Beyond Regulations: Psychological Impact of Jack Ma's Ant Financial IPO Fail

Jack Ma's Ant Financial (rebranded as Ant Group) IPO debacle encapsulates a complex interplay between China's rapidly evolving tech sector and an opaque and reactive regulatory framework hierarchically disincentivized against market-oriented decisions. It's a Guanxi-based paradox disguised to resemble market dynamics where having timely connections is akin to having excellent market research to determine where to locate an investment and which ideal prospects to target. The Ant IPO saga encapsulates the broader challenges Western businesses grapple with in the Chinese market. Still, we must consider the effect of Jack Ma's downfall on Chinese psychology, their perceptions of the West, and how these narratives affect our cross-cultural discourse.

The CCP's intervention in halting the IPO further demonstrates its totalitarian complexion, so it is vital to separate our emotions when cooperating with our Chinese counterparts because the causality of negative sentiments can run many levels deep.

Ant Group positioned itself as a technology company, even though it would disrupt China's tightly controlled financial sector of state-owned banks. Its assets included Alipay, China's leading mobile payment platform, with 711 million monthly active users, while it was rapidly expanding into other financial services, including lending, insurance, and wealth management. The anticipation frenzy for Ant Group's IPO was absurd, with the company expected to raise around $34.5 billion, the world's largest IPO. I recall researching how I could become an early investor, believing in a very Chinese way that my investment would undoubtedly be profitable (只有赚 zhǐyǒu zhuàn). Chinese vernacular uses this phrase to encourage others to invest because they subconsciously feel less risk when more have bought in. The phrase means "only earn" and is used by local salespeople to close deals from real estate to high-interest "shadow" banking products (高利贷 gāolìdài). This approach works because Chinese consumer behavior is the epitome of a "herd mentality," so it is sensible not to set off a stampede but even wiser to account for its origins.

What Chinese mindset creates China's herd mentality, and which aspects of their collectivist origins appear during negotiations and partnering?

Fortunately or unfortunately for me, Chinese regulators intervened just days before the scheduled listing in November 2020, and the IPO was abruptly halted. The outcome of Ant Group is representative of the either/or absolutism we frequently encounter in China. On the one hand, it was predictable that the CCP wouldn't allow its monopoly power to be challenged, and it was a stark reminder of the regulatory risks in China. Conversely, there likely weren't enough connected officials in the leadership hierarchy vested as beneficiaries. The CCP was a cog in the Ant IPO Guanxi engine instead of a lubricant, offering valuable insights into how things work inside the Chinese arena (中国国情 zhōngguó guóqíng).

The reasons behind the halt triggered speculation from domestic and foreign media alike. Officially, regulators cited significant changes in the regulatory environment for online micro-lending, a core part of Ant's business, necessitating a review of the offering. Unofficially, many observers saw the suspension as a response to Jack Ma's public criticism of China's regulatory system stifling innovation and being an impediment to the growth of new businesses. Ma's outspokenness is not uncommon in Western business cultures, where challenging the status quo can be seen as visionary. However, in China, where the government and the Communist Party play a central role in directing the economy and maintaining social harmony, public challenges to the status quo are seen as "causing trouble."

In the context of CCP (Chinese Communist Party) propaganda, the phrase "causing trouble" carries a politically loaded meaning aimed at maintaining stability and party control. Labeling certain behaviors as "causing trouble" delegitimizes dissent by framing it as harmful to the collective good rather than as a form of legitimate political expression or civic engagement. From a Western perspective, this phrasing helps to justify the suppression of dissent and the enforcement of strict regulations on freedom of speech and assembly under the guise of preserving national unity and preventing chaos.

Once a national hero, Jack suggested that Chinese banks operated with a "pawnshop" mentality, requiring collateral and guarantees for loans that hindered innovative companies from accessing capital. He argued for a reform of China's regulatory framework to foster innovation, but he miscalculated how the nail that sticks up will eventually get hammered down. Jack Ma rose to wealth and influence as a commoner, and he allowed his ego to get ahead of his leash. Psychologically, Ma's downfall was a stark reminder to everyone in China of who is in control and the consequences of not towing the party line. Even our once beloved Jackie Chan pragmatically joined the CCP in July 2021 and became a prominent spokesperson, tainting his previously established international persona as a beloved action star and philanthropist.

Case Study of Psychological Effects

The Ant Financial (Ant Group) debacle is a domestic policy and regulatory control case study, particularly its halted IPO and the following regulatory scrutiny. However, indirect psychological effects on Chinese perceptions toward Westerners could arise from several angles, albeit not as a direct consequence of the situation itself but through the broader context and international reactions to it.

As leaders with stakeholders inside the Chinese arena, we can acquire a tremendous advantage by understanding their psyche, their Art of War tendencies, and how to counteract fog-of-war distractions to our senses and sensibilities. My upcoming book, Strategic Pragmatism for De-Risking Post-Covid China, analyzes the psychological interplay macro-geopolitical events have on micro behaviors and decision-making.