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Jack Ma summons reminds investors that Beijing is still boss



When Jack Ma last week chose to speak truth to power about the failings of China’s financial system, he was aiming very high — perhaps too high.

The founder of ecommerce business Alibaba, already China’s wealthiest man, is set to become substantially richer when his online finance spin-off Ant Group debuts on the Hong Kong and Shanghai stock exchanges on Thursday. At $37bn, it is the world’s largest ever initial public offering.

But after Mr Ma criticised China’s state-dominated banking sector at a public forum, the country’s best-known entrepreneur on Monday was summoned by regulators to discuss hastily issued industry guidelines that could hit Ant’s future profits.

While the dramatic turn of events is unlikely to derail Ant Group’s IPO, it is a reminder to Chinese businesses and their investors that they still answer to the Communist party — no matter their pedigree.

“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.

Prof Chen added that while private groups such as Ant — which is valued at more than $300bn and offers services including mobile payments and micro credit — do not pose the same level of potential financial risk as China’s big banks, “they need to be subject to a more systematic regulatory framework”.

In a statement on Tuesday, Ant said Mr Ma and China’s regulators had exchanged views “regarding the health and stability of the financial sector”.

“Ant Group is committed to implementing the [regulations] and . . . will continue to improve our capabilities to provide inclusive services and promote economic development,” it added.

Speaking at a financial summit in Shanghai on October 24, Mr Ma 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.

The summit’s headline speaker, however, had a different message. In his first public appearance in almost a year, China’s vice-president Wang Qishan instead emphasised financial stability. “There should be a fine balance between encouraging financial innovation, invigorating the market, opening up the financial sector and building regulatory capacity,” he said. “Safety always comes first.”

Mr Wang’s turn as President Xi Jinping’s anti-corruption tsar from 2012 to 2017 made him the country’s second most powerful man.

Wang Qishan, China’s vice-president, has emphasised stability over innovation in China’s finance sector © Reuters

Banks and other vested financial sector interests in China have long protested that they operate under far more constraints than new digital entrants.

Before announcing the timing of the IPO, Ant executives met with People’s Bank of China officials to seek their blessing, according to two senior group executives. Despite receiving assurances, there have long been voices sceptical of Ant within the PBoC and China’s banking and insurance regulator, which views itself as the champion of the country’s biggest lenders.

A senior executive at a big international bank in Hong Kong said Mr Ma’s regulatory summons signalled that Beijing “wants to put Ant on a leash before the monster becomes uncontrollable”.

“When he recently attacked bankers, he was seen as arrogant and unwise,” the executive added. “Banks in China are not just the core of the traditional financial system, they are an extension of monetary policy.”

While the summons could be viewed as embarrassing for Mr Ma, Ant’s IPO remains a powerful symbol for the future potential of China’s financial markets and attracted almost $3tn in investor demand.

Investors do not expect this week’s developments to thwart Ant’s trading debut. Edmond Hui, chief executive of brokerage Bright Smart Securities, said Ant Group shares trading on the grey market were fetching about 50 per cent higher than the IPO price.

Dickie Wong, head of research at Kingston Securities in Hong Kong, estimated that the stock would jump between 20 and 30 per cent on its first day of trading in the city — although it may have soared further without this week’s events. “I don’t think the Chinese government wants the Ant IPO to fail.”

Investors had been anticipating that Chinese regulators may take a harder line on online finance groups. In its prospectus, Ant said it faced regulatory risks in China and that it would have to establish a central bank-approved holding company in accordance with State Council regulations issued in September.

That could have a direct impact on its future profits. Draft regulations will require Ant to cap loans at either Rmb300,000 ($44,843) or one-third of a borrower’s annual pay — whichever is lower. The rules could also make issuing loans across China’s provinces harder.

Oliver Rui, a finance professor at China Europe International Business School, noted that Ant could previously leverage Rmb3bn in capital into Rmb300bn in loans. But under the new guidelines, Ant will need to keep at least 30 per cent of its capital on its balance sheet. “Their future profit will not be as good as it is now,” said Prof Rui.

The new regulations might force investors to “revisit their assumptions [about Ant’s] growth given the clear signs of regulatory intervention”, said Kevin Kwek, an analyst at Bernstein Research, in a note on Tuesday.

But Mr Kwek — who remains sanguine on Ant’s prospects — said they were simply a reminder that the company “will be under regulatory scrutiny — as any player in financial services will be”.

Additional reporting by Hudson Lockett, Primrose Riordan, Sherry Fei Ju, Nian Liu and Yuan Yang

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Emerging Markets

Brazil virus variant found to evade natural immunity




The P.1 Covid-19 variant that originated in Brazil and has spread to more than 25 countries is around twice as transmissible as some other strains and is more likely to evade the natural immunity people usually develop from prior infection, according to a new international study.

The research, conducted by a UK-Brazilian team of researchers from institutions including Oxford university, Imperial College London, the University of São Paulo, found that the P.1 variant was between 1.4 and 2.2 times more transmissible than other variants circulating in Brazil. 

It was also “able to evade 25-61 per cent of protective immunity elicited by previous infection” with any earlier variant, the researchers found, in a sign that current vaccines could also be less effective against it.

International concern about the P.1 variant has escalated recently, with more than 25 countries detecting the variant, including Belgium, Sweden and the UK, which has identified six cases.

The scientists are expected to release a paper describing the research on Tuesday. Dr Nuno Faria, the lead author, did not immediately respond to a request for comment. The study has not yet been peer reviewed.

The researchers have dated the emergence of the P.1 variant to November 6, 2020, around one month before cases began to surge for a second time in the Brazilian city of Manaus. They found that the proportion of cases classified as P.1 in Manaus increased from zero to 87 per cent in the space of 7 weeks. 

The paper concluded: “Our results further show that natural immunity waning alone is unlikely to explain the observed dynamics in Manaus, with support for P.1 possessing altered epidemiological characteristics.”

“Studies to evaluate real-world vaccine efficacy in response to P.1 are urgently needed,” it added.

The researchers also found that infections were 10 to 80 per cent more likely to result in death in Manaus after the emergence of P.1. However, the authors cautioned that it was not possible to determine whether this meant the variant was more lethal or whether it was a result of increased strain on the city’s healthcare system, or a combination of both. 

The P.1 variant has over 17 mutations, which alter its genetic sequence from the virus originally identified in Wuhan, including 3 key changes to the spike protein that it uses to enter human cells.

Researchers in Brazil have been using genetic sequencing technology developed by Oxford Nanopore in the UK to identify and track the variant. The technology was first used in Brazil during the Zika outbreak in 2015.

Dr Leila Luheshi, director of applied and clinical markets at Oxford Nanopore, told the Financial Times that while the B.1.1.7 variant in the UK has similar properties of high transmissibility to P.1 — it is thought to be around 1.5 times as transmissible as variants that preceded it — there was no evidence to date that it evaded past natural immunity in the same way. Studies so far have also shown that current vaccines retain their efficacy against B.1.1.7.

Luheshi said that the concern with P.1 is that “because it has these mutations around the spike . . . the hypothesis is that the vaccine will be less effective.” But she added that there is not yet definitive evidence to support this theory. 

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Coronavirus latest: Production glitches to delay Johnson & Johnson vaccine distribution




Coronavirus latest: Production glitches to delay Johnson & Johnson vaccine distribution

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Norsk Hydro blamed for birth defects in Amazon forest pollution case




Maria do Socorro explains in graphic detail the spate of ailments affecting newborns in her remote community in the Amazon: her grandson died after being born with his intestines outside his body, while others were missing organs or had undeveloped bones.

For the 56-year-old community leader, there is little doubt about the cause of these illnesses. She said the rainforest town had for years suffered from toxic waste pollution from the local operations of Norwegian aluminium producer Norsk Hydro.

Long a simmering environmental scandal in Brazil, the allegations were brought on to the international stage this month when Socorro’s community sued the Norwegian giant in a Dutch court, seeking damages for claims that “the incorrect disposal of toxic waste” from operations in the area had caused a variety of health ailments, polluted the rainforest and destroyed economic opportunities.

“We cannot have future generations because the children are born and then die. Whole families are contaminated,” said Socorro from the Barcarena township in the northern state of Pará.

The case — filed just days before the UK’s top court ruled that Royal Dutch Shell could face legal action in London brought by thousands of Nigerian villagers over alleged pollution — is the latest international trial pitting large, resource-hungry companies against impoverished rural communities.

It also comes amid mounting pressure on companies to abide by strict environmental standards, a push being spearheaded visibly by Scandinavian investors.

One of the allegations in the lawsuit is that the pollution has caused birth defects © Alessandro Falco/Bloomberg

“If business can be global, why can’t justice? These companies have businesses everywhere, but then when they do something wrong they want to smother the possibility of people getting compensation,” said Pedro Martins, partner at law firm PGMBM, which is representing 40,000 alleged victims bringing the suit against Norsk Hydro.

“International corporations have different standards for how they do business in the northern and southern hemispheres as if life in the southern hemisphere does not have the same value.”

Through local entities, Norsk Hydro runs three facilities — a bauxite mine, a refinery and a smelter — in Pará, a vast Amazonian state that is a flashpoint for illegal deforestation, gold mining and land-grabbing.

The company said it would respond to the request before the court in the Netherlands, where its subsidiaries controlling the local entities at issue are headquartered. It denied that in 2018 pollutants from its facilities spilled over during heavy rains and polluted nearby rivers and earth. The company declined to comment further.

A source close to the company said, however, that it did “not see the [health] effects that have been claimed. The actual impact is hard to see and there aren’t any studies showing that.”

Map of Brazil

A combination of poor sanitary conditions and the tropical climate could be behind many of the health issues, he added: “There are a lot of feelings and not so many things relating to actual facts.”

Locals say bauxite, lead and aluminium pollution have turned the region’s rivers red. A study from the Evandro Chagas Institute, a Brazilian public health body, found in 2018 that the region’s waters were so polluted with industrial waste from the Norsk Hydro facilities that they “cannot be used for recreation, fishing, or human consumption”.

Like many Amazonian communities, much of the Barcarena township depends heavily on fishing and farming for survival, work that they now say is impossible.

“I invite these Norwegians to come and bathe in our waters. I challenge them. They have good water there in Norway. Our wealth just goes there,” said Socorro, who heads Cainquiama, a group representing mainly indigenous people and quilombolas — the descendants of runaway slaves.

Nearly all of the claimants in the suit have complained about chronic pain, hair loss and skin conditions. The suit also contains claims in relation to birth defects, such as those that have affected Socorro’s grandson, who was born with gastroschisis — a hole in the abdominal wall.

A pipe belonging to alumina refinery Alnorte, which is owned by Norsk Hydro, in Barcarena © Ricardo Moraes/Reuters

“Studies around the world have shown the effects [of toxic metals] on pregnant women, foetuses and children at birth,” said Marcelo de Oliveira Lima, a public health researcher at the Chagas institute. “But our studies so far did not go deep enough to show the [connection]. Other studies are still being done.”

The case is a sensitive one for Norwegian investors and the government, which owns a 34 per cent stake in Norsk Hydro. Oslo has long attempted to hold Brasília to account for the environmental destruction of the Amazon, even publishing its own data on deforestation in the world’s largest rainforest.

“There seem to be quite some dispute about the facts in this case and in particular about the actual harm of the spill to local environment and whether the company is somehow to blame by neglecting important safety measures,” said Jeanett Bergan, head of responsible investments at the KLP pension fund, Norway’s largest pension provider.

“We know Norsk Hydro as a responsible corporate actor when doing businesses abroad. I do not think [this case] will damage the credibility of Norwegian actors.”

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Where climate change meets business, markets and politics. Explore the FT’s coverage here 

Martins, the lawyer leading the group action, said they brought the case in the Netherlands because of the inertia of the Brazilian court system. He believes the case can reach a verdict in 18 or 24 months.

Brazil is no stranger to environmental disasters. This month, miner Vale agreed to a $7bn settlement with authorities over a dam breach in 2019 in the Brumadinho township that killed hundreds of people and polluted vast tracts of lands with industrial sludge.

BHP was sued in a British court over a dam failure in Brazil’s Mariana township in 2015 that left 19 dead. The case was thrown out because parallel proceedings were taking place in Brazil.

“The Hydro case draws attention for having caused significant environmental damage,” said Luiz Eduardo Rielli, director of sustainability consultancy Novi. “After three years, what I care most about is: What lessons have been learned? How can we ensure that new damages do not occur?”

Additional reporting by Richard Milne in Oslo and Carolina Pulice in São Paulo

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