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Ant faces tortuous path back to market as Beijing tightens rules

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If investors in Ant Group were hoping China’s biggest fintech would rapidly bounce back from the last-minute suspension of its $37bn listing last week, Beijing was quick to disappoint them.

In comments that capped off a disastrous week for Ant and Jack Ma, the group’s controlling shareholder and China’s richest man, the banking regulator suggested it would begin treating fintechs more like banks — a move that could drastically slash their valuations and attractiveness to investors.

“In accordance with fintech’s financial nature, we will bring all financial activities under a unified scope of supervision,” Liu Fushou, chief legal counsel at the China Banking and Insurance Regulatory Commission, said on Friday.

Ant Group had been set to begin trading last week when Beijing on Monday abruptly announced new draft regulations for fintechs and a day later suspended the listing.

The prospect of being forced to navigate a regulatory shake-up before it can even contemplate returning to the market is a shock for a group that was poised to hold the world’s largest initial public offering with a valuation of $316bn.

Ant’s payments platform Alipay is ubiquitous in Chinese commerce. Its fast-growing CreditTech consumer lending business, which serves as a high-tech matchmaker between borrowers and banks, had become a crucial driver of sales and the source of its rich market valuation. 

The new draft rules for online micro-lending state that internet platforms will have to provide 30 per cent of the funding of “joint loans” — a term the regulators have yet to fully define — that are offered through their platforms.

Ant currently funds only 2 per cent of its total Rmb1.7tn in consumer loans itself with most of the remainder coming from its partner banks. Ant disclosed in its listing documents that revenues from the CreditTech unit accounted for almost 40 per cent of its total sales.

Ant extracts an estimated fee of 2.5 per cent from its partner banks for each loan it arranges and takes on none of the risk. But the new regulations could force Ant to move substantially more of those loans on to its own books.

Iris Tan, senior equity analyst at Morningstar, said in her “base-case” scenario of light-touch regulation, Ant might be able to limit loans on its balance sheet to 5 per cent of the total. That would still lower its return on invested capital and could bring Ant’s valuation down by 10 to 15 per cent, she said.

Ms Tan’s estimate assumes that regulators would require Ant to source 30 per cent of loans itself but allow it to avoid holding most of them on its balance sheet, possibly by securitising the loans and selling them on to other parties, among other measures.

But “based on a regulatory trend of treating fintech players more like banks”, Ant could be forced to hold 20 per cent of the loans on its books in a worst-case scenario, she added, potentially cutting its valuation by 45 to 50 per cent.

Another analyst at a Chinese investment bank said regulators were unlikely to be lenient on Ant, especially when deciding new capital requirements for fintechs.

“[Ant will] have to be under the same regulatory framework as other banks, and I think the valuation will dive to comparatively lower levels,” the analyst said. He estimated Ant’s price-to-earnings ratio could more than halve into the 20s or 10s.

Ant previously had a trailing price-to-earnings ratio — a measure of valuation — of 48 times based on its IPO valuation, meaning it was priced at the higher end of the range of its China tech peers.

“The opposite might happen now,” said Kevin Kwek, senior analyst at Bernstein. Private banks have a price-to-earnings ratio of 12-14 times, although Mr Kwek added Ant’s valuation would be unlikely to fall that low.

Under the new measures, Ant also faces a tortuous regulatory path back to any listing. It will have to apply for a cross-provincial licence to provide online microloans from the CBIRC. It is not yet clear whether the online lending regulations will include a grace period, or whether Ant will have to halt some of its activities once the law is enacted.

But first Ant will need to wait for the online lending regulations to be passed into law before it can even apply for a cross-provincial licence. Another recent set of regulations on financial holding companies that also affected the company took a year to proceed from draft to implementation. 

Wang Dan, analyst at Hang Seng Bank China, said Ant could still try to convince regulators it was only an intermediary and not a bank. “If Ant only provides big data and customer information, and the banks pay service fees and provide loans . . . then this rule has little effect on them,” she said.

But even if regulators accepted this argument, that might not stop banks from insisting the fintech take on more risk by helping to fund more joint loans in the future.

“Once this regulation comes out, banks may be more inclined to issue joint loans in the future to let online platforms share their risk,” Ms Wang said.

Additional reporting by Nian Liu in Beijing



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Australia calls Great Barrier Reef warning politically motivated

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Australia has labelled a draft decision by the UN’s World Heritage Committee to include the Great Barrier Reef on its “in danger” list as politically motivated.

The committee, which is chaired by Tian Xuejun, China’s vice-minister for education, and selects Unesco World Heritage sites, proposed adding the world’s largest collection of coral reefs to the danger list because of the damaging impact of climate change and coastal development.

The designation could ultimately lead to the reef losing its World Heritage status, although officials said listing was intended to prompt emergency action to safeguard a living structure that stretches 2,300km along Australia’s eastern coast.

But Sussan Ley, Australia’s environment minister, said the government had been “blindsided” by the committee’s finding and alleged there was a lack of consultation and transparency. She added that Canberra would challenge the draft decision.

“When procedures are not followed, when the process is turned on its head five minutes before the draft decision is due to be published, when the assurances my officials received and indeed I did have been upended, what else can you conclude but that it is politics?” she said.

That the World Heritage Committee is chaired by a senior Chinese official has stoked suspicions in Canberra that it had been singled out over its diplomatic and trade clash with Beijing.

China-Australia relations have soured following Canberra’s call last year for an inquiry into the origins of Covid-19 and Beijing’s imposition of tariffs on Australian wine and barley imports.

Ley said she and Marise Payne, Australia’s foreign minister, had already spoken with Audrey Azoulay, Unesco director-general, to complain about the draft decision.

But scientists downplayed the suggestion that the “in danger” listing was politically motivated. Three mass bleaching events in five years demonstrated the need for the government to do more to tackle climate change, they said.

“I’m seeing some press coverage saying this is all a plot by China not to buy wine, lobsters and to screw the Barrier Reef. I think that’s pretty far-fetched given that the draft decision released overnight will be voted on by 21 countries,” said Terry Hughes, professor of marine biology at James Cook University.

The controversy will heap further international pressure on Canberra, which has been pressed by the US, UK and others to commit to a national target of net-zero emissions by 2050.

In a draft decision due to be voted on next month, the committee urged Canberra to “provide clear commitments to address threats from climate change, in conformity with the goals of the 2015 Paris Agreement, and allow to meet water quality targets faster”.

It noted the loss of almost one-third of shallow-water coral cover following a “bleaching” event in 2016 — a process linked to warmer than normal water that can lead to a mass die-off of coral.

The row over the “in danger” listing occurred at a difficult time for Australia’s conservative coalition, which is embroiled in internal squabbling over climate policies.

On Monday, Barnaby Joyce, a climate sceptic and supporter of coal mining, ousted Michael McCormack to become leader of the National party, the junior coalition partner to the Liberal party, and Australia’s deputy prime minister. Joyce is expected to oppose any move to commit to net zero by 2050.

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The slippery slope of politicised street names

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It is confusing for taxis and Amazon delivery drivers, but in England I live in a Kent village on a street called simply “The Street”. Google Maps disconcertingly emphasises the “The” in big letters.

Surely no street name can be less political than mine. But in a much bigger conurbation, the decision by the mayor of Budapest to impose new street names in the Hungarian capital to highlight China’s human rights abuses is the latest example of the tendentious politicisation of place names around the world. 

There is no doubt about Gergely Karacsony’s purpose. By calling the streets around the site of a proposed Budapest campus of China’s Fudan University “Dalai Lama Road”, “Free Hong Kong Road” and “Uyghur Martyrs Road”, the mayor wants to embarrass Viktor Orban, the authoritarian and pro-China prime minister of Hungary.

He seems to be succeeding. In the face of public protests, Orban is now hesitating to impose the Chinese university project he previously championed to please Communist party leaders in Beijing. You can see why Karacsony did it. He is an opposition politician, and Orban has steadily undermined Hungarian democracy, limiting the scope for other forms of political action. 

But renaming streets for short-term political ends can be the start of a slippery slope. It does nothing to satisfy residents or help visitors find the place they are looking for, which are surely the main reasons for having names at all. And future mayors might change them all back again or impose their own ephemeral political views on the city nomenclature. 

Phnom Penh, the Cambodian capital, has undergone such a bewildering series of street name conversions since the end of French colonial rule — a reflection of sometimes violent regime changes — that avenues are often known to locals by several different names and visitors struggle to navigate the city.

When I lived in the Zambian capital Lusaka in the 1980s, one avenue was briefly renamed Saddam Hussein Boulevard after the Iraqi dictator gave a shipment of oil to the cash-strapped government of Kenneth Kaunda. Now that Saddam is dead and no longer so popular it has again been renamed, this time as Los Angeles Boulevard. But because there was already a Los Angeles Road, that too was renamed last year after national footballing hero Kalusha Bwalya.

Many political or nationalist renamings, it is true, can stand the test of time. There are countless streets and squares in France named after General Charles de Gaulle, and scarcely a substantial town in India without its MG Road in memory of Mahatma Gandhi. 

Some names, however, inevitably lose their appeal. In Madrid I bought my car from a Renault dealer in a street I was amazed to discover was still called the Calle del General Yagüe, a Francoist commander in the civil war known as the Butcher of Badajoz. The name was changed in 2017 to Calle de San Germán. 

A court has just ruled that another Madrid street, called the Calle de los Caídos de la División Azul, can retain its name because the fallen Spanish soldiers who fought for the Nazis on the eastern front might be considered victims of the war as well as perpetrators. 

But the lesson must be that there is little to be gained for mayors, governments or inhabitants if street names are changed purely for short-term political advantage, whether for celebration or denigration.

In our small village in Kent, there was not much scope for change, but change came anyway. There were always three principal roads: The Street, where the church is; Back Street, which runs parallel to it behind the village; and the main road, which joins them at the top and leads to the local towns in either direction. My first experience of the political or social motivations behind street-naming was when Back Street became Swan Lane (after a pub) and the main road was fancifully relabelled Poplar Road. 

Such cosmetic changes are innocent enough — who wants to live with an address on Back Street or the B2082? — and they have become part of the local geography. But somehow I doubt that Budapest’s Free Hong Kong Road will be called that a few years from now. 

victor.mallet@ft.com



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Western powers reignite Beijing anger after G7 and Nato warnings

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For more than six weeks, Taiwanese military officers wondered where the Chinese fighter jets had gone.

During May, only four entered the island’s air defence identification zone. In the first half of this month, there were incursions on only four days and a stretch of nine days without any activity at all. This compared to a previous pattern of as many as 20 incursions a month.

But on June 15, a day after US president Joe Biden and other Nato leaders issued a statement condemning China’s “stated ambitions and assertive behaviour”, 20 PLA fighter jets, four nuclear-capable bombers and four additional military aircraft entered Taiwan’s ADIZ. It was the largest number of planes ever dispatched by the People’s Liberation Army into the zone, with some of them also skirting around the southern tip and east coast of the island before turning back

One senior Taiwanese government official said Beijing could not restrain itself after the Nato communique — and a G7 summit statement issued just days earlier — criticised Beijing’s activities in the Taiwan Strait and its crackdown on Hong Kong’s pro-democracy movement.

“Beijing wanted to prove wrong those in the west whom they accuse of hyping a China threat theory,” the official said, referring to the reduced military activity in May and early June. “But of course they could not keep it up. Once Taiwan gets a little support, they have to react.”

Chinese analysts said Beijing had no choice but to show its resolve after the Biden administration accelerated its efforts to build a “united front” against China at the G7 and Nato summits — something President Xi Jinping’s administration had long feared but that never materialised when Donald Trump was US president.

“The G7 and Nato have been distorted into anti-China platforms,” said Victor Gao, a former Chinese diplomat now at the Center for China and Globalisation, a Beijing-backed think-tank. “There are increasingly large forces in China that believe if the US wants to single out China as its fundamental enemy, then let the US have an enemy.”

Beijing also responded to the G7’s criticism of its policies in Hong Kong with a show of force in the territory, where it recently snuffed out the only public commemoration of the 1989 Tiananmen Square massacre on Chinese soil. In the early hours of Thursday, police arrested senior staff at the pro-democracy Apple Daily newspaper for alleged “collusion with a foreign country or with external elements to endanger national security”.

A senior officer with the Hong Kong police force’s national security division later said the arrests were related in part to more than 30 articles published in the newspaper.

Beijing’s actions around Taiwan and in Hong Kong were matched by scathing rhetoric. Zhao Lijian, a foreign ministry spokesperson and one of China’s most outspoken diplomats, said the G7 communique “exposed the bad intentions of the US and a few other countries to create antagonism and widen differences with China”.

“The US is sick,” Zhao added. “The G7 should take its pulse and prescribe medicine for it.”

Such comments appeared to contradict recent instructions from Xi, who said last month that official propaganda should “set the right tone, be open and confident but also modest, humble and strive to create a credible, loveable and respectable image of China”.

Xi, however, also noted that China was involved in a “public opinion struggle” internationally. “Powerful anti-China forces in western society want to attack and discredit China,” Lu Shaye, China’s ambassador in Paris, said last week in a state media interview. “We must fight back to safeguard our own interests. Our sovereign security and development interests are inviolable.”

Yun Sun, a China foreign policy expert at the Stimson Center in Washington, said such rhetoric reflected growing alarm in Xi’s administration. “There is a real concern in Beijing that a united front is forming [and] includes many elements that China does not wish to see such as Taiwan, maritime security and human rights,” Sun said. “That’s why we are seeing some unusually harsh responses from Beijing on G7 and Nato.”

Hong Kong police blow out candles lit by activists to mark the 1989 Tiananmen Square massacre. Beijing responded to G7 criticism of its policies in Hong Kong with a show of force in the territory © AP

“Germany, France and other EU countries are hesitant to confront China as [openly as] the US,” added Shi Yinhong, a professor at Renmin University in Beijing, who advises the State Council on foreign policy issues. “But they are now closer to the US when it comes to dealing with China.”

Some Chinese officials and analysts argue that while Beijing will continue to respond forcefully when criticised over Taiwan, Hong Kong or other “core interests”, this does not preclude co-operation with the US on other issues such as climate change or global tax reform.

Fu Ying, a former Chinese ambassador to the UK, said at a recent seminar that the Biden administration wanted to “prevent China from moving forward to replace the US”. But, she added, “we hope [technological and economic] competition can be managed to ensure it is on a positive track, pushing each other to seek joint development and improvement”.

Beijing “should stand firm on matters of principle but not be too distracted by anti-China hostility”, Gao said. “In the long term China will have a larger economy than the US — no one can change that. Time is on China’s side.”

Additional reporting by Xinning Liu in Beijing



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