Even granting Frank Herbert’s maxim from Dune, that the most persistent principles in the universe are accident and error, one can come up with pretty plausible theories otherwise with respect to China deciding to clamp down on Chinese company listings in the US, and making an example of ride-sharing company Didi.
Even though Chinese officials profess to be worked up about customer-data being made public (huh?), it seems much more likely that the big motivation for China is to throw sand in the gears of its tech elite becoming stateless, or at least non-state loyal, actors. China is and will remain the biggest market for these home-grown stars. But raising lots of money overseas gives them a measure of independence from, and potentially even leverage on, the Chinese state. Japan, which is admittedly a long-standing US military protectorate, has used “gaijin pressure” as an excuse for implementing policies that don’t have great popular support. But it’s one thing for the government to have to contend with, and also invoke, foreign arm-twisting as a justification for domestic policies. It’s quite another for private companies to play both sides of the street by using (cultivating?) foreign demands to try to push China around.
The reason to consider our theory, as opposed to official claims, is the first crackdown of this sort was against Jack Ma of Ant Group late last year. Ma’s specific sin was he was about to embark on large-scale US-style financial rentierism. But his more general sin was acting as if he was powerful enough to stand up to the government. Ooops. From our post then:
By way of background, Ant was originally Alipay, part of Jack Ma’s Alibaba, and was spun out in 2014. It has become the largest payment processor in the world. However, Ant’s expansion into higher-profit lending is what has aroused official ire.
The idea that regulators woke up a few days before the Ant IPO and blindsided the company with unexpected rules isn’t remotely credible. Yet the press is parroting Ant’s and disappointed brokers’ spin. The reality is that regulators signaled their requirements months ago (the Chinese appear to be less explicit in their public remarks than Western regulators typically are) and without a doubt informed Ant and any similarly-situated concerns of their requirements. Ma apparently thought he could defy the Chinese government. He’s learned otherwise.
The Financial Times comment section confirmed this take and lambasted the pink paper’s account, which mentioned but didn’t tease out the significance of Ma criticizing the government for being leery of unsecured personal lending:
The still-playing drama of the US presidential election took pride of place over a blockbuster development in China: the eleventh-hour halting of what was to have been the biggest IPO evah, the dual listing of Ant Group for over $34 billion.
Even though China’s financial system is not terribly transparent, and English language reporting on China’s politics should be taken with a fistful of salt, regulators stomped on a globally high-profile company widely deemed to be one of China’s stars to send a message. And even from the other side of the world, mediated through the Anglo press, the message seems very clear: China is going to leash and collar businesses, whether banks or fintech players, that profit by giving consumers high interest rate loans and rely on securitization to shift the risk of loss on to other parties.
By way of background, Ant was originally Alipay, part of Jack Ma’s Alibaba, and was spun out in 2014. It has become the largest payment processor in the world. However, Ant’s expansion into higher-profit lending is what has aroused official ire.
The idea that regulators woke up a few days before the Ant IPO and blindsided the company with unexpected rules isn’t remotely credible. Yet the press is parroting Ant’s and disappointed brokers’ spin. The reality is that regulators signaled their requirements months ago (the Chinese appear to be less explicit in their public remarks than Western regulators typically are) and without a doubt informed Ant and any similarly-situated concerns of their requirements. Ma apparently thought he could defy the Chinese government. He’s learned otherwise.
The Financial Times comment section confirmed this take and lambasted the pink paper’s account, which mentioned but didn’t tease out the significance of Ma criticizing the government for being leery of unsecured personal lending:
At the end of October, Mr Ma criticised China’s state-owned banks at a financial summit in Shanghai. He suggested the big lenders had a “pawnshop mentality” and that Ant was playing an important role in extending credit to innovative but collateral-poor companies and individuals.
From the Financial Times’ peanut gallery:
Hater of Simpletons
For those who didn’t know what happened: check the new regulation which limits Ant’s leverage and enhances consumer protection, which also limits Ant’s valuation as a “tech” company. That was the main reason Jack fired at regulators in his speech [at the end of October] – and to be honest, there was no way he didn’t know the regulation long before the listing date and the speech (gov spent months on a policy, if not longer and would consult industry leaders)! If the IPO were not halted, investors would have suffered from major losses, not to mention the high leverage (60x+) and ABS put Ant’s customers at risk. Jack fired the speech to evade regulation and made sure HE made enough money from the listing. Not investors, not Ant users. Being sarcastic is easy. Try to get clear of what REALLY happened.
Perhaps the Chinese were lucky this time, but their salvo against Didi inflicted considerable pain on investors. One has to assume the officials are pleased with that outcome. Their intervention is the lead story in the Wall Street Journal and is above the fold at the Financial Times. First from the Journal:
China said it would tighten rules for companies listed overseas or seeking to sell shares abroad, moves that could hinder attempts by homegrown firms to raise money in the U.S.
The shift comes as Chinese regulators intensify scrutiny into technology companies, including Didi Global Inc., that recently listed in the U.S.
Wall Street has long been a bridge between China’s economic miracle and the U.S. Blockbuster listings of firms like Alibaba Group Holding Ltd. in New York emphasized China’s rising economic clout while letting American investors profit from their growth.
Now, China’s move toward restricting such listings highlights the diverging visions in Beijing and Washington of the future of technology, data protection and security. With a widening gulf of distrust on a range of issues, both Chinese and American companies could get caught in the middle.
Turmoil around Didi foreshadowed the latest move. The ride-hailing giant has faced a series of regulatory actions at home since its New York stock debut last week. According to people familiar with the matter, Chinese officials suggested it delay its initial public offering, partly amid concerns that the U.S. government could use audit documents that Didi was required to file as a U.S.-listed company to gain access to data on Chinese citizens.
In recent days, a unit of China’s cybersecurity regulator also said it launched data-security reviews into popular mobile apps operated by Full Truck Alliance Co. andKanzhun Ltd. , which raised close to $7 billion in total from U.S. IPOs in June.
The measures could have far-reaching implications for a raft of China’s tech giants that are planning IPOs offshore, and for the global investment firms that hold stakes in them. Many investors bought into fast-growing Chinese startups expecting to cash out after the companies list on global exchanges.
In the U.S., IPO bankers scrambled over the holiday weekend and into Tuesday to understand the directives coming out of China, according to people familiar with the matter. Some fielded calls from furious fund managers who had purchased shares of Didi in its IPO last week, only to watch the company lose a huge chunk of its value—as of midday Tuesday, Didi’s stock was 12% below its IPO price…
Also top of mind for IPO bankers and investors who own U.S.-listed shares of Chinese companies is whether the new guidelines out of China are only about data, or if they represent a sea change from the country that could lead to companies pulling potential U.S. listings.
It’s a bit difficult to fathom how, in good faith, Chinese bureaucrats could think that US financial disclosure laws, which admittedly are better than China’s, translate into an ability to obtain operational data, particularly customer level data. The only route I can think of is that having a lot of US investors, and possibly the occasional board meeting and shareholder pony show in the US, would considerably lower the bar to filing suits in the US under US legal theories. See our posts on derivative suits against Bayer and Deutsche Bank as examples.
Some US pols seem happy to pile on. From the Financial Times:
A leading China hawk in the US Congress has lashed out at Chinese listings in the US in the wake of the botched initial public offering of ride-hailing app Didi Chuxing, as the debacle attracted scrutiny in Washington.
Marco Rubio, Republican senator from Florida, told the Financial Times in a statement that it was “reckless and irresponsible” to allow Didi, which he described as an “unaccountable Chinese company”, to sell shares on the New York Stock Exchange.
He added that Beijing’s regulatory crackdown, which triggered a brutal share price decline in the wake of the IPO, “further underscores the risks” for US investors in Chinese companies.
“Even if the stock rebounds, American investors still have no insight into the company’s financial strength because the Chinese Communist party blocks US regulators from reviewing the books,” Rubio said. “That puts the investments of American retirees at risk and funnels desperately needed US dollars into Beijing.”
The article points out that some of the Congresscritters demanding better reporting from Chinese companies listing in the US simply want to protect US investors, while others see these rules as another device for promoting decoupling of the US and China. Given that the Chinese government seems to want that too, at least to a degree, expect more rather than less along these lines.
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This is a fascinating topic – as Michael Pettis has pointed out a few times, there is plenty of evidence of uncertainty among China’s policy makers due to often contradictory statements and policies, so we shouldn’t necessarily see ‘Beijing’ as a monolith. Although as Xi tightens his grip it is becoming increasingly so. It is telling I think that Beijing has come down hard on Ma rather than (for example) the grossly oversized domestic construction industry which is rapidly becoming as parasitic as it did in 1980’s Japan.
One of my many failed predictions about the direction China would take would be that many rich (by which I mean anyone with assets, not just billionaires) would take flight as soon as the CCP looked like switching to a more controlled version of state capitalism. But it seems the opposite is happening – faced with a choice, most seem to have decided that China is a better long term bet, even though they all maintain a foothold of one form or another outside China. I think the decapitation of HK was crucial here – HK was the stepping pad for many Chinese for moving money (and other things) between mainland China and everywhere else. Removing that has forced a lot of Chinese people to make a decision on where they stand (or live).
When you take the longer historic picture, nearly all fast growing economies have faced this choice of whether they allow their big companies to ‘internationalise’, or whether they keep them domestic. In other words, go the Anglo way or follow the lead of Germany, Japan, South Korea, etc., in ensuring that the are financially and structurally rooted in their own countries. I am pretty sure China always intended to follow the latter pattern, the only question was when they would decide the time was right to pull on the reins. They’ve just done it, and they’ve done it (so far) very skillfully. Economically, its a good time to do it as domestic investments look to be a better bet for Chinese money than foreign ones due to Covid (i.e. China reaping the benefit of reacting correctly to the pandemic).
It should be pointed out that this isn’t a case of China withdrawing from investing worldwide. In fact, the opposite is happening at Beijings insistence. China still maintains a low RMB policy – right now, as Michael Pettis has pointed out – they are doing this by forcing the domestic banknig system to take a huge loss by maintaining dollar and other assets rather than invest domestically. This is, of course, at the expense of ordinary Chinese people who have lower living standards as a result, but thats not really something they care about. The obsession with maintaining a trade surplus is in the long term very damaging to China as it is to the world, and it seems they haven’t weaned themselves off this yet – and maybe never will.
“this is the situation today: The domestic markets of these foreign producers have neither the size nor the wealth to support their own industries. As they undercut U.S. production, however, they will gradually weaken the American economic base that they have come to depend on. Rather than a self-sustaining, self-reinforcing process, this new relationship becomes self-liquidating.”
They have the size and wealth to support their own industries – as long as they don’t try to mint trillionaires.
How do I move to China? Seems like a nice country and they don’t let their billionaires supplant the government and extract rents from their citizens.
” they don’t let their billionaires supplant the government and extract rents from their citizens”
Hahahah.
Xi Jinping is estimated to be worth $1.5 bln. Pretty much all top party people are millionaires hundredfold over. Party membership was a significant wealth and pay indicator.
They just don’t show it off the way Americans do.
If you think party leaders are rich, they have nothing on their wives and siblings.
Many a party official maintains his purity while their wives and siblings run vague businesses that always seem to luck out on lucrative land deals or public contracts. Its just the way it is.
The same is true in the West. What’s different is that in China it all evaporates the second an underling/competitor gains power in the Party. And it is immediately transferred into your competitor’s bank account. That’s what the corruption purges are all about. And that’s the reason why so many want their kids to have Australian/US/Canadian passports, bank accounts, and empty $10 million Vancouver condos.
What I find scary right now is that the Green Dam has been deployed so effectively that even English-language coverage mirrors Chinese-language coverage — which anyone with half a brain knows is b.s.
At the risk of sounding a bit crazy, I also think that’s what’s really behind the recent Archegos collapse and social media Cultural Revolution. I wonder if it was one group of spooks warning another group of spooks, “Hey, check out our new cyber/financial/PR gattling guns. Now that we know all your Western financial privacy tricks, you can’t go into an exile of Western luxury like in the past. And we know plenty of you would be ok living in the West as poor people because it’s free from a Cultural Revolution….Not anymore. We know that basically all ABCs were going to be loyal to America in WWIII because ‘the air is better,’ well, the air isn’t better anymore….so why not come back?”
Hmmm, not convinced that things work the same way in China as they do in the West. If they did then they could not have achieved so much in so little time. Look: in the same time it took China to lift 800 million people out of poverty, the West has sunk into their ‘sh*tholes of a country’ (or a sh*thole masquarading as a country) and continues to dig…
Sure there is corruption in high-places everywhere, but not everywhere is like the West. I find it difficult to believe that Ma’s competitor took his wallet and is now buying condos in Vancouver with it. That makes no sense, because in ‘two shakes of a lambs tail’ it will be his turn to pass the wallet on…
This is no way to build a prosperous country, and China seems to be accomplishing exactly that.
Have you read Ha Joon Chang? China hasn’t achieved so much in so little time — CCP planners just borrowed the playbook from the French, American, Japanese, etc. who went before them. Korea, Japan, and about a half dozen other nations did the exact same thing the exact same way, albeit with a smaller population.
As for America: that was an intentional choice made by American leaders to serve American leaders. From their POV, turning the US into a ****hole is a win/win/win. But in an era where everything has to be distilled into 140 characters, it’s not exactly possible to explain why.
That said, I’ll give it a shot. Rumsfeld and his team decided in 1980 that America should modify how its domestic policy supports its foreign policy. John Lewis Gaddis has the most readable explanation I’ve seen, but Philip Bobbitt’s is by far the best (The Shield of Achielles).
To make a long story short: if America still needed a military to back the Western multilateral world order, but it couldn’t draft people, then it would need to make the flyover states ****holes in order to get recruits “to volunteer.” To do that, you’d need to decimate the unions and close the factories in one fell swoop while still having a secure source of your military supplies. If you could do this while forever poisoning unions’ support among their rank and file — a key component of Democrats’ base — so much the better.
Sending your manufacturing offshore to Asia would do this. It would (a) get China to buy into the Western world order, (b) make them more stable (they were just coming out of another reign of terror, aka the cultural revolution), and most importantly, (c) make them less loyal to Russia. IOW, LBOs/private equity destroying factories was viewed a feature, not a bug because Rumsfeld, Baker, and the other Republicans controlling foreign policy viewed it as a win/win/win.
I’ve lived in China, and trust me, Chinese corruption is waaaayyy different than American corruption. (Weirdly, Chang has some excellent chapters on why this is.) In America, you can go to the DMV, give the guy a check for $50, and get your driver’s license in a week. There, you have to give the guy at the counter an additional $20 to make sure he actually sends it. In America, you can go to the doctor’s office and still be relatively sure that the needle the nurse uses is clean. In China, you have to give her a red envelope to make sure it didn’t come from a hepatitis patient. Unless things really have changed in the past five years — and I’m told they haven’t — even Shanghai and Shenzhen are still developing nations in a lot of ways that matter.
I think your own comment here contains the answer to the question ” how did China do it so fast”?
” Look: in the same time it took China to lift 800 million people out of poverty, the West has sunk into their ‘sh*tholes of a country’ (or a sh*thole masquarading as a country) and continues to dig…”
And there’s your answer. The West went down as fast as China went up. The International Free Trade Conspirators brought China into the Forcey Free-Trade System so that all the big Western industrialists could transfer as much of their physical plant out of the West ( especially America) and into China as fast as they physically could. They also supported the mass sale into America of low-priced product from China even from factories they didn’t own themselves for the social class warfare reason of exterminating American Unions by exterminating the industries they worked in.
China rose on a sea of sinking Western societies. Especially America. And that will continue as long as Free Trade continues, until America is too poor to buy Cheap China PlastiCrap from China. When America has become One Big Haiti, then China will look elsewhere for markets.
The upside is that since they’re already billionaires, they can’t be easily bribed by other billionaires. Also prevents the loser of any power struggle for getting to many ideas, since the option is to either go home and enjoy the billions or see their extended families get investigated for corruption. It’s not pretty but it works for Caesars and emperors.
Oh, don’t worry, they let their billionaires extract rent form the citizens and workers (and they have a lot of billionaires nowadays). The slapdowns are never about that.
You might want to learn a little about the Ch’in Dynasty and the Legalist school of philosophy, which is rarely commented on, most Americans only hearing about Confucianism and Taoism. The Legalist philosophy is that people are hard to control and you must use harsh, inflexible laws and terrifying punishments, sometimes on whole families, and even whole clans, to keep them in line.
The smart money takes Beijing’s statements at face value.
The PRC is the world’s most trusted government because it ha kept its promises and told the truth.
No reason to expect that it will continue to do so.
I agree, if there is a missing ‘not’ in your last sentence, before ‘continue’ :-)
It is touchingly naive to see someone profess faith in polls of the most heavily surveilled citizenry in the world.
And the rest of the world disagrees with this sentiment. China ranks as #51 in trust out of 80. Even the nationbreaking US ranks higher:
https://www.usnews.com/news/best-countries/articles/2020-01-15/us-trustworthiness-rating-dives-in-2020-best-countries-report
I’m sorry, but I have to say this: I find it touchingly naive to see someone put stock in a USNews article about the trustworthiness of nations :-) given especially that Canada features so prominently. Is this for real?
When you say polls of the most heavily surveilled citizenry in the world do you mean the US or the UK (with cameras on each street corner) and a ‘suck it all up deep state apparatus’? (I know you meant China.)
Re: “the most heavily surveilled citizenry in the world”. That must be the American people and everyone living within US borders. No state beyond the US has such capacity for surveillance embedded so deeply in the most banal day to day transactions of every person. Not feeling it, not thinking of it, is part of its reach, depth, and success. I highly doubt that the PRC could replicate that level of surveillance, spreading it out over its 1.4 billion people.
And with all due respect…US News and World Report?
Wasn’t Didi’s sin to single-list in the US when the Chinese government’s official policy is to move to dual-listing, then eventually single-listing in Shanghai?
As for Ma, by all indications he is currently under house arrest:
https://www.forbes.com/sites/georgecalhoun/2021/06/24/what-really-happened-to-jack-ma/
As opposed to his obvious opinion that allowing unaccountable American companies free reign to do what ever they want is prudent and responsible policy.
I’m having visions of the world as looking like a half-rotten orange with the western hemisphere covered in green, fin-tech slime while the eastern hemisphere fights to remain healthy orange.
Ultimately the Chinese, whatever their other flaws, seem to have the good sense to restrain their biggest corporations.
I think that the big determinant of whether or not China will do well is how much economic rent the ruling class extracts. Everyone knows the senior CCP and wealthy have some rent seeking. But if it is relatively modest compared to the US, it is very possible that they will provide a better future than the US for their people.
Unless the global warming gets them.
There’s a MORE compelling reason than Yves’:
Capital Flight. The higher the foreign listed stock vehicle’s price, the easier mirror trades take money OUT.
(I’m assuming Capital flight would interfere with the export economy via the savings investment identity)
Sorry, this isn’t a sufficient reason. It may be part of the motivation but you’d expect to see far more extensive capital control measures in motion in parallel with the US stock listing crackdown.
You don’t have to buy Chinese stocks to export capital. You can buy other stocks or bonds, or even real estate.
And you have the finance part wrong. A large current account surplus requires holding foreign assets. That admittedly has been done primarily by the government through its foreign exchange reserves.
I swear that when a person becomes a billionaire, that their IQ drops thirty points. Being wealthy is no longer enough. They want power – real power – so they are not just billionaires but are now oligarchs. They want to be above the rules. When I heard what Jack Ma was doing several months ago, I wondered if he had taken leave of his sense. Challenging the government – and in public too? What did he think would happen? The government was never going to back down to his demands.
With a de-facto war declared on China the past year or two, it looks like China has determined to reduce any possible vector of attack by the US so having Chinese companies with US financing would be a major red flag. I do wonder if they have been paying attention to what people like Michael Hudson have been telling them about the severe dangers of letting financial companies end up running our country and so have decided to take action. China has just reminded their billionaires that power is power after all-
https://www.youtube.com/watch?v=ab6GyR_5N6c (1:57 mins)
Yes I think you are right.
Michael Hudson mentioned what you refer to a few times in recent talks: to not let the west barbarian banskters through the Chinese Wall. Since they have their own oligarchs (Ma etc) they decided to clean house (even if a little, like a message)…and I agree it is a prudent conflict planning strategy – with all the dark clouds of conflict on the horizon.
The various provocations staged on Russia’s doorstep, the Chinese (trade and PR) war and other silly games the empire is playing will not get them out of the hole they keep digging. And they ARE in a bad situation: can’t move forward (everyone knows the US cannot win any kind of war, nevermind with Russia and/or China) and they can’t retreat (that would be hitting the empire’s lights-off switch immediately)…so they are left with little wriggle room…so they just wriggle and start looking inward (pity the American people).
Lets see what happens now that the empire is leaving Afghanistan – it sure will be a dress rehearsal for how to live in a smaller and smaller empire.
Russia and China seem to be grown up enough to play the long game and I think they are decoupling, fortifying and treading carefully, refusing to be provoked…waiting until the empire does it to itself.
The US Empire has a large cadre of jackals and sneaky-Pete special operators and Banksters who, like the Brits, will be f@cking things up long after the physical trappings of “empire” have kind of rusted away. A whole part of the CIA where the rice bowls are filled by running color revolutions and even more obnoxious forms of regime change. It’s what these sh!ts are trained for and know how to do, and I bet from what I read in the subject area it is just a whole lot of FUN… in there behind the FUD…
For sure: that’s the only thing Sneaky-Pete’s (love it) know how to do well…but scale matters and so does the rest of the world and its attitude.
And I think there is no more benefit-of-doubt left for the AngloZionist empire to work with. Now we are well into tit-for-tat territory, because the other players are much stronger and can hit back, and are not complete morons who don’t remember what happened yesterday!
This reminds me of an excellent book I read so long ago:
Axelrod initially solicited strategies from other game theorists to compete in the first tournament. Each strategy was paired with each other strategy for 200 iterations of a Prisoner’s Dilemma game, and scored on the total points accumulated through the tournament. The winner was a very simple strategy submitted by Anatol Rapoport called “TIT FOR TAT” (TFT) that cooperates on the first move, and subsequently echoes (reciprocates) what the other player did on the previous move. The results of the first tournament were analyzed and published, and a second tournament held to see if anyone could find a better strategy. TIT FOR TAT won again. Axelrod analyzed the results, and made some interesting discoveries about the nature of cooperation, which he describes in his book.
The thing i’ve noticed about billionaires and other financial elites from the middle and the far east (and Eastern Europe) is that they don’t feel they’ve really arrived until they start hobnobbing with elites from the west. A house in London or New York and kids in western private schools are the first tells of a billionaire looking to build cross-border social capital, the holy grail however is taking your company public by listing on a western stock market (preferably New York), now you’re truly strutting your stuff on the world stage and are likely to pick up bad habits from western oligarchs. It wouldn’t surprise me to learn that Jack Ma’s misguided attempts were partly the result of “advice” from his western peers on how to sequester power for oneself and use it to browbeat the state and bend it to your will.
Maybe in their minds The British East India Company is still the British East India Company even if it starts on their own home turf and deals with tech now instead of Opium, slaves, and spices.
They are legends in their own minds.
It’s possible, given that several U.S. IPOs of Chinese companies have been reined in for one rubric or another, that China has decided to fund its IPOs domestically.
Why let the West participate in the joy? China has plenty of capital, and China realizes that most of the really big IPOs of the future are going to be from Chinese companies.
The thing that gets the attention of the financial bigwigs (who run the U.S.) is money – making big money.
So, I think it may be more than uppity Chinese CEOs who are being sent a message.
If you want to negotiate effectively, you talk to the decision-maker, and you make sure you have something that decision-maker wants.
They are not happy over on CNN –
“Banning an IPO that just went public in the US — with US investor money — on our Independence Day was basically a big F-U to the United States.”
https://edition.cnn.com/2021/07/07/investing/china-didi-kyle-bass/index.html
As a non-rich US non-investor, I fail to hear it as a big F-U to me or anyone at my level. Maybe it is a big F-U to the US investor classes and their media outlets like CNN.