Jack Ma, founder of e-commerce company Alibaba, gave a speech last October criticizing the government’s control over China’s financial sector. Since then, there has been a storm of control and surveillance over China’s online financial sector. Just two days before Alibaba’s affiliate Ant Group launched, the Shanghai Stock Exchange suspended Ant Group’s prearranged IPO, and regulators launched a campaign against China’s largest companies.
The bureaucratic powers of China’s central ministries and various levels of government are now divided. In the past, China used this one-bank, three-commission structure to control the financial system. At that time, the central bank, the People’s Bank of China (PBOC), was in charge of monetary policy control and macroprudential regulation. Separate banks and insurance regulators and the China Securities Regulatory Commission (CSRC) controlled the respective sectors. However, due to the unauthorized practices of these three regulatory bodies and the opportunity for lack of coordination among themselves, some non-financial institutions were also allowed to take administrative decisions on financial disputes and disputes in control arbitration. After two major financial scandals involving the Anbang Insurance Group and the Tomorrow Group, the government made radical changes to several companies.
In 2016, China prioritized higher values over “high-speed” growth to reduce financial risk. Then a central monitoring system called Financial Stability and Development Committee was formed. This organization coordinates all the organizations. In 2016, the Chinese government took the initiative to impose greater control over the financial sector and merged the separate regulatory bodies in the banking and insurance sectors to form a separate commission called the China Banking and Insurance Regulatory Commission (CBIRC). Then central
The bank took control of the CBIRC with special powers. As a result, the entire financial sector came under the control of the central bank to maintain financial stability. Strict controls were then imposed on the financial sector. They also started keeping a close eye on non-financial businesses.
In a 2016 speech, Jack Ma said, “We must always be one step ahead of the regulators. If we can’t do that, we won’t run. ‘
Ant is one of the non-financial institutions that has been a target of CBIRC from the very beginning. The group has been introducing itself as an Internet technology company since its inception and has been using Alipay (China’s most popular mobile payment app) to provide detailed financial services. But Ant has posed an unprecedented challenge to Chinese regulators. Because, most of its services are outside the scope of existing financial rules. Moreover, Ant’s rapid growth and reckless expansion into new business areas have forced Chinese regulators to be on high alert. One of the most important monetary policies of the PBOC is to adjust the capital reserves of commercial banks. However, Ant did not need to meet this reserve capital requirement. Because, according to the existing banking definition, it is not a bank. Then, when Ante applied for an IPO on a Chinese stock exchange, the regulators became wary of seeing the nature of their lending and the details of their capital. Their idea is that as soon as Ant comes to the stock market, it will create turmoil in the stock market and its shares may swell like a bubble.
The huge amount that Ant has lent in just six months of history is very risky considering the PBOC’s position. When it comes to the stock market, the responsibility will fall on the central bank PBOC as the lender of the very last step of the loan given by Ant. If Ant ever goes bankrupt, the central bank will have to lend more to rescue him.
For this reason, regulators were wondering whether Ant would be without an IPO. But after Jack Marr’s speech it became easier for them to postpone. Seeing that the central bank had stopped a huge institution like Ant, the regulators started looking into all the other financial institutions. And that’s where China’s financial institutions are hit.
In a 2016 speech, Jack Ma said, “We must always be one step ahead of the regulators. If we can’t do that, we won’t run. ‘But now it seems that Jack’s mother is finally going to be caught by the regulators.