November 28, 2020
When regulators squished Ant Group’s $37 billion initial public offering last week, many analysts interpreted...

When regulators squished Ant Group’s $37 billion initial public offering last week, many analysts interpreted the move as an effort by China’s thin-skinned Communist rulers to remind the nation’s best-known Internet billionaire who’s really boss.

Conventional wisdom had it that Jack Ma, Ant’s co-founder and largest shareholder, doomed the listing by shooting from the lip in an Oct. 24 speech to the Bund Financial Summit in Shanghai. Reuters reported that people close to Ma tried to get him to tone down the speech, and that “senior financial regulatory officials were furious at Ma’s criticism.”

Other accounts have suggested regulators scotched the listing, which would have been the largest IPO ever, in a fit of pique. In pulling the plug at the last minute, concluded the New York Times, China’s leaders were sending a clear message: “No private business gets to swagger unless the government is on board with it.”

Bloomberg‘s Shuli Ren argues the surprise suspension of Ant’s blockbuster offering proves China’s bureaucrats are “capricious” and “don’t know what they’re doing.”

Call this the “about face” thesis. It feels way too pat to me.

San Francisco-based Rui Ma, writing in the Tech Buzz Extra newsletter, makes the case that the cancelation of Ant’s IPO is part of a much broader regulatory campaign to curb the power of China’s tech giants—one that is long overdue, enjoys considerable support among financial professionals and China’s public, and has been in the works for many months.

That argument was bolstered Tuesday by an announcement that a Beijing regulator is drafting rules to prevent monopolistic behavior by Internet platforms including e-commerce giants Alibaba Group and JD.com, gaming and social media leader Tencent Holdings, and food delivery courier Meituan Dianping. The implications of that announcement, as they dawned on global investors, sent shares of China’s tech behemoths into a two-day tailspin—wiping out nearly $300 billion in market capital. (Tech stocks bounced back Thursday.)

As John Dong, a securities attorney at Joint-Win Partners in Shanghai told Bloomberg: “The Wild West era of policy arbitrage—taking advantage of weak regulations over the sector—has come to an end.”

At the Shanghai event, Ma, known for his love of mixing colorful metaphors, decried China’s banks for their “pawnshop mentality” and assailed the nation’s financial regulators as risk-averse fuddy-duddies who stifle innovation and slavishly emulate the Basel Accords—which Ma deemed overly complex rules designed for aging Western societies and unfit for developing nations like China.

“We cannot use the way to manage a railway station to manage an airport,” Ma declared. “We cannot use yesterday’s way to manage the future.”

Ma’s comments, to mix another metaphor, went over like a lead balloon. His audience included China’s most powerful bankers and regulators. The speech provoked outrage on social media. “It seems like Ma has become so egotistical that he thinks he’s above the laws now,” wrote one Weibo user.

Days later, representatives from China’s central bank and financial regulatory agencies summoned Ma, Ant’s executive chairman Eric Jing and chief executive Simon Hu to Beijing for a rare, unscheduled meeting.

The South China Morning Post (owned by Alibaba) reports that bureaucrats told Ant executives that they viewed financial stability as a higher priority than expanding credit, and were about to introduce a raft of new rules that would completely transform the business landscape for financial technology companies.

Authorities advised Ant executives they would need months to assess and figure out how to comply with the new rules. The Shanghai Stock Exchange canceled Ant’s IPO in Shanghai the next day.

Ant dominates China’s fintech sector. The 16-year-old company’s Alipay app is used by more than 730 million people every month and offers personal credit, loans, investments and insurance. Ant has become China’s largest online credit services provider to consumers and small business owners, and connects borrowers and about 100 banks. But it has had numerous run-ins with regulators over the years, and banks complain Ant has been exempt from the rules that constrain traditional lenders.

One of the key provisions in the draft rules requires micro-lenders to fund at least 30% of any loan they fund jointly with banks. Only 2% of the loans Ant currently facilitates show up on its balance sheet.

Tech Buzz China‘s Rui Ma argues that Jack Ma and other senior executives at Ant are too savvy and too well-connected politically not to have known that Beijing was readying stricter fintech regulations that would complicate Ant’s IPO. She wonders whether his Shanghai speech was “made out of desperation, a last ditch attempt to sway public opinion which failed.”

Instead, he may have accelerated the inevitable.

Hong Kong and Singapore announced this week that they have agreed on a “travel bubble” allowing up to 200 passengers a day to travel between the two financial hubs without being subject to strict quarantine rules. How long before the rest of Asia opens to cross-border travel? And will it be safe? Join Grady and me Thursday, Dec. 3 at 9 p.m. Beijing time for “On the Road Again,” a virtual conversation to ponder “The Future of Post-Pandemic Travel.” We’ll talk with special guests Trip.com CEO Jane Sun, Singapore Tourism Bureau Chief Executive Keith Tan, and McKinsey & Co. Partner Steve Saxon, who’ll take your questions. You can register for the call and find out more here.

More Eastworld news below!

Clay Chandler
clay.chandler@fortune.com

This edition of Eastworld was curated and produced by Grady McGregor. Reach him at grady.mcgregor@fortune.com

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