Citizen's Struggle


Jack Ma, the Chinese business magnate, a teacher turned billionaire, and the founder of the Alibaba Group, has finally waved the white flag in his struggles with the Chinese Government. The Ant Group in its latest statement has announced that Jack Ma would no longer be the control person at the company and that he will retain only 6.2 per cent control in the company, after restructuring. It might seem a simple rejig or succession planning until someone informs you that Jack Ma currently owns more than 50 per cent stake in the Ant Group. Ant Group operates China’s most popular mobile payment app Alipay which has more than 1 billion users as of the date and is certainly the most prized possession of Jack Ma’s portfolio. However, the company has gone down to absolutely cut ties with Jack Ma by clarifying that Jack Ma and nine of its other shareholders have agreed to not act in concert when exercising voting rights and therefore, Jack Ma would neither have sole nor joint control over Ant Group. This is a seriously disgraceful exit for a founder. But, why did it come to this point?

The Rise of Ant Group

Jack Ma who failed his college entrance exam, by scoring 1 mark in mathematics on the first attempt and 19 marks on the second attempt had a turnaround in his life when the internet boom began in the 90s. Ma learnt about the internet and had some instant interest in the same. In his early career, he began building websites for Chinese companies, headed a tech company later and eventually went on to establish a China-based business-to-business marketplace – Taobao under the company name Alibaba. The company received funding from Goldman Sachs and Softbank in 1999 and 2000, however, failed to make a mark in the industry. In 2003, Jack Ma realised that buyers on his platform did not trust sellers to honour their obligations, and meanwhile, sellers on his platform were sceptical of seeing online demand. In those times, e-commerce transactions through Taobao involved paying online directly to the seller through the platform and then meeting him in real life to receive the order. There was a gap to be filled, and that’s when the company decided to act as custodians by promising buyers they would hold their money in an escrow account and release the payment only after receiving confirmation that the products were delivered. The company called its latest payment solution, you guessed it right – Alipay. The adoption rates soared almost overnight!

To make transactions further seamless, the company worked with the Commercial Bank of China to build an online version of the custodial transaction pipeline and also invited Sun Microsystems to develop the new payment processing infrastructure. Under the new infrastructure, Alipay did the initial payment gateway, and account verification and then sent it to the bank which verified if the user had enough balance and accordingly processed the transaction. Within a few years, the company also allowed customers to keep a balance in their Alipay accounts which carried interest on their savings. The concept worked and Alipay was a huge success. It is estimated that today Ant Group’s money market fund manages as much as USD 150 billion from Alipay account balances. Over the years, the company also became a marketplace for insurers, credit scores, loans and wealth management services. This growing financial arm of the company was split off from Alibaba and became Ant Financial, which was later rebranded to Ant Group.

The Fall of Ant Group

In 2020, the Ant Group announced its initial public offer (IPO). By then, it was a massive company with over 80 million merchants using the app and over 711 million monthly active users transacting with the app. The company’s revenues clocked close to USD 10 billion, with USD 3 billion in profits, during 6 monthly periods from October 2019 to June 2020. The company offered 10% of its equity to raise USD 34.5 billion from the public. This was expected to be one of the largest IPOs ever the financial world had seen. And the IPO was a huge success with investors subscribing 872 times and placing bids worth USD 2.8 trillion. However, less than 48 hours before the listing, the IPO was called off following a meeting between Ant Group’s executives and China’s top financial regulators. The company executives announced that there were significant regulatory changes to the Ant Group’s business and therefore, the IPO had to be called off until the requirements were met. How many times does it happen that Government brings sweeping changes in regulations right before the world’s successful IPO makes its debut on the market?

In China, lending is a tightly regulated state subject and the government was always uncomfortable with technology-driven apps such as Alipay venturing into the consumer lending business. The Communist Party had expressed concerns about how banks tied up with micro-lenders such as Alipay. So, the road was never expected to be easy for Alipay. And then, in October 2020, Jack Ma publicly criticized the financial and regulatory ecosystem in China. He called out Chinese banking regulators for acting like ‘pawnshops’ and that the financial regulations were ‘outdated’ and stifling innovation in the sector. That’s when the hell broke loose. The comments irked the top leaders of the communist party who then torpedoed the IPO to show the business tycoon who their real boss is. Ant Group’s IPO which was expected to be the deal of the century became the shock of the century, as the IPO was shelved and money was refunded to the investors, with no certainty over when the IPO will happen again. While the company fetched a valuation of USD 280 billion before IPO, today, owing to the myriad regulations imposed during the last 2 years have made the company a fraction of that. Expectations of growth and margin are lower, as the company is now more of a financial company than a technology company. Fidelity Investments has cut its estimate for Ant Group to USD 70 billion last year from its USD 235 billion valuations before the IPO. BlackRock has also lowered its estimate to USD 151 billion while T Rowe Price Group has trimmed down the valuation to USD 112 billion. Meanwhile, Jack Ma, among the richest people in the world, had to disappear from the public eye and has been living a low-profile life since then.

China’s crackdown on tech companies

Ant Group wasn’t the only company that was brought to its toes. The Chinese Government launched a series of crackdowns through antitrust investigations and regulatory changes on a broad range of industries that left startups and conglomerates alike in uncertainty and battering their shares. he Government blamed local tech giants such as Alibaba, Tencent Holdings and Meituan for mistreating users. It released new rules that forced the companies to open their algorithms to each other under the hood of transparency. The regulators slapped new rules on the fintech giants which distorted the entire landscape for web-based financial services. The government came down heavily on companies for false advertising. The antitrust authorities levied USD 2.75 billion and USD 527 million fines on Alibaba and Meituan respectively, for abusing their dominant market positions. Meanwhile, it barred Tencent from entering into any kind of exclusive music copyright agreements. The Government also slashed the time that under 18 children can spend playing games online to an hour on Fridays, Weekends and Holidays, expressing concern over gaming addiction and thereby, cracking down the gaming companies. China also stopped issuing publishing licences for over half a year and as a result, many gaming companies went out of business. In another story, the cybersecurity regulator announced a probe into Didi Chuxing and barred it from signing up new users. It also ordered app stores to remove 25 of its mobile apps. All this happened when the company debuted on the New York Stock Exchange.

The Recovery of Ant Group

Of recently, it appears that the Chinese regulators have toned down a bit. Tencent has received approval for its new gaming licenses. Meanwhile, Ant Group’s consumer lending arm has also received approval for increasing its capital registration. However, the bleeding question is whether Ant Group will get another chance at its IPO, now that billionaire Jack Ma is ceding control and the company is openly distancing itself from him. Well, firstly, as per China’s so-called A-share market rules, the company cannot list domestically if they have had any change of control during the past two-three years depending on the exchange. Ant Group also needs a sign-off from the China Securities Regulatory Commission which includes the Financial Stability and Development Committee which the Central bank and Finance Ministry are a part of. The company is expected to set up a financial holding company like a regular bank under the new regulations. Ant has been restructuring its business to meet the demands of the regulators, however, it is still unclear what the final structure of the company will be. There is no clarity if there is a need for further separation between Ant’s payments operation and other units. So, the company doesn’t seem to be anywhere close to an IPO this year.


The cancellation of Ant Group’s IPO spiralled a series of regulatory actions that changed the playbook for China’s tech companies who were prioritizing growth until then. Over the past few years, the world has seen President Xi Jinping’s and his Communist Party’s stance toward big tech and the keen interest in controlling the user data held by private sector companies. The Government has been viewing the same as a ‘potential threat to national security’ – some fancy words that are being used more often these days across the globe. The Ant Group and Chinese Government’s saga is the kind of lesson for the business community – something that entrepreneurs will keep in mind each time they deal with an authoritarian regime. No money is greater than the power to rule.