China: Jack Ma cowed, but instability still looms

In the past few months, many have been speculating on the sudden disappearance of Chinese tycoon Jack Ma from the limelight from early October 2020 to late January 2021. The flamboyant multi-billionaire, CEO of Alibaba, and member of the Chinese Communist Party suddenly found his ambitions dashed and businesses investigated. What does this all mean?

Bug in the system

Founded in 2014, the Ant Group is a subsidiary that operates businesses related to finances and technology, colloquially known as “FinTech.” Since its founding, it has operated products such as Alipay, which provides a wide range of online financial services. One of the most problematic of these are their credit and loan functions. As of November 2020, Ant’s credit loans account for one-tenth of all of China’s non-mortgage consumer loans. At the same time, Ant’s products enable almost twice as many loans as most major Chinese banks. In other words, a single privately operated app on the phone, that is not a bank, is loaning money to hundreds of thousands of people and small-to-medium-sized businesses at the click of a button.

Ant also operates another product, Yu’e Bao, which allows users to put their spare change into a fund operated by an asset management company in return for a roughly 4 percent interest payment. Through this, Ant Group pooled together and manages over $165.6 billion in this fund, which is the world’s biggest of its kind. In comparison, JP Morgan’s US government money market fund has $150 billion. Again, Ant Group is not even a bank.

This gargantuan FinTech business was originally set to go public on the Shanghai and Hong Kong stock exchanges last November, with an Initial Public Offering (IPO) at $37bn, but the enraptured stock market speculators rushed to get their hands on a new golden goose. At one point, the market bid was 870 times the price of the share on offer, which means the Ant Group stock could have been worth $2.3 trillion if they went on the market.

If all of this sounds eerily similar to the stories of insane speculation of the financial market that resulted in a massive crash in the West, state regulators in China would agree with you. Four years ago, state banks and regulators pressured Jack Ma to rein in the Yu’e Bao fund, which was reaching $260bn, without any public embarrassment on his part.

No more monkey business

Jack Ma was reined in with the full force of Xi Jinping and the CCP state / Image: Пресс служба Президента России

This time around, however, Jack Ma was reined in with the full force of the CCP state, who pulled the plug on Ant Group’s IPO one day before its launch, and soon after declared an antitrust investigation into Ma’s flagship corporation Alibaba. The latter’s stock price, and by extension Ma’s nominal fortune, instantly tanked when the news broke, thereby dethroning him from China’s richest man to its fourth richest. A true modern greek tragedy.

Having eaten humble pie, apparently served by chef Xi Jinping himself, the limelight-obsessed mogul and preacher of the gospel of overwork Jack Ma hid himself away from the public eye until 20 January. As the drama unfolded, many were unsure why the CCP felt the need to publicly rebuke Ma this time around, and what exactly the implications were for such actions, even prompting speculation that the CCP was about to nationalise Jack Ma’s empire.

If we place this event within a larger context of the state of the Chinese economy, along with some of Ma’s own behaviour prior to this confrontation, then it is not hard to understand why the CCP state is compelled to take clear measures against him. Although faring far better than many of those in the West, China’s economy is still marred by the general slump in the world economy, threats of debt defaults by major State Owned Corporations and other factors that could upset the recovery. The CCP state is then compelled to issue tighter regulations in the market in the hope of stopping this. 

In this context, Jack Ma’s swashbuckling FinTech IPO directly contradicts the tone of moderation and timidity that the CCP wishes to set among the Chinese bourgeoisie. Not only that, Jack Ma had the effrontery to openly contradict Vice President Wang Qishan when the two spoke at a public forum together. Wang pontificated about the need to minimise risks in the financial market, and to this Ma retorted “There is no such thing as riskless innovation in the world. Very often, an attempt to minimize risk to zero is the biggest risk itself.” 

Such arrogance from a celebrity tycoon, who holds significant economic powers in his private hands, of course crosses the line for a regime that is famously intolerant of dissent. The CCP needed to remind the Chinese bourgeoisie of who actually wields the big stick. More importantly, however, the CCP needs to keep all of the capitalists in line so that no one maverick can embark on an adventure that could threaten the entire edifice of Chinese capitalism.

State whack-a-mole

From this incident, we can clearly see the real, concrete balance of forces in China at the moment, which at first glance may appear contradictory. China’s economy now operates on the basis of the market economy, which is further impacted by the trends in the world capitalist system, and a local Chinese bourgeois class has developed alongside what is still a sizable state sector. Owing to the planned economy of the past and the conscious decisions of the CCP bureaucracy during the “reform and opening up” period, a significant section of industry and the biggest banks remain state owned, although they too operate on the basis of the market economy. This gives the party-state bureaucracy the power to set general economic policies while maintaining a level of independence from the newly grown Chinese bourgeois class and foreign investors. This contrasts with the liberal bourgeois democracies where the bourgeoisie hold a much stronger clout over elected politicians and the state.

Nevertheless, even the strongest of states cannot prevent the inevitable crisis of capitalism from happening, and more importantly, they cannot stop the class struggle these crises engender. After years of marketisation and liberalisation of the economy, the CCP state is beginning to feel the need to increasingly rein in the excesses of the market, and restrain the most adventurist of the capitalist elements who do not have the interest of the entire system in mind. Thus, a slew of new regulatory measures became necessary, such as the new antitrust measures focusing on Internet, Finance, and Consumer Goods industries and the cap on real estate loans, in order to avoid the stability of key economic sectors from being too tied up with the fortunes of individual corporations or capitalists. 

These measures in and of themselves do not signal a move towards expropriation, or a return to the planned economy, as many Stalinists may have hoped. In fact, the nature of these regulations are similar to the regulatory measures that Western states impose at times of crisis. Let us not forget that the state operates as the “committee for managing the common affairs of the whole bourgeoisie” as explained in the Communist Manifesto. This task can even include, at times, the reining in of individual capitalists whose behavior may endanger the interests of the system as a whole. This is even more the case in China, where the state is still in the hands of the old privileged bureaucracy of the past.

In the case of the Ant Group, after the humiliating halt by the CCP to go to market, all it was asked to do was to form an internal committee on its own to reorganise the enterprise to better follow the regulations, and submit itself for more regulatory scrutiny. Sections of its businesses may need to reapply for licenses. However, control and rights to the property remain in the hands of Ant Group’s owners. In the monopoly probe against Alibaba, the consequences of any “abuse of its dominance in the market”, if found, would be confiscation of “illicit gains” and up to 10 percent of the conglomerate’s revenue last year. Although this level of punishment is heavy compared to the slaps on the wrist that Western corporations would get for similar offenses, this falls far short of nationalisation, let alone expropriation.

The CCP has moved to clip the wings of capitalists that step out of line / Image: Thomas Lombard

A telling case that further reveals the CCP’s limits at the present stage is the fate of Anbang Insurance Group. This once multi-billion colossal finance conglomerate underwent a period of rapid yet sketchy purchase of assets. In the end, the threat that these practices posed to the stability of the market was too great and the CCP state stepped in to take over the corporation in 2018 and jailed its CEO for massive fraud. However, this takeover was not nationalisation, in the sense of the state taking over the running of the company. Many of the original operations of Anbang were transferred to a new company, Dajia, which is funded by state-owned enterprises but is actively being privatised. Other assets were liquidated. 

What this all reveals is that the CCP state at this stage is fundamentally interested in strengthening the market economy and is averse to eliminating private property. At the same time, the overall marketisation, i.e. the role of general capitalist competition in the economy continues to be the main driving force in the Chinese economy. This is confirmed by the fact that the regime plans on deepening this system, with free trade ports and zones and further marketisation measures in land trade remaining on the agenda. 

The nature of the Chinese state remains that of a political dictatorship, of the old state bureaucracy, based upon a capitalist economy, but where the party regime uses its political power to discipline any element within the capitalist class who threatens the stability of the system as a whole and at the same time to try and control the market.

The crisis of capitalism, however, has little to do with the subservience of the bourgeoisie to the state, but results from the profit-driven and unplanned nature of production in a market economy. That is why, despite the attempts of the powerful state machine to curb the excesses of the market, China’s economy is still dogged by a persistent problem of overproduction. A recent report revealed that the lack of demand to absorb production continues to be the biggest challenge to the Chinese economy, where over 86 percent of commodities sold in China are in oversupply, which is hampering investments. The slew of bond defaults by State Owned Enterprises late last year is only the flipside of the same coin, as they had to overspend and borrow in order to artificially keep up GDP growth. No amount of regulation can do away with any of these problems. It can only be resolved by the introduction of a democratically drawn-up plan of production and workers’ control, which is something the CCP apparatus cannot tolerate, as this would put into question its own privileges.

Rise like lions

The most crucial factor in the situation to consider is the level of class struggle in China. Despite heightened repression against workers and socialist activists and the pandemic lockdowns, signs of struggle and discontent from below still regularly flare up in all parts of the country. A most recent example is the struggle over unpaid travel expenses by the iPhone factory workers of Shanghai. There is also the case of self-immolation of a Jiangsu delivery worker over unpaid wages, which has highlighted this growing problem. A new generation of youth has also been radicalised to the left and expresses their views on the Internet despite the stringent censorship. 

These are all signs of an inevitable rise in class struggle that will take place in China in the period ahead, and the CCP state apparatus under Xi is preparing for this. The increased measures to strengthen state repression and the fanning of nationalist sentiments are an indication of the state preparing for future turmoil. At the same time the state occasionally lashes out at individual capitalists who step out of line. This serves to distinguish the state from the bourgeoisie, even fomenting the illusion that the state would punish the evil capitalists on behalf of the masses. The Party’s humiliation of Jack Ma is being used to this effect, as he is rapidly becoming a reviled figure among the Chinese working class for his flashy tycoon persona.

As the world crisis of capitalism impacts on China, inevitably engulfing it in its all its consequences, contraction of market outlets, falling exports, falling profit levels, mass closures, etc., we can expect to see sharp and sudden change, including desperate measures taken by the CCP to preserve the power and privileges of the bureaucracy, whose legitimacy depends on its ability to provide economic growth, jobs and wages. In the event of rapidly increasing unemployment and closure of many factories, this could even include nationalising bankrupt enterprises that employ large numbers of workers in order to stabilise the situation. Faced with severe crisis, capitalist regimes have been known to take these measures to stabilise the economy. In China, where the CCP state still plays a significant role in the economy, this is something that cannot be excluded. 

However, no matter what they do, they are organically incapable of introducing what is necessary: workers’ democratic control, the election with the right of recall of all officials, on wages no higher than those of skilled workers in China. They fundamentally defend the present system of capitalism in China, and therefore need to be removed from power, and the Chinese workers need to struggle for the expropriation of the property of the multinational corporations operating in China, the renationalisation of much of what has been privatised, and the return to a planned economy, but this time based on genuine workers’ democracy where they can become truly the masters of their own fate. In such a system there would be no room for the Jack Mas of this world or for any privileged state bureaucrats.