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Photo: Reuters
Photo: Reuters

Why the colour of the ant should not matter

China’s adoption of capitalism was once portrayed as a pragmatic way to achieve success, but its suspension of Ant Group’s IPO suggests a statist instinct that could stifle innovation

In the 1998 animation film Antz, Z, a worker ant tells his therapist that the whole system makes him feel insignificant. “Excellent Z, you’ve made a real breakthrough," his shrink exults, “You are insignificant." The rest of this fictional movie is about a rebellion Z stirs against the command structure of his colony. One thing that Jack Ma’s Ant Group, which had to suspend its $37-odd billion initial public offer (IPO) this week, cannot be described as, is insignificant. It is a fintech major that has used the internet sprawl created by Ma’s Alibaba e-com business and Alipay system to democratize credit in China. But its very scale of operations and financial power might have made Beijing’s mandarins prickly about anything Ma says that sounds out of line to them. Ant’s planned IPO was to be the world’s biggest ever. The official story was that it failed to comply with stock-listing rules. The suspicion is that Ma had simply been too outspoken lately. If this is so, then China’s adoption of capitalism—or “socialism with Chinese characteristics"—could be in for a stress test.

Ant’s IPO was yanked by Chinese bourses just a couple of days before its dual market debut, which was scheduled for Thursday on the Shanghai Stock Exchange’s Star market and also in Hong Kong. The main draft rule that Ant was reported to be in violation of, the need for online lenders to put in at least 30% of the money it lent in association with banks, seemed to be a regulatory after-thought, imposed all of a sudden. So far, Ant has had a capital-light business model as an intermediary that kept only 2% of the loans it extended on its own books. While capital norms for e-lenders may indeed require a look-in, globally, especially with other tech majors like Apple Inc keen to enter this space, observers saw Beijing’s blatant shift of goalposts as payback for his critique of China’s state-run banking sector. Just a few weeks earlier, he had dared lecture regulators on how red tape stifled innovation. Classic “systemic risk" was not the country’s real worry, he argued, scoffing at Chinese banks as collateral-focused “pawn shops", but the lack of a “financial ecosystem". On Monday, regulators summoned Ma and his top brass to give them an earful and a new draft rulebook.

The Ant IPO fiasco appears to reveal a basic incongruity in the Chinese regime’s plan to promote economic expansion by turning the country into a hotspot for innovation. It wants new ideas to flourish, but cannot seem to abide even mild criticism, let alone an open argument against the State’s writ. Had its IPO gone through, the Ant Group would have been valued at roughly $315 billion, making it larger than Industrial and Commercial Bank of China, the world’s biggest bank by assets. Ant’s plan for market penetration, by most accounts, was set to grant multitudes of Chinese access to the luxury of credit in a country where small bank loans are not easily available. It could be argued that its regulators were trying to move ahead of the curve in an online zone that does need closer regulation, lest risks blow out of proportion. But Beijing’s exertion of arbitrary authority over a tech success speaks of a discomfort with private power as much as with the popularity of an enfant terrible whose attitudes often appear to bear Californian rather than Chinese characteristics. Deng Xiaoping once said that the colour of the cat doesn’t matter as long as it catches mice. Today, the hue of the ant should not, so long as it can lift 10 times its weight. It’s called leverage.

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