I never worry about the regulations.
Why not?
Because I know I'm a good boy.
I've interviewed Jack Ma at least four times
over the last 25, 30 years.
In 2005, this was still at early goings for Alibaba,
I asked him how he stays ahead of the regulators
and he says...
The government loves me,
because I'm helping them to create business.
He had that brashness back in 2005.
So that brashness has now come back
and kind of nipped the showman in the rear end.
Over two decades ago,
Jack Ma co-founded Alibaba.
Today, it's China's e-commerce giant
and one of the biggest companies in the world.
But recently, Ma and his tech empire have been in trouble.
In April, Alibaba was fined
a record $2.8 billion for monopolistic conduct.
Its affiliate Ant Group,
which Ma holds a controlling stake in,
was ordered to overhaul its business
after the abrupt suspension of its IPO in November 2020.
This was looking like a fairy-tale listing
for Ant Group, but there's now been a significant twist.
And since then, Ma has laid low.
Just being quiet is something very notable,
that we think of when we think of Jack,
we think of him as very loud, brash.
And so we're all a bit shocked when he's not speaking.
But Alibaba and Ant are not the only tech firms
in the sights of Chinese regulators.
I think this is a watershed moment
for China's tech industry.
Some would say that the golden days
of China's internet age is practically over.
So what does the future hold
for China's tech giants?
It's become the stuff of legend.
In 1995, during a trip to the U.S., the then-English teacher
Jack Ma had his first encounter with the internet
at a friend's place in Seattle.
I searched the first word, beer.
I don't know why. Because it's easy to spell maybe.
And I see beers from Germany, beers from USA,
beers from Japan, but there's no beer from China.
Back home, he started China Pages,
a Yellow Pages-like website, but it didn't take off.
By 1999, the internet stock boom had gripped Wall Street.
And back in his Hangzhou apartment,
Ma decided to try again.
With his wife and a small group of friends,
Ma set up Alibaba,
a site that allowed businesses to sell stuff to each other.
In the same year, a newly established company, Tencent,
released its first product, OICQ,
an internet messaging service.
Alibaba came along.
Tencent came along.
They grew in certain areas, like in gaming.
Alibaba grew in e-commerce.
But then their services
just started mushrooming and mushrooming.
Alibaba and its affiliate Ant, along with Tencent,
these are the twin pillars of China's internet industry.
You can think of their influence
in terms of the products that they offer.
So think of the most powerful mobile internet apps
in the U.S.,
and Tencent would be a combination of all of them.
Tencent's WeChat, for example,
which is just one of its main services,
is a combination of WhatsApp
combined with services from Uber, Spotify, Snapchat,
there's also elements of TikTok
and financial payment services like PayPal as well.
Alibaba is best known for being an e-commerce giant,
but the company has expanded
so much beyond just its core business.
It has businesses in sectors like logistics, entertainment.
Think of the biggest blockbusters in the U.S.
"Mission: Impossible" was financed by Alibaba Pictures.
So it's a very powerful conglomerate.
Tencent and Alibaba's apps
are used by a combined 1 billion people.
Each company has a market cap
over half a trillion U.S. dollars,
and they've poured billions into Chinese tech startups.
Startups have to face the duopoly,
and often they have to take money from one of the two camps.
And it's almost like an offer that you can't refuse.
Not taking money from them can be detrimental.
And if either Alibaba or Tencent decides to invest
in your competitor, the consequences can be quite dire.
Other than that, when it comes to services,
e-commerce players often do complain
that they have to choose between e-commerce platforms.
It could be either Alibaba or its rivals.
For over a decade,
the Chinese government allowed the internet sector to grow
with little oversight
as it wasn't yet considered an essential industry.
Beijing also hoped that expansion of these companies
could spur China's economy.
Using the model of combining U.S. capital
with China's best entrepreneurs and also brainpower,
China's internet sector or tech sector
just grew into this giant behemoth that overnight
by the time the government
realized that it had gotten so big,
it was already out of their control, some would say.
The ability for them to amass large amounts of data
and combine it with artificial intelligence
gives them key insight into 1.4 billion people
and also key industries, economies of the country,
which is really something that's at the core
of the ruling party's concern.
If these companies venture beyond the edge of control,
there is a risk that these companies pose
to the ruling Communist Party.
And power is at the core of everything
and the priority for the ruling party.
China putting the brakes on the world's biggest IPO.
Ant Group's listing in both Shanghai and Hong Kong
have been suspended.
And this is really a stunning turn of events.
It was the most anticipated initial public offering
on record, and the money was piling up to go into it.
So in that essence alone,
it was a dramatic about-face from regulators
because it had already been given the go-ahead
by securities regulators and in the 11th hour it was pulled.
This was going to be a $30-plus billion IPO,
but it all came apart
after this speech, of course, in Shanghai by Jack Ma,
where he criticized the regulatory environment.
He criticized state banks
for operating like pawn shops.
And he didn't read the room very well,
because the audience at the Shanghai Bund conference
was full of government officials.
They did not take kindly to this.
The Ant IPO debacle is the tipping point.
And obviously, the underlying policy tensions
have been there for a really long time.
So a lot of tension had been building up
in the past 10 years.
It just until this really smart event
that the whole balance was tipped.
Ant is China's largest fintech company,
created in 2004 as a payment service
to facilitate transactions to Alibaba.
The company has expanded its business
into wealth management, credit lending and insurance.
In the year to June 2020,
it managed to process $17 trillion worth of payments.
And at one point it had the largest money market fund
in the world.
There has been a lot of complaints
from the state-owned lenders in the past few years
about how Ant is encroaching on their turf,
especially in lending and also wealth management.
And the banks are held to a different set of rules
that are much more stringent
whereas Ant has been able to sidestep
a lot of these stringent rules
by playing the role of a fintech disruptor.
And they added micro lending.
And I say micro lending is just a name
for prolific, mega, many, many different small loans
to shoppers across the many different platforms of Alibaba.
That posed significant risks
because Alibaba only funded about 2% of those loans,
and the rest of those loans
were securitized by the state banks.
They took on the big risks.
Just the day before Ant's IPO suspension,
regulators released strict draft rules
for online microlenders
that would require Ant to provide at least 30%
of the funding for loans it underwrites for banks
and other financial institutions.
That evening, Jack Ma was summoned by regulators
for a meeting.
What we learned was that while they didn't discuss details
of the IPO, the message was clear,
which is that the free-reining days of Ant's business
was coming to an end, and things were about to change.
That was probably the first inkling
that things were not going to go according to plan.
But the writing on the wall was actually already out there
in the months proceeding that.
There were a slew of rules that already were rolling out
since September that curbed Ant's loan business.
After Ant's IPO suspension,
the company was ordered to overhaul its business,
turning it into a financial holding company
with similar regulations to a bank.
Regulators also launched an anti-monopoly investigation
into Alibaba.
In addition, there's also said to be scrutiny
of Jack Ma's growing media empire.
He owns the South China Morning Post in Hong Kong.
He owns at least 30% of the social-media platform Weibo,
which is like a Twitter of China.
He also has another media, Yicai,
which is a very large media company
that has an online presence in China.
Regulators are said to be looking very closely
at the influence Jack Ma
and Alibaba through those holdings of media businesses
has on Chinese society.
Some would say that it's the Chinese government
that likes to have the final say
in what information the public gets.
Since the collapse of Ant's IPO,
Ma, the face of China's new economy
and the showman who always takes center stage, vanished.
Jack, are you there?
Jack?
Doesn't look there's anyone inside.
He may be not showing up, but he's not missing.
He hasn't been captured.
He hasn't been taken.
Like many entrepreneurs in China,
Ma had been walking a tightrope,
balancing sometimes conflicting demands from Beijing
and foreign investors who are eager to see growth.
For many years, Jack Ma branded himself
or tried to create this image where he was a rebellion,
where he revolted against the system,
and was a troublemaker fighting for the little guys.
In love with the government, but don't marry with them.
I mean, this is...
He's also extremely savvy,
always appealing to the greater good,
trying to convince the government
why his company and the services that they provide
are good for job creation in China
and also for China's image.
It wasn't until earlier this year, 2021,
that Jack Ma reappeared.
He was talking about philanthropy,
and the tone in which he gave his speech
was so much more modest and humble
compared with his speech in October.
He was doing something that the government
wants a man who is worth $54 billion to do.
And that is to talk about poverty alleviation
and building up and investing in rural areas of China.
These are messages the Communist Party of China likes.
You know, 10 years ago,
I mean, it was a very different, or 15 years ago,
very different government back then.
You had much more of a laissez faire towards technology.
You had also ineffective regulations
or often overlapping regulations, sometimes gaps.
And Jack, I think assiduously exploited some of those.
Contrast that to today, we see much less tolerance
for regulatory problems.
China's government has really upped its game.
You can no longer just bash government
in the way that he did.
So maybe Jack just didn't realize that the game had changed.
Just five months
since the sudden collapse of Ant's IPO,
regulators hit Alibaba with a record fine
for monopolistic conduct.
Ant is now in the process of an overhaul.
Is the Chinese government trying to limit Jack Ma?
They don't want to limit the national champions, OK?
But they probably want to knock Jack Ma's public profile
down a notch a little bit.
So I don't think Alibaba is radically going to change.
Its core will remain e-commerce.
But I think for Ant, yes, it's very different.
What can Ant be without this lucrative data business
and lending business?
That's a big question.
The Chinese government
has also launched an investigation
into suspected monopolistic practices
by food-delivery behemoth Meituan.
32 other tech firms like Tencent
and TikTok owner Bytedance
have been ordered to rectify anti-competitive behavior.
I think the regulatory uncertainty
is going to be at the backdrop
of just about every big tech story
for the foreseeable future in China.
From the government's standpoint,
I mean, it's not in their interest to see the tech companies
to become smaller and weaker.
It's just a different direction
that the government wants these companies to move forward.
The antitrust regulation will give smaller companies
the opportunity and the room to grow,
which is important.
The trend where governments are trying to rein in
tech companies and break down monopolistic practices
is global.
I think in China what differs is that the tech companies
have no power to fight back.
When the government cracks down on them,
ironically, what we saw with Alibaba
is that they thanked the government.
And that is something that I don't think Google
or Facebook is doing in the U.S. right now.
The end of the day,
the Chinese government has the final say,
and bend the knee or get broken.