Why Ant Group's IPO was pulled by Chinese regulators : The Indicator from Planet Money Ant Group is a fintech firm that was set to launch with the world's largest ever IPO. But just before its shares started trading, Chinese regulators pulled the plug. NPR's Emily Feng explains why.
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Ant's IPO Woes

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Ant's IPO Woes

Ant's IPO Woes

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UNIDENTIFIED PERSON, BYLINE: NPR.

(SOUNDBITE OF DROP ELECTRIC SONG, "WAKING UP TO THE FIRE")

CARDIFF GARCIA, HOST:

Hey, everyone. It's Cardiff. This is THE INDICATOR FROM PLANET MONEY. So much has been happening here in the U.S. lately that you might have missed this big story playing out in China. And joining me today to tell that story all the way from Beijing is NPR's Beijing correspondent Emily Feng.

Emily, hi.

EMILY FENG, BYLINE: Hey, Cardiff.

GARCIA: So, Emily, this story is about the tension between the Chinese government and a huge Chinese financial services company called Ant Group. So why don't you just start there by explaining what Ant Group is.

FENG: It is a financial one-stop shop. People use it to pay for goods online. I use it to pay for my groceries and my restaurant bill, for example. You can use it to invest in financial products. You can get a loan through Ant Group. And you can even essentially use it as a credit card. So it offers all sorts of financial services that a bank and more would normally offer.

GARCIA: Yeah, it sounds like I'd actually have to go to, like, four or five different companies in the U.S. in order to combine the full suite of services that I could get just from Ant Group if I were living in China.

FENG: And in China, it's all in this mobile app.

GARCIA: Yeah. And so the story is that a couple of weeks ago, Ant Group was planning to do an IPO, an initial public offering, which just means that the company was planning to sell its shares on the stock markets in Shanghai and Hong Kong. And the company was planning to raise more than $34 billion by selling those shares, which would have been the biggest IPO in world history for any company anywhere ever. And then suddenly, the Chinese regulators forced the company to pull the plug, to not do the IPO.

And that's the story - the story of why they did that - which reveals a lot about how the Chinese economy, which is the second-biggest economy in the world, actually operates and how it differs so much from other economies. So, Emily, you are going to tell us that story right after a quick break.

OK. Back again with Emily Feng, NPR Beijing correspondent. Emily, a place to start this story might be with the complicated relationship between Ant Group, this massive financial services company, and the Chinese banking system, the Chinese banks. So what's going on there?

FENG: China's banking system has always been very, very state-owned. And Ant Group is very much of the private sector. Ant Group is also one of the more innovative financial players out there, and therefore, that makes it a competitor to China's financial institutions. So it's regarded with a little bit of suspicion and distrust, but it's also one of the most promising companies to come out of China in the last four decades.

GARCIA: Yeah. And Emily, as I understand it, Ant Group, as a private company, was also taking risks that the banks overseen by the state would not take. Like, it was being innovative in lending money online. It lent money to people without much credit. And so the company was effectively a rival to the Chinese banks and therefore also a rival to important people in the Chinese government as well. Is that basically right?

FENG: Yes. It puts them in conflict with the Central Bank of China. So by competing against Chinese banks, you're going toe-to-toe with the highest level of Communist Party leadership here in China. And on top of that, President Xi Jinping has been trying to eliminate risk in the financial system. So he's been really cracking down on how much banks lend, how much debt they accumulate, and that includes online lenders like Ant Group. So they're facing a lot of strict regulation these days.

GARCIA: OK. And let's talk now about the pivotal event in this story, which was a speech given last month by Jack Ma.

(SOUNDBITE OF ARCHIVED RECORDING)

JACK MA: (Non-English language spoken).

GARCIA: Jack Ma is the co-founder of Ant Group, and he also happens to be one of the richest people in the world, worth roughly an estimated $50 billion. So tell us about Jack Ma and what happened in that speech.

(SOUNDBITE OF ARCHIVED RECORDING)

MA: (Non-English language spoken).

FENG: Jack Ma is China's most influential entrepreneur. He basically launched the entire Internet-based startup scene. He first launched this company called Alibaba, which has revolutionized the e-commerce world. And he's this incredibly colorful guy who loves attention. I mean, he's the kind of guy who dances in costumes in front of his employees. He made an entire 20-minute kung fu movie starring himself...

(SOUNDBITE OF KUNG FU FIGHTING)

FENG: ...Which he gave to Alibaba employees, and it's highly entertaining.

GARCIA: What good is being a billionaire if you can't do that? Yeah (laughter). That's great.

FENG: He not only is very capable. He's also a flamboyant character. And he gets up and gives a speech last October in which he says Chinese regulators are not allowing risk-takers enough space to flourish, that the existing banks are strangling the financial system because they cannot handle the transactions necessary in China these days and, number three, that banks also operate with a pawnshop mentality, meaning they're not innovative. They're simply taking people's money and not increasing the size of the pie. There is no other entrepreneur that I can think of these days that would stand up and give a speech, essentially giving a policy paper to Chinese bank regulators about what they should do.

GARCIA: And what happens after he gives this speech?

FENG: So interestingly enough, he also says, you know, and I'm not a financial expert, so whatever I say, if you disagree with me, you can forget about it. Clearly, though, China's regulators do not forget about this because a few weeks later, they call him in and a couple of his most trusted lieutenants, and they give him a dressing down. They talk about issues of financial regulation. And the next day, Ant's IPO is canceled. The Shanghai Stock Exchange and the Hong Kong Stock Exchange come out with an announcement that they're indefinitely suspending Ant Group's IPO because of major issues - that's a direct quote - and certain disclosure failures and that they'll be meeting with Ant Group executives in the coming days to sort out these issues.

GARCIA: And so where does that leave Ant Group? And also, Emily, why is it such a big deal that the company was not able to start selling shares on the Shanghai and Hong Kong stock exchanges, the bourses?

FENG: Right now, Jack Ma will likely have to restructure his business a bit to make sure that he meets these new draft regulations. And then hopefully, the IPO will go forward because thousands of people have already subscribed to their shares and put their money down. The Ant IPO was such a big deal here in China because this was the chance for the Shanghai bourse and the Hong Kong bourse to really shine. Most Chinese tech companies, including Jack Ma's first successful venture, Alibaba, listed in New York. That's where most Chinese tech companies want to go. And the party in China decided that they were willing to sacrifice that moment in the spotlight to demonstrate their control. To them, that was worth it.

GARCIA: And, Emily, what's interesting about this is that unlike in other countries where companies might be protected from certain kinds of government interference by the legal system - the laws and the courts - here it just kind of seems like the Chinese government's control over companies is something close to absolute.

FENG: There is still the facsimile of having rule of law. There are functioning court systems. There is extensive legislation out there protecting business interests. But the - at the end of the day, when push comes to shove, the party still calls the shots. And it can manipulate those legal processes to serve its desired outcome.

GARCIA: Yeah. And finally, it's also interesting that Ant Group is a company that's big and successful, technologically quite sophisticated and advanced and even envied throughout the world because it is. But rather than sort of championing the company, the Chinese government is restraining it instead.

FENG: It's almost the inverse. When you get to be that big and that influential with the possibility of becoming a truly multinational company, China's Communist Party almost sees you as then even more beholden to the party because you are such a representative element of the Chinese system that you then must keep in mind, everything you do at the end of the day must serve - must serve China and the party.

GARCIA: Emily Feng, thank you so much.

FENG: Thanks, Cardiff.

GARCIA: This episode of THE INDICATOR was produced by Jamila Huxtable and fact-checked by Sean Saldana. Our editor is Paddy Hirsch, and THE INDICATOR is a production of NPR.

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