May 18, 2021


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How CHINA hopes to avoid a SUBPRIME CRISIS

9 min read
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this allows you to have a better awareness of what you’re reading via a political spectrum tool see the news that you’re not seeing ground news is geographic filters let you search

everything from hyper local news to global events and with all the news stories breaking about current events these days you will be able to find accurate statistics

and reliable facts news changes quickly many people believe that buying things on aliexpress is like giving money to the chinese communist party reading some media coverage

you get the impression that there is a direct relationship between xi jinping and chinese companies right well that’s not the case listen up

china halts 37 billion ant group ipo citing major issues ft in case you don’t know ant group is a financial services company that is part of the alibaba group and yes

alibaba is the parent company of aliexpress we’re talking about one of the biggest and most well-known companies in all of china it is not only a technology company that competes hand-in-hand with

the big giants of silicon valley it is one of the chinese companies that has gained the most market share abroad
however the chinese authorities are putting all kinds of obstacles in the way of ant group’s ipo there were even rumors about the alleged disappearance of its founder jack ma he

disappeared from the public eye for several months after giving a highly controversial speech in shanghai in that speech he harshly criticized chinese banks but relax

jack ma has since reappeared and is safe and sound nevertheless the chinese government is still holding back the ipo of his company and financial so the questions that come up are what is

china’s problem with its biggest tech company why is the chinese government making such a big deal about antfinancial going public is it the chinese communist party supposed to take care of its

entrepreneurs so that they can lead the world today we’re going to answer these questions but first let’s take a look at a bit of history financial institutions no longer win all the time

in the last 25 years the chinese economy has multiplied its size by precisely 25 times an absolute spectacular growth record
and of course given this data you may even forget the most basic fact no matter how many skyscrapers neon lights and 5g antennas they have china is still a communist country well

more of a kind of hybrid where they even maintain five-year plans and where the main banks in china belong to the state yes it’s true there are private banks

but they are very small more than half of chinese finance is in the hands of the big

state-owned banks in reality this translates into one thing the party bureaucrats are the ones who ultimately decide who can get a loan the priority of these banks is not to lend to

households or small businesses but to state-owned enterprises add to all this the fact that chinese banking regulations are much stricter than those in europe or the united states

in other words if you’re a small business it is almost impossible to get a bank to lend you money to give you an idea less than one-fifth of all chinese companies are backed by

banks by comparison in countries like germany or spain one in three companies borrow from banks and that explains the criticism from jack ma

that has hurt chinese banks so much check it out be wondering if banks don’t lend money how do regular chinese people get loans how do they set up small businesses in

this country well through small money lenders who charge very high interest rates

many chinese have been sunk by unpayable debts and so it was until ant financial came along ant financial is a global technology company

it was founded on allypet established in china as an escrow service to build trust between online buyers and sellers

since its first transaction alipay has grown to be the world’s largest digital payment platform and has now evolved from a digital

wallet to a lifestyle enabler and i know what you’re thinking let me see if i’ve got this straight and financial alipay digital payment platforms what is

all this a new bank well it’s a company belonging to thealibaba group but isn’t alibaba dedicated to e-commerce what are they doing giving loans well we are going to look at that

right now jack ma’s bank alibaba was founded in 1999.

at first it was a portal that connected small chinese manufacturers with foreign companies that wanted to buy wholesaleproduction from them then they moved on to selling to end consumers

first in the chinese market with tmall and taobao and finally to the whole world with aliexpress as of today alibaba handles 60 of china’s e-commerce and they dominate nearly a third

of global e-commerce alibaba is known around the world for e-commerce but in china it goes even further in 2004 they launched their own payment platform alipay from there they went on to provide other financial services

loans to small and medium-sized enterprises loans to individuals and

thisis how a new company was born within the

alibaba group and financial and this is where the problems start for alibaba because it begins to offer services that were traditionally offered by banks

this is something that we’ve already covered on visualpolitik when we talked about financial technology services or fintech in the past banks manage the entire relationship with money

now they don’t now there are companies like transferwise

dejiro or revolut a phenomenon that ishappening in china in europe and all over the world but there are some areas where ant is being revolutionary

one is their uibal app upon opening alipay and the uobao landing page users can choose from a series of moneymarket funds you can adjust your settings so that all the funds from your alipay account will

be drawn from and deposited directly into uobod and you can also elect to have a certain proportion of your salaries transferred automatically each month eurobow is a

money market fund money market funds are a little-known financial instrument the way it works is this you put moneyin uber and that money is invested to give small loans to other people you get

a higher interest rate than if you put

your money in a regular term deposit plus you can take it out whatever you want and here comes the super advantage

there is no minimum amount technically you can just invest 1u1 which would be the equivalent of around 15 cents and

thanks to this feature this fund has become a real bomb in china take a look

alibaba’s yue bao becomes world’s largest money market fundcgtn uebel came to be managing up to 270 billion dollars in other words

ant group is a true financial revolution and that is why this company’s ipo

was going to be the biggest in history that’s right it was expected that they would sell shares for a total of 37 billion dollars to give you an idea the ipo of aramco the saudi arabian oil

company resulted in share sales of only 29 billion dollars but months before the company went

public chinese financial regulators put the brakes on the ipo

why well we’re about to find out ideological reasons in addition to ubival ant has continued to explore the possibilities of fintech wealth

management sme lending and all kinds of services

this is creating a gaping hole forchina’s bank studies claim that financial technology firms will have eaten up more than 40 of china’s potential card fees in less

than five years resulting in an annual loss of around 60 billion dollars for banks

and not only that this displacement of users from state-owned banks to fintechentities such as ant group means thatbanking in china would be privatized with all that

this implies for the communist party in terms of loss of control over thechinese economy because to control banking is to control the economy so thereaction of the chinese authorities has

been very forceful china’s president xi jinping personallyscuttled jack ma’s ant ipo wall street journal but wait a moment

because this is not the only reason weare not only talking about ideology but also about a political game listen up

political reasons who is the biggest beneficiary of a successful ipo well

those who already had part ownership in the company in other words those who own and financial shares expect the share price to rise the
the moment they enter the stock market and who are among the biggest investment companies linked to the
grandson of former president Jiang Zemin and the son-in-law a former politburo standing committee member Jiang ching stood to profit from the IPO the Hindu you see one of the first decisions that xi Jinping made as soon as he became president of China was to clean the party of corruption, in other words, to throw out all his political enemies this is how he ended up taking total control of the party well many of these

former party colleagues have tried their luck in the corporate world if this IPO were to take place not only would they become millionaires but they would also have ownership of what would become the largest financial institution in the country that explains why it was as recently as 2020 that china took measures like this

beijing launches antitrust investigation into alibaba financial times it is curious that they start this

the investigation right in the year 2020. six years ago one could justifiably argue that Alibaba was a monopoly back then this company accounted for 80 of all e-commerce turnover in china

today however its market share has fallen to 55 but hold on a minute because we’re not just talking about politics or ideology there is actually an economic and quite legitimate reason for wanting to put

some control on ant financial and we’re going to look at this right now economic policy reasons we could say

that ant financial is a bank that has no money they just act as an intermediary you ask for a loan amp financial and they connect you with small lenders or directly with banks and financial is currently required by law to fund only two percent of each loan

and here comes the big question what happens if the debt isn’t paid back the problem would not be with the intermediary but with the one who lends you the money in other words and financial has little incentive to make sure that its clients are solvent

on the contrary, their goal is to create as many loans as possible and what is the problem with all this well it could easily trigger a lending bubble a bubble very similar to the sub-prime mortgage crisis in other words, and financial might be

willing to lend money to someone who is not creditworthy then it may bundle good debt and bad debt into packages these packages are then sold to banks or investors a lot of their customers are freaked out

waiting to see how low everything and more has been completely wiped out the dow traders are standing

there watching in amazement I don’t blame them well to avoid this china has proposed this measure china titans online lending rules in fresh blow to jack ma’s ant group

financial times in short what the regulator’s asking and financial to do is put up 30 percent of the money it lends out of its own pocket this way the company has a strong motivation to make sure that all of its

customers are creditworthy and yes 30 is a really high number to put it in context banks in the eurozone are only required to have a one percent reserve in other words with these new regulations and financial will be forced to become much more conservative with It

lending almost as much as the traditional Chinese banks of course with measures like this could also avoid a crisis like the great recession of 2008 but on the other hand, they are preventing thousands of small businesses from being able to finance themselves so now the question is do you think that china’s putting the brakes on Alibaba’s the financial arm is motivated by economics or is it just a strategy for the Chinese communist party to maintain its control over the economy

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