspect is the way the invocation has been explained.

The state-run Xinhua News Agency reported that Pan Gongsheng, vice-governor of the central bank, answered reporters’ questions on behalf of the four departments.

Q: What was the reason the financial authorities questioned Ant Group again?

A: The fifth plenary session of the 19th Communist Party of China Central Committee, the Central Economic Labor Conference and the ninth meeting of the Central Finance and Economy Committee made it clear that there is a need to strengthen the antimonopoly and ” prevent the disorderly expansion of capital, and effectively prevent risks.

This is the new slogan the party has been defending since October – curb market monopolies and prevent the disorderly expansion of capital – and not the existing law that was cited first.

The key point here is that Alibaba founder Jack Ma Yun and Ant Group, which Ma controls, are not being criticized for further mistakes. Rather, it is the significant change in party leadership that is at the origin of the questioning.

Past acts that were tolerated are no longer tolerated.

The summons says President Xi Jinping is extending the tactics he used in his signature anti-corruption campaign to private companies.

The need to eliminate corruption has always been mentioned within the Party. But it was usually just that, talking.

Xi was different because he made a decision made by the party and used it as a banner to enforce existing rules more strictly. With these rules, he suppressed influential political enemies, even those at the highest echelon of China.

A long dormant antimonopoly law was suddenly and strictly enforced on Saturday in the form of a record fine of $ 2.8 billion on Alibaba, or 4% of Alibaba’s domestic sales in 2019.

Ant, the financial arm of Alibaba best known for its smartphone-based Alipay electronic payment service, was forced by regulators to delay its double listing in Shanghai and Hong Kong in early November, causing shock waves in global markets. .

In Monday’s talks, the four regulators asked Ant to transfer all financial operations, including the Alipay service, to a new financial holding company to be created later and subject them to strict control and oversight. from the authorities.

This is the third time in less than six months that Chinese regulators have summoned Ant executives for questioning.

Ma and Ant executives were first summoned for questioning in early November, when Ant’s plan to raise more than $ 34 billion in the world’s largest public offering was blocked. at the last minute.

In December, Ant executives were summoned again. What was unusual was how public each of the announcements was.

Alibaba Chairman and CEO Daniel Zhang Yong on Monday dismissed the idea that the latest sanction would have a negative “material” impact on the company’s operations.

But sources suspect that some political issues could be involved.

In China, where the party has all the levers, questioning the leaders of a company foreshadows an unfavorable fate. Asked twice, then a third time?

The $ 2.8 billion question is why the leadership changed its position.

A natural assumption would be the approach of the next national congress of the party, in 2022, where Xi is expected to extend his reign.

Thanks to the fierce anti-corruption campaign, now in its eighth year, Xi has consolidated his political position within the party. But he has yet to tighten his grip on the business world.

If Xi felt uncomfortable with the private sector, trauma could be what happened in Shanghai in the summer of 2015.

A stock market panic sent the benchmark Shanghai Composite down 8%. To deal with the emergency, management deployed senior public security officials to price-hold operations.

A team of investigators led by the then Vice Minister of Public Security (police) entered the building of the China Securities Regulatory Commission in Beijing’s financial district and declared a strict joint crackdown on malicious short sales.

The team then flew to Shanghai, the economic hub of China, and began investigating individual trading companies and others suspected of illegally manipulating stock prices.

The police presence indicated that Xi’s management team had detected a puff of politics behind the whole affair.

This leadership team is now urging private companies to step out of the fence, show the flag, and support Xi’s political agenda, as they did for party members earlier in the anti-corruption campaign.

Jack Ma has always tried to maintain a certain distance. When he delivered a speech in Shanghai in October, Ma expressed his opposition to the policies of the financial authorities. He specifically said the country’s old financial regulations were a drag on technological innovation.

Ma had close ties to the Chinese “princelings”, the children of the Party leaders, the “second generation reds,” a small group of children whose parents joined the revolution before the establishment of the People’s Republic in 1949 and guan er dai, children of civil servants.

Xi himself is a second-generation red, being the son of former Vice Premier Xi Zhongxun. Hangzhou, the capital of Zhejiang, where Alibaba’s headquarters are located, is a picturesque city where Xi spent many years as a senior provincial official.

But there is clearly a gap between Xi and Ma, in part because of their personal relationships.

Alibaba’s rapid growth was supported by Chinese executives before Xi took the lead. Ma had particularly strong ties to the “Shanghai faction,” a group of people close to former President Jiang Zemin.

The Shanghai faction is also referred to as the “machine building industry faction”. Jiang was originally an engineer for the First Ministry of Machine Building Industry and a factory of FAW Group, a public automobile manufacturer headquartered in Changchun, Jilin Province.

For years, the Shanghai faction has strongly influenced the industrial sphere. But with Xi having quickly concentrated power, forces not close to Xi have seen their political influence drastically eroded.

Their economic and financial influence is another matter. Children, grandchildren and other relatives of party elders retain a certain voice, and people close to the princelings are said to have significant stakes in the ants.

But as Xi aims to extend his rule, he must take control of the economic realm, as he did with the political realm.

Ma sensed the dangerous nature of the Xi era early on and decided to step back from the frontline of Alibaba leadership when she was relatively young. He now appears in public much less often than before.

There are concerns about Ma’s future. “Even though he is safe now,” said one expert, “there is no guarantee that he will remain so in the future.”

Many influential business leaders have been suddenly sent to prison over the past eight years. Among them, Wu Xiaohui, a senior official at Anbang Insurance Group, a private insurer that quickly became the third largest player in China.

Wu was detained shortly before the National Party Congress in 2017. He was eventually sentenced to 18 years in prison. Like Ma, Wu is an entrepreneur born in Zhejiang, who remarried the granddaughter of former Chinese Supreme Leader Deng Xiaoping.

As Wu’s case clearly shows, connections to second-gen princelings or reds don’t necessarily guarantee security in the Xi Era.