A brutal struggle is taking place over where power lies in China's digital economy
Jack Ma, flamboyant Chinese billionaire co-founder of ecommerce colossus Alibaba.com and of fintech group Ant Holdings, appears to have gone missing after criticising China’s financial regulations.
Ma has not appeared in public since a controversial speech given at the Bund Finance Summit in Shanghai in October last year, in which he criticised China’s banking regulations. Ma made the speech on 24 October, the day after Ant Group’s IPO listing was priced, and on 3 November, Ant Group’s record-breaking $37bn IPO was suspended. Then on Christmas Eve the Chinese government announced an antitrust probe into Alibaba, citing concerns over ‘monopolistic practices’. Ma has not been seen since.
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The prevailing narrative in this story has been one about an autocratic Chinese regime punishing a prominent business figure who dared to speak out. But there are other dynamics at play too. In a commentary in People’s Daily (one of the CCP’s official newspapers) on the Alibaba antitrust probe, Yu Chao notes the importance of the ‘platform economy’ to China’s development, but also its tendency toward market concentration. The picture that emerges has striking parallels in the West — see for example recent antitrust action against Google — and implies a brutal high-level struggle over where power lies in the world’s emerging digital economy.
The Chinese context is distinct from the Western one. Ma’s empire sits across both retail (Alibaba) and finance (Ant Group) and his Bund Finance speech came in the context of the 2018 collapse of Chinese peer-to-peer (P2P) lending platforms, which impoverished many small investors and drove a flurry of suicides. The P2P crisis, Kevin Xu argues, occurred in a lending environment that favours big companies and institutional investors, leaving small businesses limited avenues to access finance and small investors little opportunity to lend.
Hence Ma’s challenge both to the Western regulatory model for finance, which he sees as anti-innovation, as well as to the Chinese government model that he sees as overly centralised. Ma argues instead for ‘orderly regulation’ fit for 21st-century finance, that would enable net-native finance to flourish built around cryptocurrencies.
But as Peter Zeihan notes, “In China, money — capital, to be more technical – is considered a political good, and it only has value if it can be used to achieve political goals.” The Chinese central bank has been instrumental in driving the country’s double-digit annual growth since 1990. The bottomless capacity of a state-backed bank to lend has created an effectively nationalised Chinese economy, which reduced poverty from 88% in 1981 to less than 1% by 2015. This approach has cemented a Chinese social contract that’s broadly accepted heavy social repression in exchange for rocketing living standards.
Now, as the jaws of pandemic-driven global recession begin to close, the model may not be viable for much longer. And yet even as the scope for state-backed finance is shrinking, the prospect of decentralising lending may be too much for a regime that’s long recognised the political power of holding the purse-strings. The attendant risk of creating alternate centres of power, in the form of ‘platform economy’ oligarchs resistant to Party leverage, may have driven the CCP to see Ma’s championing of digital finance as a step too far.
In the West, meanwhile, the US appears to be waking up — somewhat belatedly — to the need for tighter regulation on cryptocurrencies. It’s plausible that the coming decade will see net-native fintech, and associated regulatory environments, emerge as a battleground in the developing cold war between the US and China for position as global hegemon.