Opinion | Jack Ma Taunted China. Then Came His Fall.

The halt of Ant’s I.P.O. came at a key moment. China’s latest economic figures, released on April 16, confirms its robust recovery from the Covid-19 recession. But to maintain high growth, the country needs to increase productivity of its industries, upgrade technology, and rely less on inefficient state-owned companies — daunting challenges.

During 2020, the government developed a “dual-circulation” strategy to become more economically self-sufficient. It entailed promoting homegrown innovation in industries like telecommunications and green energy, and relying more on domestic sales rather than exports. In part, the strategy is a response to persistent economic tensions with the United States. But it comes alongside an important pivot in government attitudes: The private sector is important for economic development but must follow official priorities and show unswerving loyalty to the government.

Why did regulators not rein in Ant earlier? To put it simply, Ant’s success made the government look good. Its position as a global fintech champion galvanized China’s economy. Ant made digital payments and banking products available to a wide segment of the country’s population, aiding anti-poverty efforts. The Alipay app has over 700 million monthly users, including residents of remote rural areas. Ant has financed some 29 million small businesses, including street vendors.

Perhaps Mr. Ma believed he need not look over his shoulder. After all, for many years, China tacitly tolerated underground financial institutions subject to fewer regulations and less supervision than traditional commercial banks. These outfits, known as shadow banks, offered higher interest rates to depositors and provided credit to riskier borrowers, including small-scale entrepreneurs the government-backed banks ignored. (Eventually, the government clamped down on this sector once it became too risky: rising loan defaults and bank failures meant depositors could lose their savings.)

Ant took advantage of the government’s passive approach to regulating fintech companies, developing a wide range of financial products and services catering to a growing middle class. Mr. Ma used his influence and political power to shield his company from regulatory oversight, even refusing to share its trove of consumer data with the government.

Financial regulators fretted about how Alipay, along with a rival, WeChat Pay, swiftly dominated digital payments, deterring new entrants. Indeed, this has spurred a government project to develop a digital version of China’s currency as an option for digital payments. Ant, they feared, was also harvesting data on its users to judge their creditworthiness and offer them loans on better terms than state-owned banks.

Meanwhile, it could hide any risks from these loans by shuffling its revenues and losses across different arms of its conglomerate. Even while it expanded, as a fintech company Ant could dodge the stringent regulations banks are subject to. In effect, it could become too big to fail.

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