Hangzhou signal to China’s (Fin)Techs

On January 10, the municipal government of Hangzhou (the capital of Zhejiang) and locally headquartered Alibaba Group signed a strategic cooperation agreement, underlining the « irreplaceable contribution » of the group to the city’s development, and calling for its continuation.

On the surface, this agreement may appear totally uninteresting. Alibaba has been one of the engines for growth of Hangzhou, one of China’s richest cities, since its founding in 1999. So that there appeared to be nothing new in the agreement.

But under the surface of China’s political / corporate system, the agreement had real significance, as a message to all of the country’s FinTech firms.

Regional and municipal governments – especially in the case of such an important city as Hangzhou – are key supports for local « champions » – be they public or private.

But since the end of 2020, and the Central Government-originated regulatory storm that has engulfed China’s FinTechs (with a series of investigations and fines), there was no room for such encouragement – all the more in the case of Alibaba, as the group was at the origin of the storm.

It was the last-minute cancellation of what was to be China’s largest IPO (Initial Public Offering), for Alibaba’s Ant Financial subsidiary, that marked beginning of the clampdown on FinTech firms in October 2020.

Forget the Fin, focus on Tech

The fact that Hangzhou’s municipal authorities can come back to claiming their support for Alibaba, along with some more discrete and sober signs from Central Government officials, is thus a clear indication that the two-years purgatory episode for China’s FinTechs has reached its end.

Nevertheless, it will be the case only for those who have learned the lesson of that long episode. And that lesson is clear : forget the Fin, and focus on Tech.

The origin of the storm was a speech of Jack Ma (the founder of Alibaba, since in a concrete retirement) some days before the Ant IPO, suggesting the latter would serve as the starting point of a revolution in China’s financing system workings.

Contrarily to what was sometimes written, the problem was not susceptibility of some old-fashioned bankers with heavy weight inside the CPC (Communist Party of China) ; it was that working of the financial system is at the core of the national Socialist Market Economy model.

The government, through massively public banks, controls financing allocation in the country, ensuring it goes to strategic programs. Suggesting that model could change, and part of the country’s working capital could be allocated by private interests, was a red line which crossing spelled the storm.

The Hangzhou message is thus clear. Tech – such as AI (Artificial Intelligence) and Data Centers expertise in the case of Alibaba – is welcome back, for innovation to support the country’s projects. But Fin is too strategic for anyone but the Party to bring innovation in the field.

No doubt China’s (Fin)Techs, who had two full years for thinking about it, got the message.

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