Beijing Blocks Blackstone, Backs Ant Consumer-Loans Breakout
Blackstone Group (BX) , the world’s largest private-equity investor, has quietly dropped a bid to buy the Beijing-based office developer Soho China (SOHOF) , unable to win the necessary approvals from Chinese regulators.
Beijing’s onslaught against Big Tech, meanwhile, only intensifies. Regulators on that front reportedly want Alipay, the electronic payments app in the Alibaba Group Holdings (BABA) stable, to carve out its loan business into a separate entity that would answer to government shareholders.
A series of regulatory decisions has wiped billions off the market values of a lengthening list of Chinese businesses, which inevitably do not have state-owned status. It is a fraught time to run a private-sector company in China, and equally fraught to own shares in one.
On Monday, shares in Soho China (HK:0410) fell off a cliff in Hong Kong trade. They ended down 34.6% for the day, surrendering all the ground they gained in June when Blackstone inked a deal to pay HK$5 per share, for a total of US$3 billion, for its portfolio of nine office properties in Shanghai and Beijing.
They were trading at HK$2.51 before that deal was agreed, and descended back to HK$2.29 when the parties walked away. In a brief Hong Kong Stock Exchange statement, the companies said that “in light of the lack of sufficient progress” in satisfying the conditions of the deal, it will be scrapped.
The State Administration for Market Regulation, China’s monopolies watchdog, was supposed to be reviewing the deal. The companies had already been forced to delay the deal, and said in August and then again in September that they had provided more details to the regulator as part of an anti-monopolies review.
Sources “with knowledge of the deal” tell Reuters that the monopolies regulator did not want the deal to go through. Rather than officially blocking it, SAMR “just went silent.”
There’s no way Blackstone was going to end up with a monopoly on office property in China – that’s crazy. At last count, there were 99,544 property developers in China, according to Statista. Buying one of them, and a niche developer of upscale offices at that, is hardly going to corner the market.
So the only way to read it is that deals for Chinese companies to sell, well, any part of themselves to U.S. buyers are going to be blocked. An office developer does not have reams of sensitive customer data. A bricks-and-mortar business is the polar opposite of cutting-edge tech.
It is also an attack on China’s billionaire class. Soho China husband-and-wife founders Pan Shiyi and Zhang Xin are a flashy power couple who love the limelight. Chinese state broadcaster CCTV captured them in the crowd in New York on Saturday at the finals of the U.S. Open women’s singles, where Emma Raducanu, the Brit who has a Chinese mother and Romanian father, beat the Canadian Leylah Fernandez, who has Filipina-Canadian and Ecuadorian parents. Raducanu delivered a brief address in Mandarin to the Chinese public after the event.
With Alipay, regulators have already ordered it to split out the back end of its lending businesses, Huabei, which issues virtual credit cards, and Jiebei, which makes consumer loans. Now regulators will order CreditTech, the unit that runs the two businesses, to carve them out into a separate app, according to the Financial Times.
That app will have to hand over its user data to a new credit-scoring joint venture that will have government part-ownership, the FT states.
Ant Group, Alibaba’s fintech spinoff, owns and operates Alipay and those lending businesses. CreditTech now accounts for 39% of Ant’s revenues, surpassing Alipay as Ant’s largest business segment. It made around 10% of all consumer loans in China last year, a scope that was only recently recognized by regulators, and has clearly scared Beijing.
One minor concession that Ant appears to have won is that it is the local government from Zhejiang Province, home to Ant and Alibaba’s hometown, Hangzhou, that will own the stake in the credit-rating joint venture overseeing CreditTech lending. Zhejiang Tourism Investment Group would lead the government investment but has little to no financial experience.
Ant and Alibaba have good relations with the local government. Reuters reports that Zhejiang Tourism and Ant would each own equal 35% stakes in the new entity, with the remaining 30% owned by other state-owned and private partners.
Another small win is that the new venture will apply for a consumer credit-scoring license. Ant has wanted to have such clearance but has failed to secure it. But Ant would, equally, no longer be able to approve loans itself, something it does almost instantly, and would instead have to engage in a back-and-forth with the credit-rating company.
Alibaba closed down 4.2% in Hong Kong. Once the best high-growth bet among Chinese stocks, BABA shares have fallen 46.0% since a fateful speech by figurehead Jack Ma at a Shanghai finance conference, in which he criticized state-owned banks and the traditional banking system. The financial regulators in attendance were furious.
One of the most disheartening aspects of the pandemic, to me, has been the abuse of a public-health emergency for political gain. Multiple life-changing decisions in jurisdictions the world over have been made for political expediency rather than with the public good in mind.
The same political point scoring is at work in Beijing’s latest decisions. There is a need both inside China and the West to correct the excesses of Big Tech, that’s clear. But these latest decisions stem from an ideological agenda, and a definite anti-business, anti-bourgeois bent.
Some of the Chinese leadership’s recent decisions have a social goal: making education more of a level playing field by outlawing for-profit tutoring; limiting the time children can play videogames (which many Chinese people believe leads to bad eyesight); preventing clearly anticompetitive measures from tech companies that require exclusivity on e-commerce sites from merchants selling their wares.
But there’s a hefty dose of anti-business sentiment at work as well. It’s clear that President Xi Jinping has grown concerned with the power that Big Tech wields, and equally wants to take China’s legion of successful entrepreneurs down a notch. Business success had been a badge of honor, until these latest attacks. Founders of “unicorn” companies were celebrities feted in the business and the general press. Now any wealthy person with an ounce of sense is keeping silent and bowing their heads, to avoid political fire, and in subservience to the Chinese Communist Party.