Why is China trying to kill Jack Ma's Ant Group IPO?

Beijing has pulled the break on the Ant group, which was supposed to be the world’s biggest IPO.

The Ant group is a Fintech company, controlled by China's richest man Jack Ma of the Alibaba fame. He wanted to take the Ant group public, and raise up to 37 billion dollars in the process. This would have been the largest IPO, or initial public offering in the world - bigger than the listing of Saudi Aramco.

But the Communist Party has dropped the axe on Ant. The Chinese government has suspended the public listing of this company, marking a big blow for Jack Ma - China's most celebrated entrepreneur. And, a member of the Communist Party. According to multiple claims, this was done because Ma was becoming bigger than the Chinese state itself.

The Ant group IPO was killed by Beijing at the 11th hour, which happened just two days before the company's stock was supposed to start trading in Hong Kong and Shanghai.

Reportedly, the orders came straight from the top, which could potentially even mean President Xi Jinping himself. China said it wants to maintain the stability of the capital markets.

“Here, what I can tell you is that the decision of suspension is relevant stock exchange department fulfilling its responsibility of self regulation. The decision (of suspension of the IPO) is made by relevant exchange institutes based on laws to better safeguard capital market stability and protect investor rights and interests”, Chinese foreign ministry spokesman Wang Wenbin said.

Anywhere in the world, cancelling an IPO worth 37 billion dollars would shock the investors, and invite greater scrutiny. On Monday, Jack Ma was issued a summoned to a rare joint meeting. Reportedly, he met with the People's Bank of China and three other top financial regulators. They told him that the Ant group would face increased scrutiny from now on.

Why?

One, the potential of the Ant group itself. Apart from facilitating digital payments, the Ant group is also a micro-lender. After their initial success, the company ventured into wealth management and insurance. Ant group's payments product Alipay has more than one billion users.

The company issues about one-tenth of all of China's non-mortgage consumer loans. Listing the Ant group on the exchanges would have led to windfall gains for investment banks. They were expected to reap 300 million dollars in fees.

It is backed by one of the most admired entrepreneurs in the world who seems to have fallen on the wrong side of his own party. Jack Ma may have miffed the communist leadership with a statement. Last month, he had criticised China's financial regulations. Calling them "outdated”, Jack Ma said they were stifling innovation in the sector.

According to one claim, the Ant group was being seen as China's answer to America's JP Morgan - A company that could disrupt the financial sector. According to another claim, the big five state-owned banks have a grip on a third of the assets within the Chinese banking sector. China doesn't seem to be willing to let go of its control on the financial sector just yet. Behind the scenes, Chinese regulators have been steadily tightening their control over companies like the Ant group. And by killing the Ant IPO - they have set a message to Jack Ma. Reportedly, the Ant group now needs to comply with a new set regulations.