The Long-Term Implications of Ant Group’s Delayed IPO

The Long-Term Implications of Ant Group’s Delayed IPO

The classic bestseller “Godfather” cited Balzac’s sentiment at the beginning of the story: “Behind every great fortune there is a crime.” In “Godfather III,” the Corleones wash away the crime and get the family business legalized. Similar stories happen again and again for companies operating in gray areas. Maybe it is Ant Group’s turn to be put on the regulation track.To get more latest ant group news, you can visit shine news official website.

The abrupt halt to Ant Group’s initial public offering (IPO) sparked much discussion over the nature of the fintech conglomerate. Some argued the change of Chinese regulatory authorities’ attitude signaled a changing business environment, leading to confused reactions from investors and chilling other IPO hopefuls.

I would argue to the contrary: Ant’s IPO suspension and the new regulation portend a coherent regulatory attitude, which will contribute to more favorable business environment in China.

Part of the reason for Ant Group’s breakneck growth lies in the vagueness of its positioning. Ant is a technology company that works with financial institutions. Controlling shareholder Jack Ma has been trying hard to build the image that Ant Group is more of a “techfin” company rather than a “fintech” outfit – naturally, Ant Group would enjoy looser regulations as a result. In fact most of the existing financial regulatory requirements are difficult to apply to Ant directly.Loose regulations can explain the jaw-dropping growth rate of Ant since 2004. As the IPO prospectus shows, Ant’s Alipay app has more than 710 million monthly users and 80 million monthly active merchants making use of the Alipay platform. The turnover of Alipay digital payments was 118 trillion Chinese renminbi – almost $18 trillion – from July 2019 to June 2020. Ant’s rapid growth has brought about high profit. Ant’s revenue was 121 billion RMB in 2019, with a net profit of 18 billion RMB. That profit forms the basis of its soaring market value.

Ant is not alone. Other fintech companies, such as JD Finance, Didi Finance, and 360 Digital, have more or less adopted similar business models. These companies operate and profit in an uncertain regulatory environment, but their common business model is not sustainable.Anxiety over when the boots will fall on the ceiling causes sleepless nights, and the uncertainty of China’s regulation of the fintech sector had similar effect. Companies, including Ant, were left wondering how long it would be before regulations were tightened. Companies will chase high profits instinctively, but they also cherish a sustainable, rational operating environment. Sometimes the wish for sustainability even outweighs the profit motive, depending on the size and the maturity of the company. Now that Ant’s operations are being brought under regulations, the fintech environment is on track to become more sustainable. That is actually a positive signal for other companies.

The same rule applies to investors who are seeking long-term returns. A capricious administration would simply scare off all the investors and invite speculators. Under ordinary circumstances, investors will take the regulatory environment as an established exogenous condition and then make corresponding investment decisions. If exogenous constraints change constantly, investors will be more inclined to make short-term investments and be ready to divest at any time, or even take the opportunity to profit at the expense of others, which is destructive to social welfare. No government would encourage such speculation, which bolsters stock markets at the expense of the real economy.