Baba is not the next khodorkovsky

There are some speculations online, and certainly no less on Twitter that compares Xi v.s. Jack Ma with Putin v.s. Khodorkovsky.

There is no comparison. The Russian oligarch rose to power when Putin’s power was not as consolidated as they are now. Khodorkovsky pursued a deadly political ambition and failed. Jack Ma won’t challenge Xi politically ever.

If you don’t believe that, checkout the video where Bo Xilai commented on Xu Ming, his former business associate. The ruling class, since the 2000s, has iron-claw on the political power, and often treated businessmen as a means to the ends. It is often mistaken because of the heavy mercantilism tendencies of China’s industrial and trade policies.

So far, there are no organized political challenges to the ruling class from the business side. The dissenting voices were often suppressed long before they could be materialized. The story of the arrest and the subsequent trial of Ren Zhiqiang could serve as a quick primer on how the ruling class handles such dissenting voices recently.

Contrary to the western belief, the recent BABA news is not driven by egos. Far above anything, the ruling class concern their legitimacy of their rules. The legitimacy, in recent decades, derived from the Harmonious Society. The concept consists of effective means to suppress dissenting voices and providing basic economic stability. The monopolistic behaviors of the internet companies, BABA in particular, could pose a systematic risk to basic economic stability. The regulators reasoned, BABA’s micro-loans to small and medium enterprises and consumers could impose cross-sector risks to the state-owned banks.

Although Jack Ma is on the no-flight list now, there is no higher political risk to Jack Ma now than before. As the goal of the regulation is to de-risk BABA, a drastic action towards the enterprise would be counter-productive. What we could likely see, as the outcomes of the recent regulatory actions, are:

  • Higher capitalization requirements for BABA / Ant to shed risks with the banks
  • A regulatory requirement for credit information sharing between states, banks, regulatory bodies and other private enterprises
  • Some transparency and additional pro-competitive requirements that would benefits their competitors such as JD and PDD

We could also see some experimental regulatory requirements that eventually will benefit big players than smaller ones, much like the regulatory requirements introduced in 2018 to Games.

What you won’t see, as the western investors worried, are CCP members on the board or cap tables. There are more innovative structures to exercise controls than the plain cap table or Board seats.