China has suspended the $37bn initial public offering of Ant Group, which Jack Ma founded

Hi all — James here in Hong Kong. As I write this, the world is reeling from China’s decision to suspend Ant Group’s listing — an IPO that would have been the biggest in history. Much of this newsletter deals with angles on this momentous news (see The Big Story and When sages speak).

But don’t miss other key topics too. Nikkei Asia’s interview with the chief executive of SoftBank’s Vision Fund highlights a new approach for the huge fund (Mercedes’ Top 10). John Gapper (Best of comment) makes the case that Masahiro Hara, inventor of the QR code, should be viewed in the same light as Bill Gates and Steve Jobs. On a different issue, the listing of the first Chinese depositary receipts on Shanghai’s stock market is a significant moment (Art of the deal). And for those who love the drama of a protracted corporate battle, check out the saga of Allen Wu in Spotlight.

The Big Story

Jack Ma aimed high — perhaps too high. Beijing suspended the $37bn initial public offering of Ant Group, which Mr Ma founded, a day after regulators grilled China’s best-known entrepreneur following stinging criticisms he made of the Chinese financial system.

The official reasons given for postponing the biggest IPO in history were vague. The Shanghai Stock Exchange mentioned unspecified changes in “the financial technology regulatory environment”, adding that “the material matters might cause your company to fail to meet the disclosure requirements for an initial public offering”.

Key implications: China’s ruling communist party is showing Mr Ma and, by extension, the wider world, who is boss.

The dressing-down he took from regulators followed a speech he made on October 24, in which he criticised China’s big state-owned banks for their “pawnshop mentality”. What the world’s second-largest economy really needed, he said, were bold new players such as Ant that could extend credit to the innovative but collateral-poor companies and individuals usually shunned by China’s big financial groups.

“Jack Ma clearly miscalculated. After months of keeping his head down, he has made a lot of enemies,” said Chen Zhiwu, a finance professor at the University of Hong Kong.

Upshot: Mr Ma’s criticism of China’s financial sector would win many adherents. But what he is discovering now is the cost of speaking truth to power in China. More broadly, the episode demonstrates the huge political risks inherent in China’s financial markets.

Mercedes’ Top 10

A round-up of the week’s top stories from Asia tech reporter Mercedes Ruehl

  1. SoftBank Group’s Vision Fund is turning to a new strategy: invest smaller in hopes for bigger returns, chief executive Rajeev Misra tells Nikkei Asia.

  2. Huawei is working on plans for a dedicated chip plant in Shanghai that would not use American technology, says this scoop in the FT.

  3. Vodafone is to embrace technology from smaller suppliers as the UK group rips out and replaces Huawei-made 5G kit, says this FT exclusive.

  4. Sony and OmniVision have been granted licences by the US government to resume shipments of key equipment to Huawei.

  5. US tech giant Microsoft is to invest in Indonesia’s ecommerce platform Bukalapak, in the latest example of global tech companies’ interest in south-east Asia’s biggest economy.

  6. Hong Kong is stopping retail investors from trading cryptocurrencies, boosting its rules on money laundering and other crimes.

  7. China’s digital currency pilot programme has picked up the pace, with transaction volumes doubling over the past month.

  8. Indonesia and other developing countries are trying to get their hands on Covid-19 trial vaccines from China, says this cover story in Nikkei Asia.

  9. China’s Xiaomi has surpassed Apple for the first time to become the world’s third-largest smartphone maker by shipments.

  10. Japan’s Nidec will spend about $1.9bn to build an electric vehicle motor factory in Serbia, as the company looks to expand its foothold in Europe.

Huawei is hoping to ramp up its own chip production beginning next year to ensure the survival of its 5G infrastructure business © Wang Zhao/AFP/Getty

When sages speak

  • In light of Ant’s IPO suspension, here is an interesting analysis by Neil Thomas of the MacroPolo think-tank on the politics of Chinese president Xi Jinping. Main take: Mr Xi loves rules. Check out figure 4 for a great chart on this.

  • For a backgrounder on the peer-to-peer lending boom in China (which is especially topical after the Ant IPO suspension) and the IPO of Lufax, a fintech company, check out this podcast from Rui Ma and Ying-Ying Lu Tech Buzz China.

  • For those trying to make sense of China’s industrial and technology policies (perhaps in response to the Ant IPO suspension), here is a really good and concise summary of Beijing’s key recent moves by Anna Holzmann and Caroline Meinhardt of Merics, a Berlin-based think-tank.

Best of comment

The name Masahiro Hara does not appear with Steve Jobs and Bill Gates on lists of great innovators of the communications age, but perhaps it should, writes John Gapper in the FT.

For the Japanese engineer’s humble, unassuming invention, the Quick Response code, has finally found its moment. The square QR code, which Mr Hara developed in 1994 to track components in car factories, is being put to many uses in the Covid-19 pandemic. Governments include it on tracing apps, shops offer it for contactless payments and restaurants tape it to their tables so diners can browse menus online. It has become an all-purpose tool.

Mr Hara also deserves a slice of the credit for the rise of Ant, which this week was due to launch its (later suspended) $37bn IPO in Shanghai and Hong Kong at a valuation rivalling JPMorgan Chase, the biggest US bank. The QR code enabled Ant to pioneer mobile payments in China through its Alipay super app.

The renaissance of QR codes, after years of half-baked efforts by US advertisers and retailers to use them for marketing campaigns and shopping vouchers, shows that it takes time for the strengths of some inventions to emerge. From Viagra, developed to treat angina, to bubble wrap, intended as textured wallpaper, many need a second chance.

In the spotlight

It is proving difficult to remove Allen Wu, the chief executive of Arm China, a joint venture between UK-based chip designer Arm and private equity company Hopu.

Despite a 7-1 board vote in June to eject Mr Wu, he is clinging on. At Arm China’s offices, he has installed his own security team to deny entry to representatives of the parent company or Arm China’s board. Meanwhile, emails from Arm headquarters to employees are being blocked by a filtering system, said two people close to the company.

The stalled progress towards removing Mr Wu has become an obstacle holding up a $40bn acquisition of Arm by Nvidia, the US semiconductor giant. One person close to Arm China’s board said he rated the odds of success for the deal at “only 50-50”.

As things stand, Mr Wu continues to be in charge of Arm China’s day-to-day operations and is its legal representative. He also appears to have won backing from some government officials in the city of Shenzhen, where the Arm China joint venture is based. Mr Wu denies the conflict of interest allegations that formed the basis of the board’s vote to dismiss him.

Art of the deal

Ninebot, owner of the Segway scooter brand, soared on its debut on Shanghai's Star Market last week, heralding a new path to listing for Chinese companies, writes Narayanan Somasundaram, Nikkei Asia’s chief banking and financial correspondent.

This was not a run-of-the-mill market debut. It marked the first issue of Chinese depositary receipts in China — a share structure that has allowed companies such as Alibaba to raise capital on US exchanges.

“The Ninebot CDR listing may start a flood of new-style listings back into China,” said market analyst Fraser Howie, co-author of the book Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise, noting that many Chinese tech companies are incorporated in the Cayman Islands.

The shares of Ninebot surged as much as 163 per cent following the company's Rmb1.33bn ($198m) IPO, providing a strong endorsement for the concept of CDRs.

Chinese authorities announced plans in early 2018 to allow CDRs as a means of letting overseas-incorporated companies sell shares at home and also to lure back major foreign-listed Chinese tech companies such as Alibaba and Baidu.

Smart data

Chart showing that China leads the world in wind and solar installations, comparison between China and the rest of the world, power in gigawatts from 2016-19

China’s pledge to go carbon neutral by 2060 has focused attention on its record. The chart shows the country is leading the world in installations of wind turbines and solar panels, though uptake has slowed recently after the government curbed previously generous subsidies.

Despite Beijing’s promises to shift away from coal-fired power stations, the evidence on the ground is different. China still accounts for the vast majority of newly commissioned coal-power stations globally.

“Coal is just so important in China from an energy supply and security point of view, and local governments don’t believe it is possible to get rid of coal immediately,” says Yang Yingxia, a senior fellow at the Boston University Institute for Sustainable Energy. “I don’t think the Chinese government has a crystal clear sense of how to get to carbon neutrality by 2060.”

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