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How China Lost Patience with Its Loudest Billionaire - YouTube
Channel: Bloomberg Quicktake: Originals
[0]
I never worry about the regulations.
[2]
Why not?
[3]
Because I know I'm a good boy.
[4]
I've interviewed Jack
Ma at least four times
[7]
over the last 25, 30 years.
[11]
In 2005, this was still at
early goings for Alibaba,
[14]
I asked him how he stays
ahead of the regulators
[17]
and he says...
[18]
The government loves me,
[19]
because I'm helping
them to create business.
[22]
He had that brashness back in 2005.
[25]
So that brashness has now come back
[29]
and kind of nipped the
showman in the rear end.
[33]
Over two decades ago,
[35]
Jack Ma co-founded Alibaba.
[37]
Today, it's China's e-commerce giant
[40]
and one of the biggest
companies in the world.
[44]
But recently, Ma and his tech
empire have been in trouble.
[48]
In April, Alibaba was fined
[50]
a record $2.8 billion
for monopolistic conduct.
[54]
Its affiliate Ant Group,
[56]
which Ma holds a controlling stake in,
[58]
was ordered to overhaul its business
[60]
after the abrupt suspension
of its IPO in November 2020.
[65]
This was looking like a fairy-tale listing
[67]
for Ant Group, but there's
now been a significant twist.
[70]
And since then, Ma has laid low.
[73]
Just being quiet is
something very notable,
[76]
that we think of when we think of Jack,
[78]
we think of him as very loud, brash.
[81]
And so we're all a bit shocked
when he's not speaking.
[84]
But Alibaba and Ant are
not the only tech firms
[87]
in the sights of Chinese regulators.
[90]
I think this is a watershed moment
[92]
for China's tech industry.
[94]
Some would say that the golden days
[97]
of China's internet age
is practically over.
[101]
So what does the future hold
[103]
for China's tech giants?
[111]
It's become the stuff of legend.
[114]
In 1995, during a trip to the
U.S., the then-English teacher
[118]
Jack Ma had his first
encounter with the internet
[122]
at a friend's place in Seattle.
[123]
I searched the first word, beer.
[129]
I don't know why. Because
it's easy to spell maybe.
[131]
And I see beers from
Germany, beers from USA,
[135]
beers from Japan, but
there's no beer from China.
[139]
Back home, he started China Pages,
[142]
a Yellow Pages-like website,
but it didn't take off.
[145]
By 1999, the internet stock
boom had gripped Wall Street.
[149]
And back in his Hangzhou apartment,
[152]
Ma decided to try again.
[154]
With his wife and a
small group of friends,
[156]
Ma set up Alibaba,
[158]
a site that allowed businesses
to sell stuff to each other.
[162]
In the same year, a newly
established company, Tencent,
[165]
released its first product, OICQ,
[168]
an internet messaging service.
[171]
Alibaba came along.
[173]
Tencent came along.
[175]
They grew in certain
areas, like in gaming.
[177]
Alibaba grew in e-commerce.
[179]
But then their services
[180]
just started mushrooming and mushrooming.
[183]
Alibaba and its affiliate
Ant, along with Tencent,
[187]
these are the twin pillars
of China's internet industry.
[192]
You can think of their influence
[195]
in terms of the products that they offer.
[198]
So think of the most
powerful mobile internet apps
[202]
in the U.S.,
[203]
and Tencent would be a
combination of all of them.
[206]
Tencent's WeChat, for example,
[209]
which is just one of its main services,
[212]
is a combination of WhatsApp
[214]
combined with services from
Uber, Spotify, Snapchat,
[219]
there's also elements of TikTok
[221]
and financial payment
services like PayPal as well.
[226]
Alibaba is best known for
being an e-commerce giant,
[230]
but the company has expanded
[232]
so much beyond just its core business.
[235]
It has businesses in sectors
like logistics, entertainment.
[241]
Think of the biggest
blockbusters in the U.S.
[245]
"Mission: Impossible" was
financed by Alibaba Pictures.
[248]
So it's a very powerful conglomerate.
[252]
Tencent and Alibaba's apps
[254]
are used by a combined 1 billion people.
[257]
Each company has a market cap
[259]
over half a trillion U.S. dollars,
[262]
and they've poured billions
into Chinese tech startups.
[266]
Startups have to face the duopoly,
[268]
and often they have to take
money from one of the two camps.
[272]
And it's almost like an
offer that you can't refuse.
[276]
Not taking money from
them can be detrimental.
[280]
And if either Alibaba or
Tencent decides to invest
[284]
in your competitor, the
consequences can be quite dire.
[288]
Other than that, when
it comes to services,
[291]
e-commerce players often do complain
[294]
that they have to choose
between e-commerce platforms.
[298]
It could be either Alibaba or its rivals.
[304]
For over a decade,
[305]
the Chinese government allowed
the internet sector to grow
[308]
with little oversight
[309]
as it wasn't yet considered
an essential industry.
[313]
Beijing also hoped that
expansion of these companies
[315]
could spur China's economy.
[317]
Using the model of combining U.S. capital
[321]
with China's best entrepreneurs
and also brainpower,
[325]
China's internet sector or tech sector
[328]
just grew into this giant
behemoth that overnight
[332]
by the time the government
[333]
realized that it had gotten so big,
[335]
it was already out of their
control, some would say.
[340]
The ability for them to
amass large amounts of data
[344]
and combine it with
artificial intelligence
[347]
gives them key insight
into 1.4 billion people
[351]
and also key industries,
economies of the country,
[355]
which is really something
that's at the core
[358]
of the ruling party's concern.
[361]
If these companies venture
beyond the edge of control,
[364]
there is a risk that these companies pose
[368]
to the ruling Communist Party.
[369]
And power is at the core of everything
[373]
and the priority for the ruling party.
[377]
China putting the brakes
on the world's biggest IPO.
[380]
Ant Group's listing in
both Shanghai and Hong Kong
[383]
have been suspended.
[384]
And this is really a
stunning turn of events.
[388]
It was the most anticipated
initial public offering
[392]
on record, and the money
was piling up to go into it.
[397]
So in that essence alone,
[400]
it was a dramatic
about-face from regulators
[403]
because it had already
been given the go-ahead
[406]
by securities regulators and
in the 11th hour it was pulled.
[411]
This was going to be a
$30-plus billion IPO,
[415]
but it all came apart
[417]
after this speech, of course,
in Shanghai by Jack Ma,
[420]
where he criticized the
regulatory environment.
[432]
He criticized state banks
[434]
for operating like pawn shops.
[437]
And he didn't read the room very well,
[439]
because the audience at the
Shanghai Bund conference
[441]
was full of government officials.
[443]
They did not take kindly to this.
[446]
The Ant IPO debacle is the tipping point.
[448]
And obviously, the
underlying policy tensions
[451]
have been there for a really long time.
[452]
So a lot of tension had been building up
[455]
in the past 10 years.
[457]
It just until this really smart event
[460]
that the whole balance was tipped.
[466]
Ant is China's largest fintech company,
[469]
created in 2004 as a payment service
[471]
to facilitate transactions to Alibaba.
[474]
The company has expanded its business
[476]
into wealth management,
credit lending and insurance.
[480]
In the year to June 2020,
[482]
it managed to process $17
trillion worth of payments.
[486]
And at one point it had the
largest money market fund
[489]
in the world.
[490]
There has been a lot of complaints
[492]
from the state-owned lenders
in the past few years
[495]
about how Ant is
encroaching on their turf,
[498]
especially in lending and
also wealth management.
[501]
And the banks are held to
a different set of rules
[505]
that are much more stringent
[507]
whereas Ant has been able to sidestep
[510]
a lot of these stringent rules
[511]
by playing the role of
a fintech disruptor.
[515]
And they added micro lending.
[517]
And I say micro lending is just a name
[521]
for prolific, mega, many,
many different small loans
[526]
to shoppers across the many
different platforms of Alibaba.
[531]
That posed significant risks
[533]
because Alibaba only funded
about 2% of those loans,
[537]
and the rest of those loans
[539]
were securitized by the state banks.
[542]
They took on the big risks.
[545]
Just the day before Ant's IPO suspension,
[548]
regulators released strict draft rules
[551]
for online microlenders
[553]
that would require Ant
to provide at least 30%
[556]
of the funding for loans
it underwrites for banks
[559]
and other financial institutions.
[561]
That evening, Jack Ma was
summoned by regulators
[565]
for a meeting.
[566]
What we learned was that while
they didn't discuss details
[570]
of the IPO, the message was clear,
[572]
which is that the free-reining
days of Ant's business
[576]
was coming to an end, and
things were about to change.
[579]
That was probably the first inkling
[581]
that things were not going
to go according to plan.
[584]
But the writing on the wall
was actually already out there
[590]
in the months proceeding that.
[592]
There were a slew of rules
that already were rolling out
[596]
since September that
curbed Ant's loan business.
[601]
After Ant's IPO suspension,
[603]
the company was ordered
to overhaul its business,
[606]
turning it into a
financial holding company
[609]
with similar regulations to a bank.
[611]
Regulators also launched an
anti-monopoly investigation
[615]
into Alibaba.
[616]
In addition, there's
also said to be scrutiny
[620]
of Jack Ma's growing media empire.
[623]
He owns the South China
Morning Post in Hong Kong.
[626]
He owns at least 30% of the
social-media platform Weibo,
[632]
which is like a Twitter of China.
[634]
He also has another media, Yicai,
[637]
which is a very large media company
[640]
that has an online presence in China.
[642]
Regulators are said to
be looking very closely
[645]
at the influence Jack Ma
[648]
and Alibaba through those
holdings of media businesses
[651]
has on Chinese society.
[654]
Some would say that it's
the Chinese government
[657]
that likes to have the final say
[659]
in what information the public gets.
[666]
Since the collapse of Ant's IPO,
[668]
Ma, the face of China's new economy
[671]
and the showman who always
takes center stage, vanished.
[676]
Jack, are you there?
[680]
Jack?
[682]
Doesn't look there's anyone inside.
[683]
He may be not showing
up, but he's not missing.
[687]
He hasn't been captured.
[689]
He hasn't been taken.
[690]
Like many entrepreneurs in China,
[693]
Ma had been walking a tightrope,
[695]
balancing sometimes conflicting
demands from Beijing
[698]
and foreign investors who
are eager to see growth.
[702]
For many years, Jack Ma branded himself
[705]
or tried to create this image
where he was a rebellion,
[709]
where he revolted against the system,
[712]
and was a troublemaker
fighting for the little guys.
[717]
In love with the government,
but don't marry with them.
[719]
I mean, this is...
[720]
He's also extremely savvy,
[722]
always appealing to the greater good,
[723]
trying to convince the government
[725]
why his company and the
services that they provide
[728]
are good for job creation in China
[730]
and also for China's image.
[733]
It wasn't until earlier this year, 2021,
[738]
that Jack Ma reappeared.
[739]
He was talking about philanthropy,
[742]
and the tone in which he gave his speech
[744]
was so much more modest and humble
[748]
compared with his speech in October.
[751]
He was doing something that the government
[753]
wants a man who is
worth $54 billion to do.
[758]
And that is to talk
about poverty alleviation
[761]
and building up and investing
in rural areas of China.
[765]
These are messages the
Communist Party of China likes.
[769]
You know, 10 years ago,
[770]
I mean, it was a very
different, or 15 years ago,
[772]
very different government back then.
[774]
You had much more of a laissez
faire towards technology.
[778]
You had also ineffective regulations
[780]
or often overlapping
regulations, sometimes gaps.
[785]
And Jack, I think assiduously
exploited some of those.
[787]
Contrast that to today,
we see much less tolerance
[791]
for regulatory problems.
[794]
China's government has
really upped its game.
[796]
You can no longer just bash government
[797]
in the way that he did.
[799]
So maybe Jack just didn't realize
that the game had changed.
[805]
Just five months
[806]
since the sudden collapse of Ant's IPO,
[809]
regulators hit Alibaba with a record fine
[812]
for monopolistic conduct.
[814]
Ant is now in the process of an overhaul.
[818]
Is the Chinese government
trying to limit Jack Ma?
[821]
They don't want to limit
the national champions, OK?
[824]
But they probably want to
knock Jack Ma's public profile
[829]
down a notch a little bit.
[831]
So I don't think Alibaba is
radically going to change.
[833]
Its core will remain e-commerce.
[835]
But I think for Ant,
yes, it's very different.
[838]
What can Ant be without
this lucrative data business
[842]
and lending business?
[843]
That's a big question.
[844]
The Chinese government
[845]
has also launched an investigation
[847]
into suspected monopolistic practices
[849]
by food-delivery behemoth Meituan.
[853]
32 other tech firms like Tencent
[855]
and TikTok owner Bytedance
[858]
have been ordered to rectify
anti-competitive behavior.
[862]
I think the regulatory uncertainty
[863]
is going to be at the backdrop
[865]
of just about every big tech story
[869]
for the foreseeable future in China.
[872]
From the government's standpoint,
[874]
I mean, it's not in their
interest to see the tech companies
[877]
to become smaller and weaker.
[879]
It's just a different direction
[882]
that the government wants these
companies to move forward.
[885]
The antitrust regulation
will give smaller companies
[890]
the opportunity and the room to grow,
[892]
which is important.
[893]
The trend where governments
are trying to rein in
[898]
tech companies and break
down monopolistic practices
[903]
is global.
[904]
I think in China what differs
is that the tech companies
[909]
have no power to fight back.
[911]
When the government cracks down on them,
[914]
ironically, what we saw with Alibaba
[916]
is that they thanked the government.
[918]
And that is something
that I don't think Google
[921]
or Facebook is doing
in the U.S. right now.
[925]
The end of the day,
[927]
the Chinese government has the final say,
[930]
and bend the knee or get broken.
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