The 4 things Ant's story about fintech in China teaches us

With the blocking of the listing of the records, the Communist Party underlines its dominance in the country. But it also shows how powerful the Dragon is in the digital payments sector

Ant Group (photo Ant) More sensational than the largest stock market listing in history, there is only the largest block on the stock market in history. On Thursday 5 November Ant Group, the most important fintech platform in China, linked to the local e-commerce giant, Alibaba, was supposed to debut on the Hong Kong and Shanghai lists with an initial public offering (IPO) estimated at around 37 billion dollars . A titanic operation that would have brought the equally significant one of the oil company Saudi Aramco last year (25.6 billion dollars) down to second place and Alibaba itself to third (25 billion in 2014). Analysts predicted that, after the IPO, Ant could reach the 450 billion valuation, against the 150 that had been attributed to it in the last round of financing in 2018.

It's a conditional story, that of the quotation of the records of Ant. Because one sentence too many from its founder, Jack Ma, one of the principles of Dragon technology, a former English teacher who in 1999 founded the Chinese equivalent of Amazon, Alibaba, and a convocation that cannot be refused by the People's Republic financial authorities to put the most coveted morsel of 2020 back into the freezer. According to the Financial Times, it could take up to six months for Ant Group to get back on track with the IPO. And it will be a very different Ant from the one that was preparing to win the lottery on the stock market, because in the meantime the rules of the game have changed.

Chinese President Xi Jinping (Afp photo)

1. Who's in charge in Beijing

It was a criticism of the internal conditions of the financial market, expressed during a summit in Shanghai, that incited against Mao laoshi the regulators. A few hours before calling Jack Ma, the country's central bank, the People's Bank for China (Pboc), and the banking and insurance supervisory authority, the China banking and insurance regulatory commission (Cbirc), released the draft a regulation that strictly marks online microcredit. Sector in which Huabei and Jiebei thrive, two of the brands of Ant's stable, whose hybrid nature, of digital platform and full-fledged bank, has lent the side to the move of state mandarins.

The maneuver it is purely political. "Once again the party (Chinese Communist, ed) reminded all private entrepreneurs that, however rich and powerful they may be, they can remove the carpet under their feet at any time", was the comment of Bill Bishop. author of a newsletter dealing with China, Sinocism. Xi Jinping's government, which aspires to become the new Mao Zedong, can afford the luxury of messing up a very delicate financial transaction, with all the consequences of the case (the South China morning post calculates that Ant must repay 167.7 billion dollars to investors, while Alibaba's shares have lost share) in order to reaffirm its absolutism. Moreover, due to the earthquake, Jack Ma saw about 3 billion of his assets go up in smoke, thus losing the scepter of the richest man in China.

Payments with the Chinese platform Alipay

2. The fintech hare

Having established that “Unum castigabis, centum emendabis” is an ever-current adage at the top of the Chinese Communist Party, the freezing of Ant's IPO highlights other criticalities of the Dragon's financial system. The first is that Beijing has not yet fully come to terms with a thriving fintech industry like no other in the world. "The Chinese have gone from cash to digital credit cards, skipping the" piece of plastic ", notes Sandro Camilleri, president of Matica Fintec, a Novara company specializing in digital payments. In May, the supply for 301 technological units installed by the Bank of China, one of the most important institutes in the country, was awarded in kiosks that act as digital counters.

Today in the country “fintech is growing at very high levels, more than in the rest of the world ”, says Camilleri. One figure above all: in 2020 Statista estimates that digital payments in China will move over $ 2.3 trillion in transactions, more than double that of the United States, with a growth of 32% year on year and 901 million users. In one week, the test of the digital yuan in Shenzhen, according to the South China morning post, set in motion 1.3 million dollars of expenditure. And digital shortens distances not only in crowded metropolises, but also in boundless rural China. "In China there is a great tradition of gambling and betting, which has interactions similar to those of fintech - observes Camilleri -. These kiosks we have worked on allow you to do 99% of the operations we do at the counter on the screen. The Bank of China is installing them in transit areas, such as squares and stations ”. Epicenters of everyday life also in rural life, useful to bankrupt that world as well.

The problem is that even in China guided by five-year plans, technology is able to outrun the law. And Ma's sortie has put his finger on the scourge of a still backward and fragile banking system. According to the PBOC, in September 7,227 micro-credit companies were operating in the Dragon, with loans for 135 billion dollars.

As recalled by Ivan Franceschini and Nicholas Loubere in the latest issue of Wired Italia, the infamous credit system in truth, "aims to create a method of estimating and categorizing credit that facilitates risk assessment by financial institutions and, complementarily, promotes inclusion in the formal economy". And they continue: "The difference with the credit evaluation systems existing elsewhere is that the Chinese version aims to draw on a much larger amount of data, drawn both from the economic and social spheres (although it is not clear until point). However, it is a difference of degree rather than substance ”. “Fintech is a challenge that will force Chinese banks to move, as they have in fact been one of the less dynamic components. I see it as a positive factor ", comments Mario Boselli, president of the Italy-China Foundation.

Alibaba founder Jack Ma (Getty Images)

3. A dual nature

Closely linked at this double speed is the hybrid nature of digital platforms. A problem not only posed by regulators in China. How is Ant Group different, which manages virtual purses with Alipay, manages savings with Yu’e Bao, does consumer credit via Huabei and with My Bank opened the first totally online bank in China, from a traditional banking institution? "Ant has become a great bank even for a large country like China", Boselli says.

In a sense, nothing more and nothing less than what the European Court of Justice did in 2017, ruling that Uber is still a transport company. Or when the announcement of a digital currency promoted by Facebook, Libra, caused alarms to sound in the offices of global financial authorities. What differs are the methods. Bruschi, almost ad personam, as Linkiesta points out. Starting with the unexpected nailing a few hours after the listing. "There was a misalignment between the rules that banks must comply with and which these realities escape, so from an institutional point of view, intervention has played on certain parameters, also for the protection of consumers", adds Boselli.

Of course, these new rules will change the face of Ant which will appear on the Stock Exchange, because, comments Giuliano Noci, Vice Rector of the Politecnino di Milano for the Chinese pole, "Beijing cannot afford not to bring home such an important it is only postponed ”. The weight of the credit business is increasingly important in Ant's balance sheet. In June the group reached 2,154 billion renminbi in transactions (compared to 647 for the whole of 2017). While the entire bouquet of loans, insurance and investment management in June accounted for 63.4% of Ant's revenues, with 45 billion renminbi, up sharply from 55.7% in the same period of 2019.

The new rules on microcredit place a ceiling of 300 thousand yuan per person and up to one million for businesses. According to the South China morning post, these limits should have a limited impact on Ant's business, which through Huabei and Jiebei provides small loans. On the contrary, according to the Financial Times, the fintech giant will be forced to run for cover. Today it covers just 2% of its loans, relying on banks and other lenders and acting as a platform for matching supply and demand. But if Ant is to act as a full-fledged lender, according to market analysis firm Morningstar, Ant will have to compose a RMB 540 billion mattress to offset the $ 1,800 billion lent. And there will be reflections on its future IPO.

The Shanghai Stock Exchange (Johannes Eisele / Afp / Getty Images)

4. Business card

Of course a company that last year moved 17 trillion dollars in digital payments, 24 times those of Paypal recalls the Financial Times, it remains an attractive investment even if it returns to the market without the largest listing crown in history. And more generally, observes Noci, “investors need China because it is a huge market also from a financial point of view. The merchant banks I meet have increased their interest in the share China has in their investment bouquets ”. So much for the morsel that went wrong.

The Dragon himself is deploying all his weapons to satisfy the ambitions of "consolidating digital payments internally and accelerating the convertibility of the yuan, because is an increasingly international currency ”, adds Noci. It has invested in blockchain-like technology under full state control. It is experimenting on a large scale, first among nations, with its digital yuan. A sister list of Nasdaq, the Star, debuted on the Shanghai Stock Exchange to bring home the technology stocks listed abroad, monitor its champions and free them from the snares of foreign authorities.

At the Fifth Plenum of the Party , as the Manifesto recalls, Xi Jinping has set dual circulation as the new slogan. Put simply: to insist more on domestic consumption. This is also what Camilleri di Matica recognizes: “For us today China represents 10-15% of turnover, but in strong growth”. In short, for fintech, the future lies in the East.