Ant Group’s suspended $34 billion dual listings in Shanghai and Hong Kong may have resulted from a combination of regulators’ increased intolerance for risk alongside recent bold statements from Jack Ma, the founder of parent company Alibaba Group.

Here’s what sources told TechNode.

The sequence of events

  • On Oct. 25, fewer than two weeks before Ant Group was set to go public in a blockbuster dual listing, Jack Ma told a crowd of China’s top financiers and regulators in Shanghai that the financial sector was overly regulated.
  • The country has “no systemic risk” because “there is no system,” China’s most recognizable tech billionaire told the crowd which included regulators who have have been working to minimize risk in the financial sector.
  • China has “inertia” in its thinking, “innovators must make mistakes,” and there are too many “documents” that regulate what people can and cannot do, Ma said.
  • With only three days to go for Ant Group’s Hong Kong debut, the company’s chairman and CEO, Eric Jing, was summoned on Monday to a meeting in Beijing with the People’s Bank of China, China Securities Regulatory Commission, and the foreign exchange regulator.
  • The company said the meeting was a “regulatory talk” but gave no further details. “Ant Group is committed to implementing the meeting opinions in depth,” it said.
  • On the same day, China’s insurance regulator issued new rules on microfinancing—a large swathe of Ant Group’s business—which tightened collateralization requirements. A Bloomberg report suggested that capital requirements for Ant’s lending business are the focus of the regulatory clampdown.
  • The new rules will require Ant to fund at least 30% of the loans it gives out from its own balance sheet. This would render many of its loans noncompliant as Ant currently funds only 2% of its loans.
  • Late Tuesday, just a day after the closed-doors meeting, the Shanghai Stock Exchange abruptly suspended Ant Group’s debut on the Shanghai bourse, saying there had been “significant changes” in the regulatory environment the company operates in.
  • The company issued a statement just hours after the Shanghai bourse’s announcement seeking to assuage regulators.
  • It will “overcome the challenges” and “live up to” principles of “stable innovation, embracing regulation,” it said, and is waiting on regulators to make further decisions on its listings.
  • Ant Group also clarified that the pausing of its Hong Kong listing was a direct result of its Shanghai suspension.

Ignoring the signs

  • Ma’s speech in Shanghai was just the tipping point in a long struggle between Ant Group and China’s top financial watchdogs, according to experts TechNode spoke with.
  • Chinese regulators have been working to de-risk the financial sector since 2017, and Ant Group has been a key target of this campaign. “It’s really the culmination of something that’s been brewing for a while,” said Andrew Polk, co-founder of research firm Trivium.
  • De-risking the financial system is one of Xi Jinping’s top policy priorities, along with poverty alleviation, and a reduction of pollution, Polk said.
  • In the past year, dozens of new regulations have been enacted aimed at increasing oversight of fintech companies, including lending, payments, and liquidity requirements.
  • The central bank is reportedly looking to launch an antitrust investigation into Alipay and Wechat Pay’s dominance over the digital payments sector.
  • The People’s Bank of China updated its mandate just days before Ma’s speech to make special reference to digital payment providers and “important financial companies”—language that was absent in its previous iteration.
  • “It’s straight out of a regulator’s playbook, but an industry that hasn’t been regulated in the past doesn’t like this,” Polk said.
  • Traditional banks have not been fans of the fact that Ant Group and Webank have been allowed to grow into de facto banks in a relatively relaxed regulatory environment. They have been pushing regulators to increase their oversight of fintech companies, a source told TechNode.
  • The China Banking and Insurance Commission is discouraging lenders from working with Ant Group to provide loans, which don’t fulfill capital requirements set out in the draft regulation announced on Monday.
  • Ant’s credittech business brings in almost 40% of its revenue, according to its IPO prospectus.
  • At the same time, China’s central bank has been working on the digital yuan, aiming to level the playing field for traditional banks in the digital payments sector, sources told TechNode.

The error of flamboyance

  • In this environment, Ma’s boldness in rejecting regulators’ efforts to tighten controls stepped on the wrong toes. The Alibaba chairman’s cult of personality doesn’t sit well with conventional Chinese leadership, which leans on Confucian values.
  • When pressured, Chinese tech entrepreneurs are expected to defer to leaders, who will usually let them off if they show respect, as indicated by past events.
  • In 2018, Bytedance CEO Zhang Yiming issued an apology for going against “core socialist values” after regulators clamped down on its popular news-gathering app Neihan Duanzi.
  • But the Monday meeting apparently did not appease regulators, who moved to shut down the Ant Group listing. “Ant came out with its tail behind its legs,” Polk said.
  • Experts said it is unlikely that the suspension will be permanent, but it is unclear how long it will take for the company to come to an agreement with Chinese authorities.
  • Ant Group’s valuation is also a key consideration for regulators. On Friday, Ant said that investors had placed orders worth $2.8 trillion in its Shanghai listing, a phenomenon likely to trouble authorities intent on reducing market speculation.
  • A concurrent clampdown on cryptocurrency executives has been evolving in the last few weeks, with reports of top brass for Chinese crypto exchanges being arrested. “It all fits together in the policy of de-risking,” Polk said.

Updated: added regulator’s capital requirements for Ant Group’s loans to the first section, and that regulators are discouraging lenders to work with the company in the second.

Eliza was TechNode's blockchain and fintech reporter until July 2021, when she moved to CoinDesk to cover crypto in Asia. Get in touch with her via email or Twitter.