When I was in my 20s, I dreamed of becoming a presidential speech writer. I’d stay up reading books, like Ted Sorensen’s memoir “Counselor” (he was JFK’s speechwriter) and “White House Ghosts” (chronicles all the speechwriters from FDR’s). I idolized Toby and Sam in the TV show, “The West Wing.” I’d snag every small opportunity to write short addresses, video scripts, and even letters to staff (all speech-like writing for me to practice) for the bosses I used to work for in politics.
A few years ago, I got an opportunity to do some speech writing for Jack Ma, so I consumed a lot of his speeches in both English and Chinese. He’s an incredibly compelling speaker, so much so that I decided not to pursue the gig, because he really didn’t need the help. He’s a natural.
That talent was on full display again when he spoke at the Bund Finance Summit in Shanghai on October 24. It was compelling enough that I created an English version of it, something I rarely do (you can read it here). It also set off a chain of events — new financial regulatory documents from government authorities, Ant Group’s canceled IPO — that became big news that would’ve been bigger, if the events didn’t coincide with the American election.
Sadly, most of the media coverage has been flat and simplistic, roughly summarized as: Jack Ma spoke out of turn and Chinese authority showed him who the boss is by canceling Ant’s IPO and he lost billions. It’s almost as if no one actually read the full speech or bothered to spend some mental cycles absorbing and contextualizing it, even though most of these coverage cited the speech in one way or another.
We are all about context, nuances, and wrestling with complexities, so let’s dig in.
P2P Lending
The boom and bust of P2P lending in China in the last five years have been horrific and well-documented. It has wreaked havoc — executives went to jail, ordinary people’s savings disappeared, SMBs blacklisted by the “social credit system”, lives ruined, suicides committed — all across the country, and especially in Ma’s hometown of Hangzhou, one of the epicenters of P2P.
That’s the broader context that triggered Ma’s speech — abundantly clear if you read just the first half of it, but hardly present in most of the coverage.
P2P lending’s scandalous mutation isn’t unique to China (remember Lending Club?). But the damage caused in China is more severe. These platforms often offer an 8-10% interest rate, well above a bank’s, on loans that can mature as quickly as one year. This too-good-to-be-true offer attracted people from all demographics: young professionals fresh out of college, families with kids in kindergarten, retirees living on savings and pension, and everyone in between. Most of these loans are issued to SMBs, but few of these platforms have been around long enough to have enough data or technology to rate loans and control risks properly, which is why Ma does not believe P2P lending should be considered a type of “Internet-powered finance” that he spoke about seven years earlier. Combining these systemic weaknesses with shady characters, who made a quick buck by doing criminal things like siphoning off deposits, caused chaos to ensue. At the peak of the P2P lending boom in 2015, there were around 6,000 such companies; now it’s down to the low hundreds.
But there is a larger root cause. Chinese SMBs need loans, but big banks won’t lend to them; they usually lend to mature businesses, state-owned enterprises (SOEs), and companies with close connections to the banks. Meanwhile, a growing middle class has no good place to invest their money but domestic real estate. Buying properties abroad certainly happens, but has been made much harder by the country’s capital flight restrictions. The domestic stock market is mostly filled with SOEs or volatile, poor quality companies. (The good ones go public in New York or Hong Kong.)
The P2P lending mirage appeared to have filled pent-up demand from both sides. All this was taking place, and could only take place, in a regulatory vacuum. Like Ma said in his speech to nervous laughter from the audience, “China’s financial sector basically doesn’t have a system. Its risk is actually a ‘lack of financial system.’”
In fact, Ant Group’s decision to go public via a double listing in both Hong Kong and the Shanghai STAR market was a big olive branch to the government. It’s exactly what the Chinese capital market needs — a world-class quality company. That’s why the Shanghai part of the listing was oversubscribed by 872 times.
Ant could’ve listed in New York and got whatever valuation it wanted. It could’ve done the same in London. It probably could’ve done the same by putting a stack of prospectuses in my backyard and invited investors over for a BBQ, if I had a backyard.
So with all this context in mind, on the day after Ant priced its IPO, why did Jack Ma take the stage and take the risk of speaking out?
Responsibility
Simple answer: get a seat at the table to set the rules.
Whether it’s big players like Ant or one of the thousands of P2P lenders masquerading as hot startups, they, unfortunately, all live in the same regulatory regime.
The first wave of P2P related regulations came in 2016, but the rules were blunt instruments that required more deposits and more collaterals (a “pawn shop mentality”), and the enforcement and compliance effort was spotty at best. What ended up happening in the following years were:
- Lots of P2P lending startups shut down (good)
- Many SMBs who took out loans this way were forced to repay or be blacklisted (not good)
- No recourse or retroactive protection for retail investors who provided the capital and lost all their money (awful)
It’s an understatement to say regulators did not fulfill their responsibilities.
Earlier this year, more regulations were proposed to reduce the liabilities of the P2P lending platforms facilitating these loans in a so-called “capital-light model”, where these firms are just a matchmaking layer between institutional lenders (aka big banks) and loan-seekers, and the onus of credit assessment is now more on the institutional lenders. While these changes may appear to have protected P2P lending, or fintech broadly, it actually took the entire industry back to square one and its original root cause — SMBs still can’t get loans now that they are dealing with the big banks again, while the middle class still has no good options to invest their money other than real estate.
Jack Ma likely knew about all these regulatory changes heading into Ant’s IPO, and he wasn’t happy about them. So he decided to speak up.
Jack Ma, by speaking up in public, focused all the regulatory attention on Ant Group as the example to look at. The speech not only pushed regulators to think hard about fulfilling their responsibilities, but also gained Ant a seat at the table. A few days after the speech, the Financial Times run by the People’s Bank of China (not the British newspaper) ran multiple articles sharing semi-official opinions about the next steps in financial regulation, explicitly mentioning Ant as a reference.
Ma said, “Good innovation is not afraid of regulation, but is afraid of being subjected to yesterday’s way to regulate.” Instead of being regulated in “yesterday’s way” passively, Ant is now actively part of the rule-making process, which will cascade to the entire industry and affect all its competitors — Tencent, Baidu, JD, Meituan, 360, Xiaomi, etc. — none of whom are at the table in the same way.
He knew what he was doing and got what he wanted.
Legacy
Lots of media coverage fixated superficially on the lower valuation that Ant Group will fetch when it does go public again, under a tighter regulatory environment that may treat it as more of a financial services company, less as a tech company.
But who cares? Jack Ma certainly doesn’t seem to care and has frankly never cared. His net worth before Ant’s IPO is more than USD 60 billion. His philosophy has always been: “customer first, employees second, shareholders third.”
His speech is consistent with his philosophy, as are its effects. Shareholders and investors are pissed, because they won’t get in on the biggest IPO of all time, and when it does happen, will likely be at a lower valuation. Some Ant employees are pissed, because they will have to wait longer for their big payday, and when that day comes, their shares will likely be worthless. But if that’s the price to pay to shape a healthier financial system with regulatory clarity, so more Chinese consumers and SMBs can live and operate in peace, many of whom will end up as Ant customers, it’s well worth it.
Entrepreneurs at the caliber of Ma, Musk, Bezos, Zuckerberg, Gates, etc., don’t care about money, even though the only thing the rest of us seem to notice about them is money. As cheesy as it sounds, for them, it is about building a world they want to see and live in, and money is just the instrument they need to get there. It’s a rarefied field that many entrepreneurs aspire to, labor for day in and day out, but don’t achieve simply because it’s near impossible.
The hallmark of a consequential speech is not its soaring oratory or flowery turn of phrase, but its ability to move the needle in a society and leave something behind that could stand the test of time — legacy. While I wouldn’t quite place Ma’s speech in the pantheon of historical speeches, I do think it has moved the needle, which is particularly remarkable when it comes to public speech-making in China.
Ma’s speech displayed a level of influence on regulators that Zuckerberg or Bezos would crave. Imagine if Zuckerberg gave a speech about the future of social media and free expression, then was immediately summoned to Congress and the FTC to help shape Section 230, personal privacy, and algorithm-driven social networks.
In fact, I think Zuckerberg tried to do exactly that with his Georgetown speech in 2019, but no one took him up on it. Instead, he and other big tech CEOs continue to get paraded around in hearings and used as pinatas for political theatre.
I hope this post doesn’t come across as a fanboy piece for Jack Ma. If I was a Ma fanboy, I would’ve worked for him already.
This is just the non-professional views of another non-professional person.
Kevin Xu is the author and founder of Interconnected, a bilingual newsletter on the intersections of tech, business, and geopolitics. Previously, he was the General Manager of Global Strategy and Operations at PingCAP. He studied law and computer science at Stanford, served in the White House and Department of Commerce during the Obama administration.”