Much has been written in the past months about the problems that Jack Ma, China’s maverick billionaire behind Alibaba, ran into last year.
His comments on the Chinese regulatory environment for financial services prompted a clampdown from Beijing and derailment of Ant Group’s IPO from Shanghai and Hong Kong at the very last minute.
Since then, Ma has largely disappeared from the public eye and is reportedly spending time on his hobbies, laying low and avoiding the spotlight.
Less attention, however, is paid to the consequences the Chinese government’s strike against Ant is going to have in and out of China — particularly in Southeast Asia, which is a natural market for expansion of Chinese technology companies.
The future has been postponed
Ant’s woes can be considered an earthquake of epic proportions, though largely unnoticed or underestimated in its gravity, because it affects not the present, but rather the future of fintech innovation in China, Asia and quite likely, the entire world.
To understand the extent of the damage, it is important to first grasp the scale of Ant’s operations, as an arm of Alibaba Group.
Built on Alibaba’s dominant position in Chinese e-commerce, the payment service under the Alipay brand, has over the years collected data on over a billion customers.
Using it, the company has rapidly expanded its array of services and intruded deep into the financial sector — offering borrowing, investment, credit-rating and insurance, handling trillions of dollars in transactions every year.
Due to its intimate relationship with customers making regular purchases through various arms of the Alibaba empire, Ant Group was able to provide tailored financial services to more people, faster and more conveniently than any bank.
This was the basis of Ma’s comments during his ill-fated speech at the Bund Finance Summit in Shanghai in October 2020, which have drawn ire of the Chinese regulators.
During the speech, he criticised both them and the contemporary financial system as slow, incompetent and inept at handling or promoting innovation.
Anybody who has dealt with any bank in the world — not necessarily in China — must surely concur with his observations.
Financial institutions tend to be tragically slow in implementing novel technologies (let alone developing them), and government regulators typically have limited knowledge of technology to create a friendly environment for rapidly growing technological companies, which often operate in grey areas along regulatory boundaries designed for a world where it was impossible to collect so much user data.
Pride comes before a fall
Unfortunately, Ma has clearly grown too bold and inadvertently scuttled the record-setting IPO that Ant Group was about to launch in early November 2020, planning to collect over US$30 billion from the stock markets, placing its valuation north of US$300 billion.
Today, more than six months later, there’s no word of returning to the stock markets and the company has been forced to morph into a financial holding, subjecting itself to regulatory oversight of the Chinese central bank.
It has also been barred from cross-selling financial products between its subsidiaries and forced to reduce its collection of personal data, which allowed it to offer these products in the first place.
The government is now using the same playbook to put all other major IT companies in line, so that nobody ever dares to break it again.
As a result, however, politics has steamrolled innovation which could have propelled Chinese tech giants to change the world of finance far beyond China’s borders.
This is both good and bad news for the rest of the planet, including Southeast Asia.
Threats and opportunities
The Chinese IT sector is in a fairly unique position as a uniform, quickly developing but largely hermetic market of 1.4 billion people. It’s an entire continent of its own.
Due to the size of the local population, as well as its relative backwardness (what also frees it from the burden of outdated habits like using cash), it provides a breeding ground of enormous proportions for all innovative companies.
If successful, they can grow both rapidly and enormously, making billions of dollars enabling them to expand their services abroad.
Ant was definitely on the money with its vast and swift use of data that traditional banks neither have access to, nor would even be able to make sense of. It was on its way to create a largely frictionless future fintech services — which is really what we all want.
However, with the abrupt halt to its ambitions — as well as those of its competitors — we can expect far less innovation, hampered by bureaucratic oversight.
It is bound to stop trickling down from the Chinese mainland to other countries, many which could also use a shakeup of their domestic financial services.
Since experience and technology is going to be acquired more slowly, it is bound to affect the entire fintech industry. It’s a pity because China offers an environment like no other in the world.
On the other hand, every crisis is also an opportunity.
Beijing’s heavy-handed treatment of fintech companies is also very instructive as to what not to do when you’re a government regulator.
As a result, even if development of new products and services in China may be crippled, it may still find a way to blossom abroad.
This is an opportunity both for Ant’s subsidiaries in foreign countries to develop their services there, as well as for smaller startups to innovate where the behemoth no longer can.
If Chinese companies are no longer capable of delivering novel financial products and services, it opens opportunities for those operating in smaller countries, under governments which may be less concerned about maverick billionaires and more open to attracting IT investment to boost their domestic economies (and political support of the public).
In Singapore, there are already successful homegrown MNCs competing in an increasingly complex IT platform environment in Southeast Asia, like Grab or Sea Ltd.
Each started with a single service, expanding its offer enormously over the past few years, including fintech (like digital payments), across a growing number of countries.
Incidentally, both of them were the first two to have received retail digital banking licenses in Singapore in December 2020. Meanwhile, Ant received a license to operate as a wholesale bank for business clients.
The city-state is quite uniquely positioned to benefit from Jack Ma’s stumbles. It has a small domestic market, but its friendly regulatory environment has long made it a trustworthy financial, business and technology hub.
With legal obstacles mounting in China, the centre of gravity of fintech innovation may move to a place which can be seen as a global benchmark for good legislation and a likely model for fintech regulation in the future; while being a gateway to a region of over 600 million consumers in rapidly growing economies.
It may not be as big as China but it’s more than enough.
Beijing’s crackdown also helps Singapore’s Grab and Sea compete with a crippled Ant in Southeast Asia. It’s another painful blow to Alibaba’s ambitions, as its Lazada is already struggling to catch up to Sea’s Shopee in the e-commerce sector.
Since Beijing decided to sacrifice innovation at the altar of political stability, it is quite unlikely any of its recent decisions could be reversed. In addition, it comes at the heels of another crackdown on cryptocurrency use and mining, forcing crypto companies to relocate abroad.
This heavy-handed approach, however, cannot completely extinguish progress as innovators will simply look for more friendly jurisdictions, which could be a good springboard to sufficiently large markets.
In Asia, Singapore is clearly one of the best destinations for them.
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