Shortly before the turn of the year, the EU reached an investment agreement with China. The treaty has yet to be ratified and passed through the EU Parliament. MPs like the Green Rainer Bütikofer have already announced resistance. Because of all things the passage with which Beijing undertakes to ban forced labor, the Chinese side wants to delete from the contract. What kind of system the EU is getting involved with, but not only shows the fate of the Uighurs. In the past few months, the Jack Ma case has shown how much the Chinese government cares about the rule of law.
The former model entrepreneur seems to have fallen out of favor. The most likely reason: He’s messed with China’s encrusted banking system – making top-level cadres his enemy. A few days ago, the authorities opened an investigation into Alibaba for possible violations of competition law.
Jack Ma personified the Chinese boom
Not even half a year ago, the future of Jack Ma and the company he founded, Ant Financial, looked bright: the financial services provider was scheduled to go public in Hong Kong and Shanghai at the beginning of November. At $ 37 billion, it would have been the largest IPO of all time. Shortly before, however, the authorities in Beijing stopped the IPO. Now the Chinese central bank even wants to outsource and discontinue entire branches of business. The top managers of Beijing’s regulatory authority were called to a meeting about it. A statement later said that “the company’s governance mechanism is not solid”.
Jack Ma, also known as the “Chinese Bill Gates”, has long been the shooting star of the Chinese business world. He personified the Chinese boom. Ma was born in Hangzhou in 1964. He initially worked as an English teacher. To improve his English, he is said to have guided tourists around his hometown for free. In 1995 he founded “China Pages”, comparable to the “Yellow Pages” in Germany. Four years later, he started Alibaba with 16 friends and $ 60,000. The B2B platform grew into a billion-dollar company during the Chinese boom. In 2003 Ma founded Taobao, a mixture of Ebay and Amazon that has become an indispensable part of everyday life in China. The platform enables hundreds of millions of Chinese in rural areas to participate in online trading.
In 2014 Ma retired from the operational business of the Alibaba Group. Before that he had outsourced the online payment service “Ant Financial” as an independent company. Ant grew rapidly, not least because of its Alipay payment system. Today you hardly ever see cash in everyday Chinese life. Almost all payment transactions, be it in the supermarket or in the massage parlor, are processed using two smartphone apps: Wechat Pay and Alipay. 700 million people use the Alipay payment service.
For the Chinese authorities, however, the problem is not Alipay, but rather the micro-lending platforms that Ant also operates. The traditional banks – all of which are state-owned – are known for preferring to provide state-owned companies with loans. This is also due to the fact that the giants – often from the steel and coal sectors – have virtually no risk of failure. Should the company get into trouble, the bank can expect Beijing to step in. The system is disadvantageous for small and medium-sized companies, which have such difficulties in getting money. As a result, a gigantic shadow banking sector has emerged in China which, if it wavers, also threatens the real economy.
“China has no systemic financial risk because China has no financial system”
From this point of view, Ant Financial’s lending platforms represent a middle ground: Small and medium-sized companies can easily access capital, the system is not in government hands, but is largely transparent. However, it does not seem transparent enough to the authorities in Beijing.
The stumbling block was then a speech by Jack Ma on October 24th in Shanghai, in which he railed against the banking system. At the Bund Summit, Ma spoke just a few hours after Wang Qishan, who is considered the father of the current Chinese banking system. Ma spoke out against the numerous regulations and in favor of a new world financial system. “China has no systemic financial risk because China has no financial system,” Ma said among others. “We have to prevent disaster by creating a functioning financial system.”
Alibaba stock has lost roughly a third of its value since its October high. History makes it clear to investors how fragile the market economy and legal security are in China. They are instruments for keeping the Communist Party in power, but not values in themselves. And maybe the negotiators in Brussels, Paris and Berlin should also realize that.
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