CHINAMacroReporter

'Where in the World is Jack Ma?'

In today’s issue: 1. Where in the World is Jack Ma?'The CCP's Ambivalence about the Private Sector’‘Jack Ma Misreads Xi Jinping’ / 2. China’s Fintech Threat‘Financial Technology Is China’s Trojan Horse’ / 3. 2021 Economic Outlook: Sunrise in a Fractured World’ | CHINA
by

|

CHINADebate

January 16, 2021
'Where in the World is Jack Ma?'

In today’s issue:

1. Where in the World is Jack Ma?

  • 'The CCP's Ambivalence about the Private Sector’
  • ‘Jack Ma Misreads Xi Jinping’

2. China’s Fintech Threat

  • ‘Financial Technology Is China’s Trojan Horse’

3. 2021 Economic Outlook: Sunrise in a Fractured World’ | CHINA

  • ‘China: Taming the Overshoot’

For the past several months - since the much-criticized speech, the Ant Financial IPO debacle, the regulatory dressing down, and the anti-monopoly probe into Alibaba - Jack Ma has not been seen in public.

  • ‘Where in the world is Jack Ma?’ has become a question both in the international press as well as on Chinese social media.

Reports say he’s not under detention, and he’s not been ‘disappeared.’

  • Instead, it is said that, with shareholder, employees, regulators, and apparently even Xi Jinping all mad at him, he has made the decision to hunker down in Hangzhou and stay out of sight.
  • It’s hard to see how he could do himself any good saying anything right now.

Casting doubt on this explanation are the number of Chinese billionaires and well-known figures who have fallen afoul of Xi Jinping and the Chinese Communist Party and come to bad ends.

  • So even if Mr. Ma is out of official clutches for the moment, it doesn’t mean his time isn’t coming.

As newsworthy as Mr. Ma’s plight is, more important is its place in the context of Xi Jinping’s efforts to bring the private sector generally and the fintech industry more specifically under tighter Party control.

  • Weaving these together, along with the story of CITIC founder and stay-behind capitalist, Rong Yiren, Neil Thomas has produced a terrific essay, ‘The Red Capitalist,’ in The China Wire.  

He examines the changing fortunes of China’s private sector since the founding of the PRC.

  • And he contrasts the difference in the skills in navigating these changes between Mr. Rong (generally successfully) and Mr. Ma (to be determined).
  • [Note: I have omitted Mr. Rong’s story from the posts below because of length not interest – the entire essay is well-worth reading.]

Mr. Thomas says: ‘Beijing has grown increasingly suspicious of powerful business elites.’

  • ‘Under Xi Jinping, the Party has begun to exert greater control over the private sector, with plans announced last September to cultivate a “backbone team” of business executives who “unswervingly follow the Party” and cooperate in “major national strategies.”

'There’s little doubt that business elites who defy the Party will be dealt with harshly.'

  • 'In recent years, Beijing has hunted down entrepreneurs, seized their assets, and broken up and occasionally even nationalized firms deemed a systemic risk to the economy.'
  • ‘Perhaps no other nation has arrested more billionaires and brought them to heel.’

‘Even Jack Ma, the country’s best-known entrepreneur, seems to have fallen out of favor with the Party.’

  • ‘He’s been upbraided by Beijing and denounced in state media.’
  • ‘Xi is reported to have personally intervened to cancel the global stock offering of Ma’s Ant Group on the eve of what was expected to be the biggest IPO in history, following a strident speech Ma made in October.’
  • ‘In the aftermath, banking and antitrust regulators are threatening to carve up parts of Ma’s $400 billion empire amid reports the 56-year-old internet tycoon has gone missing.’

‘In addition to brazen contempt for Party officials [especially in that speech in October 2020], Ma’s transgression was made worse by his seeming obliviousness to the Party’s economic goals, which have shifted considerably in recent years.’

  • ‘De-risking China’s debt-laden financial system became one of Xi’s top priorities.’

‘ “The reason why Jack Ma and others could build enormous Internet companies is because the Party had no idea what they were doing,” says Jim McGregor of APCO China.'

  • ‘ “Things changed once the Party-State started to see them as a potential source of financial risk, and therefore as a potential source of risk to social stability.” ’ says Harvard’s Meg Rithimire.

‘Xi, of course, is not Mao.’

  • ‘He believes the private sector is an “intrinsic element” of China’s economy and refers to entrepreneurs as “our people.” ’
  • ‘Xi does not want to socialize business; he mostly wants private firms to support Party policies.’
  • ‘And if the decision to rein in Ma is any indication, he will likely succeed.’
  • Stay tuned.

Depending on how you look at it, the argument in 'Financial Technology Is China’s Trojan Horse' in Foreign Affairs by Nadia Schadlow and Richard Kang of Prism Global Management, either:

  • Contradicts the narrative outlined just now that the Party is out to control fintech regardless of the cost to industry, or
  • Presents a sort of flip side to that narrative, with the Party co-opting fintech in a plan for China’s geoeconomics dominance.

Either way the argument is provocative. Here goes:

First, ‘Chinese fintech firms function like a geoeconomic Trojan horse.’

  • ‘First, Alipay [one of Jack Ma’s companies] and WeChat Pay—companies that make up 95 percent of China’s mobile payments market—integrate themselves into daily economic life in another country.’
  • ‘Then, piggybacking off this financial infrastructure, they and other Chinese firms acquire digital banking licenses and rapidly expand into other sectors, including digital insurance, consumer credit, remittances, and lending.’
  • ‘These companies soon become too embedded in their host country to remove.’

Second, ‘China’s bid for fintech hegemony in Asia is a step toward an even bigger goal: achieving global reserve currency dominance.’

  • How? Expansion of the digital Yuan.

So third, ‘Beijing is challenging the sway of the U.S. dollar over Southeast Asia and parts of Africa as it prepares to launch, likely within the next year, a sovereign digital yuan, which would make transactions easier and also enable China to better track how its currency is used.’

  • ‘Consumers and merchants throughout Southeast Asia will soon be able to use the digital yuan on Alipay and WeChat Pay.’
  • ‘Later, the apps will serve as distributors of the digital yuan as local businesses find it more efficient to use the yuan than the dollar in transactions with Chinese companies.’
  • ‘The CCP could then push for the digital yuan to be used instead of the U.S. dollar by bigger institutions and businesses conducting large transactions, such as making interest payments and financing supply chains.’
  • ‘China’s digital yuan could also siphon transactions away from Western-dominated money exchange platforms such as SWIFT, the key mechanism that maintains U.S. dollar dominance in global trade.’

I don’t have the knowledge to judge how likely these scenarios are or to what extent they might succeed.

  • That said, from what little I do know, I can see Chinese fintech leading to at least a modest erosion of the dollar in Southeast Asian transactions.
  • But nothing in my studies show the Yuan as a serious threat to the dollar, from fintech or any other Chinese effort.
  • And while the Chinese government no doubt welcomes fintech’s expansion in Southeast Asia, I find it difficult to imagine that that would trump the Party’s aim of exerting more control over the industry and of lowing risks to China’s financial system.

More disturbing is the essay’s pointing out that U.S. firms have not been ‘serious about offering other countries alternatives to China’s fintech companies, tapping the strength of U.S. technology firms.’

  • ‘Either Alibaba or Tencent has invested in every single one of the 13 technology unicorns—startups valued at $1 billion or more—in Southeast Asia.’
  • ‘Facebook and PayPal, by contrast, invested in their first Southeast Asian fintech player, Gojek, just last March.’

The essay concludes: ‘U.S. companies such as Facebook, Google, and PayPal must not get boxed out of the world’s most significant growth markets, which are mostly in the Indo-Pacific region.’

  • Unlike the rest of the essay, that strikes me as unarguably true.

This issue concludes with another great analysis of the global economy from CreditSuisse, ‘2021 Economic Outlook: Sunrise in a Fractured World.’

  • As usual, I have just included the section on China, but the entire report is worth careful reading.

A few bottom lines:

  • Estimated 2021 GDP growth: 7.1%
  • ‘With the recovery already underway, a GDP growth overshoot in 2021 appears inevitable.'
  • ‘From a policy perspective, we expect that authorities will likely avoid a pro-cyclical policy stance and, to the extent possible, rein in the overshoot in 2021.’
  • ‘They would most likely prefer to avoid an aggressive overshoot in one particular year in exchange for a smoother and more sustainable growth profile over the next five years.’
  • Translation: Even if GDP is 7.1%, the number reported this year will be lower, with the difference carried over.
  • ‘We expect a moderation to M2 growth on the monetary front from 10.4% in 2020 to 9.3% in 2021.’
  • ‘On the fiscal front, we expect a tighter fiscal stance.’
  • ‘We revised our expectation for 2021 headline CPI downward, from 2.5% yoy to 1.1% yoy, mainly due to pork deflation.’
  • ‘As per the exchange rate, the CNY is expected to experience additional appreciation over the coming 12 months.’                                                
  • ‘We forecast USDCNY to reach around 6.3 by the end of 2021.’

You’ll find an analysis of each of these and more in the report.

CHINADebate, the publisher of the China Macro Reporter, aims to present different views on a given issue. Including an article here does imply agreement with or endorsement of its contents.

More

CHINAMacroReporter

October 17, 2021
An Energy Crunch. China's Latest Crisis. They Just Keep Piling Up.
‍‘Over the next six months or more, the energy crunch in China will be an even bigger challenge than Evergrande. Will make the Evergrande problem look tiny and has huge global implications. The lights go out in China!’ one experienced and very well-respected reader of long residence in China wrote to me in response the last issue on Evergrande.
keep reading
October 7, 2021
Just How Contagious is Evergrande?
Just as a personal crisis can lead you to dig deeper into yourself, so the rapid-fire events in China - with trillions of dollars of business and investment on the line - have led us to (finally) go deeper into how China works – and to come to grips with uncertainties caused by Xi Jinping’s recent moves to reshape the Chinese economy and the Party’s social contract with the Chinese people.
keep reading
September 27, 2021
'This Time Feels Different'
Just when we thought we were getting used to Xi Jinping’s tech reforms and social-engineering regulations, the Evergrande crisis heats up.
keep reading
March 31, 2021
Chinese Boycotts are the Least of Your Worries
‘For chief executives [and boards] around the world, watching the Chinese government go after Swedish clothier Hennes & Mauritz AB is excruciating — facing the evaporation of your hard-won China business over political issues largely out of your control,’ writes Michael Schuman in Bloomberg.’ ‘But it could be the new normal.’ ‘As relations between China and the U.S. and its allies deteriorate, Western businesses could increasingly get dragged into the fray.’
keep reading
March 31, 2021
'The Threat the U.S. Isn't Answering'
‘If BRI meets little competition or resistance, Beijing could become the hub of global trade, set important technical standards that would disadvantage non-Chinese companies, lock countries into carbon-intensive power generation, have greater influence over countries’ political decisions, and acquire more power-projection capabilities for its military.’
keep reading
March 31, 2021
'China Is Missing from the Great Inflation Debate'
‘Once again, massive fiscal spending in the United States has invited warnings of inflation and triggered dark memories of the 1970s. But these fears are based on a model that has since been obliterated by economic realities – not least the rise of China, which has fundamentally reshaped the US and global economies.’
keep reading
March 31, 2021
'Dominating the Digital Silk Road'
‘China’s Belt and Road Portal reports the Digital Silk Road has enabled six thousand Chinese internet companies and more than ten thousand Chinese technology products to enter foreign markets.’
keep reading
March 31, 2021
'Biden administration maintains Trump policy on Hong Kong'
'State department concludes territory should not receive preferential treatment under US law.'
keep reading
March 31, 2021
'China Owns, Partially Owns, or Operates 93 Ports'
‘Chinese firms own, partially own, or operate at least ninety-three ports across the globe.’
keep reading
March 30, 2021
'Profit or principle is the hard choice for foreign companies in China' George Magnus
‘Business risks for foreign companies in China are increasing after the recent exchange of sanctions between Beijing and western governments.’‘For foreign companies in China, the options seem delicately balanced. If they stand up for principles, they may put revenues at risk and will incur extra costs as they develop new supply chains. Yet if they prioritise their China profits, they could do irretrievable damage to their brands at home and in other markets, falling foul of shareholders and changing governance requirements.’‘It is an invidious choice but the latter is likely to be far more damaging to longer term performance and earnings, and corrosive of trust in the brand.’
keep reading
March 30, 2021
'How China keeps stumbling on the global stage' John Pomfret
‘Across the globe, Xi’s diplomatic representatives in Europe, Beijing, Hong Kong, Canada, Australia and elsewhere, are lifting up rocks and smashing their own feet.’‘The moves are befuddling — with a buoyant economy and a practically covid-free country, China is poised to see its influence rise if it plays it smart. But it’s not; instead, it’s alienating individuals and nations across the world.’‘I’ve been studying China for my entire adult life and I have to admit to being bewildered by China’s performance.’‘But I’m in good company. Thirty-one years ago, the great political scientist Lucian Pye wrote, “Just when all appears to be going well, Chinese officials create problems for seemingly unaccountable reasons.” ’
keep reading
March 30, 2021
'An Alliance of Autocracies? China Wants to Lead a New World Order.'
‘The world is increasingly dividing into distinct if not purely ideological camps, with both China and the United States hoping to lure supporters.’
keep reading
March 29, 2021
'Global Cycle Notes: U-Turn': China
‘A U-shaped recovery in the services sector beckons, but it’s still difficult to describe just what it will look like. No event in economic history compares, and the range of outcomes for wages, prices, employment, and financial markets is large.’
keep reading
March 28, 2021
‘At a Crossroads: The Next Chapter for FinTech in China’
‘As financial innovation has gained traction and the firms driving it have grown into sizeable players, the dynamic between innovators and regulators has begun to shift. Regulatory agencies have started to be more proactive in supervising the activities of technology firms after realizing that the size of many technology firms and FinTechs means they could threaten financial stability and peace in society if their innovation efforts and business practices were overly aggressive.’
keep reading
March 28, 2021
'New Trade Representative Says U.S. Isn’t Ready to Lift China Tariffs'
'The U.S. isn’t ready to lift tariffs on Chinese imports in the near future, but might be open to trade negotiations with Beijing, according to U.S. Trade Representative Katherine Tai.'
keep reading
March 28, 2021
China is not just shackling Hong Kong, it is remaking it
After the National People’s Congress, ‘election reform’ in Hong Kong, the dustup between the U.S. and China in Anchorage, and China’s going all ‘Wolf Warrior’ on the EU, that’s not such a bad thing.
keep reading
March 26, 2021
Beijing Targets American Business-2
'American businessmen, wishing for simple, lucrative commercial ties, have long resisted viewing U.S.-China relations as an ideological struggle. But strategic guidance issued by the leaders of both countries make clear the matter is settled: The ideological dimension of the competition is inescapable, even central.'
keep reading
March 26, 2021
'H&M, Nike Pay With China Boycotts on Xinjiang Human Rights Stance'
‘While both Western and Asian companies have frequently been targets of Chinese nationalism over the years, the latest flurry signals a shift in strategy by President Xi Jinping’s government as it confronts a more unified approach from the U.S. and its allies.’
keep reading
March 26, 2021
'The Illiberal Tide'
But even more problematic is that the reporting on any given action by another country may look so benign to the non-Chinese reader that he or she dismisses it as something China, even when it reacts forcefully, couldn’t be serious about. That is a mistake. Too often what looks ‘benign’ to the rest of the world is as serious as a train wreck to Xi Jinping.
keep reading
March 26, 2021
Beijing Targets American Business-1
‘Beijing’s message is unmistakable: You must choose.’‘If you want to do business in China, it must be at the expense of American values. ‘‘You will meticulously ignore the genocide of ethnic and religious minorities inside China’s borders; you must disregard that Beijing has reneged on its major promises—including the international treaty guaranteeing a “high degree of autonomy” for Hong Kong; and you must stop engaging with security-minded officials in your own capital unless it’s to lobby them on Beijing’s behalf.’
keep reading
March 25, 2021
China Goes All 'Wolf Warrior' on the U.S. & the EU
Today is the Tracker’s first issue. Covered here are two events where China went all 'Wolf Warrior' first on the U.S. and then on the EU.
keep reading
March 25, 2021
3 | China explains why it is going all 'Wolf Warrior' on the EU
China has found that bullying works a lot of the time, Why is China engaging in "Wolf Warrior" diplomacy
keep reading
March 25, 2021
2 | In Anchorage, Yang Spoke for the Party Leadership
‘Yang's temper tantrum has been interpreted by some commentators as being all about Chinese domestic politics. But it would be a mistake to see Yang's performance as mere bluster designed for home consumption. In Anchorage, he was speaking for the top leadership of the Communist Party.’
keep reading
March 25, 2021
2 | More to come?
‘This isn't about siding with America, it's about defending European sovereignty against a bully.’
keep reading
March 25, 2021
1 | Bitter Alaska Meeting Complicates Already Shaky U.S.-China Ties
'Mr. Yang, also noted “important disagreements” remained, and in remarks to Chinese state media suggested Beijing wouldn’t back down.'
keep reading
March 25, 2021
1 | The first U.S.-EU alliance against China
"Europeans will have to step up their reaction against China after insults, intimidation and sanctions against scholars and MPs. This isn't about siding with America, it's about defending European sovereignty against a bully."
keep reading
March 24, 2021
'There Will Not Be a New Cold War' Thomas Christensen
‘China’s vital position in the global production chain and the lack of struggle for ideological supremacy between authoritarianism and liberal democracy mean that the rise of a new Cold War is unlikely.’
keep reading
March 21, 2021
Just About in Place
To help us understand the makeup of the team, The Wire China has put together a great chart with bios of each member.
keep reading
March 21, 2021
'A Taiwan Crisis May End the American Empire' Niall Ferguson
‘No matter what other issues Kissinger raised — Vietnam, Korea, the Soviets — Zhou steered the conversation back to Taiwan, “the only question between us two.” ’
keep reading
March 20, 2021
'After the protests - China is not just shackling Hong Kong, it is remaking it'
‘The old Hong Kong is gone. Judge Mr Xi’s China by what it builds in its place.’
keep reading
March 17, 2021
How to Meet the China Challenge
How the Biden administration characterizes the China – strategic competitor, rival, enemy, and the like – and how it develops strategies – containment, confrontation, competition, cooperation, or some combination of these - will have an impact, to a greater or lesser degree, on most every industry and every market.
keep reading
March 13, 2021
'China All but Ends Hong Kong Democracy With "Patriots Only" Rule'
‘The National People’s Congress on Thursday approved a drastic overhaul of election rules for Hong Kong that would most likely bar many pro-democracy politicians from competing in elections, cementing Beijing’s grip over the territory.'
keep reading
March 13, 2021
'Understanding China’s 2021 Defense Budget'
'Like previous years, the first day of the new National People’s Congress session was highlighted by the widely anticipated announcement of China’s 2021 defense budget. This year it is set at 1.36 trillion yuan ($209.16 billion), a 6.8 percent increase from the 1.27 trillion yuan budget set last year.’
keep reading
March 13, 2021
Xi’s Gambit: China Plans for a World Without American Technology
‘China’s new five-year plan, made public on Friday, at the National People’s Congress (NPC), called tech development a matter of national security, not just economic development, a break from the previous plan.’
keep reading
March 13, 2021
'The five-year plan's big target - A confident China seeks to insulate itself from the world'
The National People’s Congress concluded on Friday, March 11. As I’ve mentioned before, analyses of the impact of the plans and policies on China and the world will start to come out in a week or two. In the meantime and to keep you immediately informed, today’s issue covers the NPC’s outcomes more generally, beginning with a full summary from The Economist.
keep reading
March 12, 2021
‘Enter the Trump Buddha'
“Trump, the Buddha of Knowing of the Western Paradise.”
keep reading
March 11, 2021
Artificial Intelligence: How to Beat China
‘China is organized, resourced, and determined to win the technology competition. AI is central to China’s global expansion, economic and military power, and domestic stability.’
keep reading

Heading

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Suspendisse varius enim in eros elementum tristique. Duis cursus, mi quis viverra ornare, eros dolor interdum nulla, ut commodo diam libero vitae erat. Aenean faucibus nibh et justo cursus id rutrum lorem imperdiet. Nunc ut sem vitae risus tristique posuere.