Alibaba founder's dramatic rise and fall illustrates China's wary embrace of tycoons who power economic growth.
China's most outspoken billionaire has gone silent. No one has seen Jack Ma at the business school he founded. Nor at his tai chi studio. His raucous speeches headlining an annual meeting of entrepreneurs in his home province of Zhejiang have been put on hold.
Since Chinese President Xi Jinping unexpectedly called off the blockbuster public offering of Ant Group, Ma's payments and lending business, five months ago, Ma has made a single public appearance.
On a cold Sunday in January, he arrived unannounced at a small, out-of-the-way elementary school in rural Tonglu. The playgrounds were empty and only a handful of teachers were on campus. No one was expecting China's most flamboyant entrepreneur, and that was exactly how Ma's team wanted it.
He was at the school to shoot a short, politically safe clip highlighting his charitable activities — and, more importantly, to let the world know he was still free. But the appearance was being carefully stage-managed and teachers vying for selfies with Ma were turned down. Only his camera crew was allowed to film.
"Mostly he just listened to us talk about education," recalls principal Chen Jianqiang. Ma promised he'd return for a second visit some day when the children were present. "Things have not been so smooth for him lately, so he doesn't want to appear publicly," says Chen.
The one visible sign Ma left after his hour-long visit was a scribbled signature on a dormitory wall. "We can only say Teacher Ma does not have very good handwriting," comments vice-principal Wu Bin. In fact, friends say Ma is quite a talented calligrapher, so the scribble may have been a sign that he was in a hurry.
Shortly after his trip, the visit was cut into a video clip that made global headlines: Ma had reappeared. Alibaba, the ecommerce behemoth he founded in 1999, regained $47bn in market value and the group's plan to sell billions of dollars of bonds to foreign investors was put back on track.
But the fact that he had to drive hours into the Chinese countryside to shoot a brief reappearance video is a sign of how quick and brutal Ma's fall from grace has been. A few months earlier he had been at the pinnacle of global business. Western bankers were salivating at the prospect of the US$37 billion initial public offering of Ant Group, which Ma had split off from Alibaba. In a letter to clients, Morgan Stanley's top tech banker Michael Grimes hailed a "truly landmark and historic transaction".
Then Ma took the stage in Shanghai, China's financial capital, to speak to a group that included senior officials and former regulators such as the previous central bank governor. The price was set "for the biggest IPO in human history", he said. "Furthermore, for the first time ever, it was set in a city other than New York . . . A miracle is happening."
But it was what Ma said next, setting private enterprise's interests above those of the Chinese state and challenging financial regulators, that dramatically changed the course of events. In the days that followed, the authorities summoned him to Beijing for a terse dressing-down and unveiled regulations designed to damage a pillar of Ant's business. His speech had reverberated to the very top of the ruling Chinese Communist party, angering the autocratic Xi.
With the much-hyped flotation suddenly called off, Ma's personal fortune shed about US$10 billion in value, while shares in publicly traded Alibaba fell as much as 10 per cent. Something else happened, too: the globetrotting, limelight-addicted Ma simply vanished.
Hundreds of millions of people in China use the products Ma created every day. We swipe open Ant's Alipay app on our phones to pay for coffee, order a plate of dumplings to our doors or top up our electricity meters. Millions more dump their savings into Ant's money market funds. So many take microloans from Alipay to pay for daily necessities that it has mostly replaced credit cards and turned Ant into China's largest consumer lender, issuing about one-tenth of consumer credit last year.
Often these consumers are spending their money in Alibaba's online marketplaces: Taobao, which translates as "treasure hunt", offers nearly a billion products, everything from iPhones to pet lizards; Tmall holds the online shops of the world's biggest brands. Together they sell about US$1 trillion worth of goods annually, roughly double the amount estimated to flow across Amazon.
Like Amazon's Jeff Bezos in the US, Ma has led Alibaba into the offline world too, buying up supermarket chains and stakes in home furnishing retailers and China's leading media groups.
Ma, 56, stepped down as executive chairman of Alibaba in 2019. He hasn't had a formal role at Ant in years, but remains its controlling shareholder after taking the business from Alibaba and its testy foreign investors about a decade ago. Yet even as he stepped back in title, Ma continued to involve himself in running both companies, say people close to him.
He remains one of the world's most important entrepreneurs and has become an unofficial goodwill ambassador for China, donating thousands of ventilators and more than 100 million face masks to countries around the world at the start of the pandemic last year. He sits on UN committees and his Rolodex includes kings and queens, presidents and prime ministers.
Jack Ma amassed far too much power, this is understood by everyone in China." - Song Qinghui, economist
But Ma had attracted trouble long before last year. His cult-like following helped him build unrivalled influence for a businessman in China, but he became too powerful in a country that only allows a single centre of power. Now supreme leader Xi is threatening to crush him, in a contest that captures the contradiction at the heart of modern China — the Communist party's wary embrace of the capitalists who power the country's economic growth.
As Xi has tightened control over Chinese society, he has reinvigorated state-run companies and brought the country's oligarchs to heel. Billionaire run-ins with the state over regulatory concerns, corruption or other perceived slights have become so frequent in recent years that a new rule has emerged: lie low. Some, such as Wang Jianlin, founder of real-estate conglomerate Wanda, have fallen silent while shrinking their businesses; others, like Wu Xiaohui of insurance conglomerate Anbang, have ended up in jail, with their empires taken over by the state.
"They all have their own reasons for going quiet," says Rupert Hoogewerf, who has documented China's billionaires for two decades on his Hurun rich list. "For Ma it's unusual. He's been a high-profile entrepreneur from the beginning. He's like Richard Branson — he used his profile to build his business."
Interviews with people in Ma's circle, officials in Hangzhou and regulators in Beijing show that, even before Ma's speech in Shanghai veered off track, friction had been growing with Chinese leaders for some time. In particular they had grown tired of Ma always being the star of the show.
"Jack Ma amassed far too much power, this is understood by everyone in China," says Song Qinghui, an independent economist who contributes to Chinese state media. "Alibaba's influence grew far too great. It got to the point where it had to be brought under control."
The Financial Times has reviewed Ma's early business dealings to understand how in better times he ran rings around foreign shareholders and regulators with few consequences; how he increased his influence in China; and how he pursued a global profile that ultimately made Beijing uneasy. What happens next is far from certain, but the answer will reveal much about where China is heading.
Ma was born in 1964 to an ordinary family in the coastal city of Hangzhou. His parents were passionate performers of traditional musical storytelling, which offers clues to the source of Ma's own flamboyance. Ma stands roughly five feet tall but his charisma is outsized: at heart, he is a salesman who knows how to tell a story. In the 1990s he began proselytising for the internet in a country that had barely heard of it by making up a quote from Bill Gates about its importance: "The internet will change every aspect of people's lives."
In China, his personal history has become a modern-day fable of overcoming the odds. It took him three years to pass the country's tough test to get into college. KFC turned him down for a restaurant job. Eventually, the years he'd spent honing his English by showing foreigners around his hometown helped him to excel at university. Ma became an English teacher, then founded his first internet start-up, China Pages, which created web pages for businesses.
By the mid-1990s the country was changing fast. Chinese leader Deng Xiaoping had unleashed society's selfish impulses nearly two decades earlier, spurring on private business with his line: "Black cat or white cat, if it can catch mice, it's a good cat."
The party doesn't know if they can trust him." - Associate of Jack Ma's from Hangzhou
The economy was off to the races, starting a decades-long growth spurt that made China the world's second-largest economy and a global power. The private sector was leading the way and many state-owned enterprises withered or reformed. The Communist party became ever more dependent on the private sector for growth, job creation and tax revenues. In 2002, the Communist state formally brought the growing capitalist class into its fold, with President Jiang Zemin championing the "Three Represents", a political theory that recognised private entrepreneurs as "advanced social productive forces".
But the relationship was fragile and China continued to favour state-owned companies with access to loans and licences. Ma saw this first-hand when a local champion in Hangzhou replicated China Pages' business, leaving him with little choice but to sell to this big, state-backed incomer. Ultimately, he found himself powerless and left.
The experience shaped his relationship with the state — respectful, but distanced. Ma tells employees to "be in love with the government, but [don't] marry them", though he has also said that he would hand over his entire company to "the nation" at any time if asked to. Even though he's a party member, he never joined China's for-show parliament, the National People's Congress, or its consultative body, unlike tech rivals such as Pony Ma of Tencent and Robin Li of Baidu. "The party doesn't know if they can trust him," says one person who has worked with Ma in Hangzhou.
In 1997 Ma decided to learn more about how the government ticked and joined the Ministry of Foreign Trade and Economic Cooperation, now China's commerce ministry. Knowledge of the internet and English landed him a role escorting Yahoo co-founder Jerry Yang to the Great Wall when the US internet tycoon visited China that year. "I was immediately struck by how inquisitive and how curious he was about the internet," Yang said later. "He clearly was not your typical government person."
Ma didn't stay in the government long. In 1999, he gathered a group of friends in his Hangzhou apartment to launch Alibaba, aiming to connect Chinese factories with buyers around the world over the internet. After initial hiccups, the business took off. Brands and middlemen flocked to China for cheap goods to sell at home. Alibaba connected them with suppliers. Ma was on his way.
The next decade was to bring financial disaster to Europe and America but China was brimming with confidence, especially its leading tech companies, which stood on the verge of a smartphone revolution that would exponentially increase their user base. Alipay was beginning to experiment with the QR codes that came to transform daily life in China by making payment by smartphone ubiquitous.
Alibaba stood at the centre of all this; it had become the place for the country's rapidly expanding middle class to snap up goods online. But Ma had a problem. He'd been forced to dilute his personal stake in Alibaba to keep the company afloat over its first decade. Goldman Sachs and venture capitalists first bought 50 per cent of Alibaba, then Japanese tech group SoftBank bought shares, slowly accumulating a 30 per cent stake, and finally Yahoo came in to grab another 40 per cent. Ma's share of the pie shrank to a sliver.
By 2011 foreign shareholders Yahoo and SoftBank together owned a majority of Alibaba. Ma, who felt they had already been amply rewarded as the start-up's valuation rose, began badgering the two to hand over more shares to management, recall people close to the situation. "These past years we've always been fighting," Ma said that summer of his relationship with SoftBank chief Masayoshi Son. Ma's relationship with Yahoo was also tense. The US internet pioneer had begun its long decline, but investors attributed most of its remaining value to its stake in Alibaba Group, which was comprised of three major businesses: Alibaba.com, Taobao and Alipay.
Then, in the spring of 2011, Ma decided to unilaterally take over Alipay (which was renamed Ant Group in 2014). "Both Yahoo and SoftBank were stunned," says a former executive who was involved in the situation. "Jack had been sabre-rattling for a couple of months, but no one expected anything related to Alipay — nor anything of such magnitude. They obviously had big plans for Alipay, so it was a pretty brazen act."
Chinese business records and legal documents reviewed by the FT show for the first time how Ma carried out the Alipay takeover. First, in May 2009, Alibaba began to restructure how it held Alipay, with Ma's right-hand man Joe Tsai helping to shift it from a direct subsidiary of Alibaba to a domestic Chinese company majority-owned by Ma personally. Because Ma simultaneously entered into a series of contracts with Alibaba, it continued to treat Alipay as a subsidiary. This seemingly unusual contractual arrangement between parent and subsidiary (called a variable interest entity, or VIE) in fact underpins China's entire tech ecosystem.
Ma's actions demonstrated that it is really only trust binding together the system. Without Alibaba's board approval, he cancelled the legal contracts that made Alipay a subsidiary of Alibaba, bringing it under his personal control.
On May 10 2011, Yahoo slipped an innocuous line deep into its earnings report, notifying its investors it had lost Alipay to Ma. Its share price plunged and a war of words broke out. Ma claimed the move was necessary for Alipay to gain a crucial payments licence from China's central bank, which it could be denied if it was under foreign ownership.
Jack is always playing three-dimensional chess . . . it can end up irritating people." - Duncan Clark, author
At the People's Bank of China, some officials felt Ma had proven his loyalty to China over foreign stakeholders; others saw it as Ma personally profiting from regulatory uncertainty while laying the blame at their feet. Ma did not respond to a request to be interviewed for this article sent through Alibaba. Alibaba, Ant and the Jack Ma Foundation did not respond to questions sent for comment.
What Ma had not expected was the fierce public backlash in China. Many entrepreneurs feared he had undermined the financing system they counted on both to raise money from foreign investors and, eventually, to cash out in foreign markets. China's most respected news editor, Hu Shuli of Caixin magazine, wrote an editorial denouncing Ma's actions.
"Originally it wasn't a big deal," Ma told a Chinese reporter. "The pressure on me comes from critics and media here." Later he led Alibaba and Ant to buy up stakes in Chinese media businesses, gaining some control over what they say about him.
In the end, Ma, Yahoo and SoftBank hashed out an agreement, cementing Ma's personal control over Ant while gaining a profit-sharing arrangement for Alibaba, which the company years later exchanged for the 33 per cent stake in Ant it holds today. But many believe the episode to be Ma's defining sin. Duncan Clark, who delved into the Alipay transfer in his book , says: "Jack is always playing three-dimensional chess, but . . . it can end up irritating people."
If Ma was playing chess, he was doing it with increasing confidence. By 2015, he was on top of the world — and Hurun's China rich list. His undermining of the VIE structure had not diminished investor appetite for the US$25 billion float of Alibaba in New York in 2014, which used the same structure. Alibaba was the world's largest-ever stock-market flotation. Tech companies such as Ant had begun to show the world that China could innovate too, and Ma became a symbol of what was possible as the government promoted entrepreneurship to alleviate pressure on finding work for millions of new university graduates.
Ma began to lay out a grander, global vision for Alibaba. For a while his ambitions dovetailed with a push by Beijing to help Chinese businesses go abroad and he even accompanied Xi on a visit to the US in 2015.
"What I'm thinking about is how we can make Alibaba a platform for global small business," Ma told US journalist Charlie Rose at the World Economic Forum in Davos that year. "The [World Trade Organization] was great [in the] past century, but the WTO was helping big companies to sell things across the nations. Today the internet can help small businesses sell things across the oceans." He added that he hoped to sign up two billion consumers and 10 million small businesses outside China.
However, on the very same day, a hapless mid-level official at China's business regulator decided to take aim at Ma's domestic influence once again. When the regulator's report suggested roughly two-thirds of the goods sold on Alibaba's Taobao platform were counterfeit, Alibaba fired back directly at the person behind the report. "Director Liu Hongliang! You're breaking the rules, stop being a crooked referee!" tweeted Taobao's account on Weibo, attributing the statement to one of its merchants.
The business regulator responded with a white paper bashing Alibaba. But then Ma flew to Beijing and met with Liu's boss, Zhang Mao. The two men agreed that Alibaba would work on stamping out counterfeits and Zhang commended the company's efforts to safeguard consumer interests. The white paper was withdrawn and the issue melted away. Though public opinion had been largely in the tech tycoon's corner, the sight of Ma daring to take on the country's regulators was not to everyone's taste. "This public challenge was not a step forward for the rule of law," says Song, the economist. "Actually, it was a demonstration of arrogant capital secure in its backing."
The picture pinged around the Chinese internet: squished around a table were 16 men, each one a tech leader. There was Pony Ma, head of gaming and social media giant Tencent, seated beside JD.com's Richard Liu. Nearby was Zhang Yiming, founder of ByteDance, the company behind the video app TikTok.
The event on the sidelines of the 2017 World Internet Conference in Wuzhen, put on by the Chinese government, came to be known simply as "the internet dinner". Ma wasn't there and was furious about the snub, says one person who worked closely with him. "He threw a temper tantrum," the person says. "He has an ego bigger than he can afford."
Asked about it by reporters at the time, Ma said: "I didn't think about attending — anyhow, no one invited me. Even if they had, I probably wouldn't have had time . . . Believe it or not, if I really wanted to put on a dinner, I could invite the whole world, the very richest, the world's elite, not many would get an invitation. But these dinners are meaningless . . . I'm not going to be organising any dinner."
Then, a few months later at Davos in January 2018, Ma did put on a world-class dinner. He seated Bill Gates to his left and Norway's prime minister Erna Solberg to his right. Alibaba's public relations department pushed pictures and prewritten copy to Chinese media, flooding the internet with lines about Ma's feast and its attendees.
Pictures from the evening showed Ma doing magic tricks for Rwanda's president Paul Kagame and posing with Canada's Justin Trudeau. Noticeably absent was Xi's economic tsar, Liu He, who was to speak the following day at Davos and was leading China's all-important campaign against financial risk.
The Communist party leaders 'don't like him representing China on the world stage.'" - A collaborator on Ma's international projects
Ma's Davos dinner was the kind of stunt that grated in Beijing and which had become common as he recast himself as the leader of both Alibaba's and Chinese business's global expansion. He was waving China's flag around the world and often praising the Communist party as well.
But for leaders sitting in Beijing it was uncomfortable: a private businessman was speaking to the world on their behalf — in perfect English to boot. "Gonggao gaizhu — a subject's achievements make the king feel uneasy," says a collaborator of Ma's on international projects. "They don't like him representing China on the world stage."
After his Davos dinner, Ma's plane cruised to Bordeaux, where he was buying up châteaux and vineyards. He went on to meet Thai prime minister Prayuth Chan-ocha in April and Israeli prime minister Benjamin Netanyahu and King Abdullah II of Jordan in May, followed by visits to a string of world capitals over summer 2018. Flight records from Radarbox and Flightradar24 suggest he spent more than half the year outside China.
Meanwhile, at home, Xi's confidant Liu had kicked financial regulation into high gear. From 2017, authorities were scrutinising the country's "grey rhinos" — large private conglomerates such as Wanda, HNA, Fosun and Anbang, which had feasted on debt to embark on global shopping sprees. Ant too suffered setbacks as regulators stepped in to limit parts of its business, but it was nimble enough to pivot and continued its growth. All the while, Ma carried on speaking out. "One of the reasons why Alibaba grew so fast [was] because the government didn't realise it . . . When they start[ed] to realise it, we became very slow," he told one forum in English.
Official uneasiness was becoming clearer. "What he was saying both publicly and privately could be embarrassing for China," says a person close to the Hangzhou government. "After he returned home, they always had to go debrief him and ask about his trips," he adds.
China was changing, but Ma appeared not to have realised how much. Empowered by amendments to the constitution that removed term limits on the presidency, Xi had become its most powerful leader in decades. Any form of public dissent was risky and Xi had made a crackdown on high debt levels and financial-sector risk a top priority, as officials worried that a US-style systemic financial crisis could shake the economy and even their hold on power.
Ant's size and scale had grown by leaps and bounds since Ma had taken it from Alibaba, and regulators were just beginning to understand its vast scope when the company made public its financial details for the first time in August last year. The very details that made investors so excited — its consumer loan issuance that eclipsed every state-owned bank, its annual payment volume that surpassed China's GDP — made regulators in Beijing wary. "Ant's business is inherently risky, we can't count how many meetings executives have had with officials to get us through to today," says one employee. Ma's next step was to prove too risky even for him.
When he took to the stage at a high-profile business conference in Shanghai last October, Ma knew regulators were drawing up rules to rein in Ant and other fintech companies, people with knowledge of the situation have said. He intended to do what he could to lobby those present aggressively, bringing the confidence of his 2015 battle with the business regulator to the campaign.
But he took the fatal step of making the battle public. On stage, Ma challenged the financial norms of the old world, pushing for China to take its own path. "Today's financial system must be reformed," he lectured from the podium. "Right now our capacity for 'control' grows stronger and stronger, while our capacity to 'monitor' is obviously lacking. Innovation doesn't fear regulation, but it does fear regulation by yesterday's methods." Unlike most of his speeches, Ma repeatedly looked down at his notes, suggesting his words were finely calculated. Ma's personal office is full of former journalists from China's official news agency Xinhua.
According to people close to the situation, some top officials in Beijing saw the episode as Ma attempting to win the public over to his side and influence policy. The Alibaba-backed news outlet Huxiu reposted an article defending Ma's speech.
But a few weeks later a vice-chair of the party's propaganda department gave a speech urging Chinese media to resolutely "guard against . . . the risk of capital manipulating public opinion". Huxiu, which had also published an editorial warning against excessive punishment of China's tech groups, was ordered to halt its operations for a month.
In November, Ma dropped out of judging an African talent show he created. Then the General Association of Zhejiang Entrepreneurs that Ma chairs called off its annual conference, and one member says there was talk of him stepping down from his position. Rumours in China spread that he was under house arrest or had fled to Singapore. A cloud of uncertainty weighed on Alibaba's share price and a planned bond sale. Then Ma drove into the Chinese countryside and on that cold Sunday in January surprised the teachers at Yuhua elementary school. "He was very satisfied with what he saw here," says principal Chen.
One place Ma has been seen recently is an artists' colony in Hangzhou, where he built a compound surrounded by the workshops of famous directors and movie studios he reveres. Inside, a warren of moss-covered cobblestone footpaths and wooden bridges snake between ponds and patches of land holding homes. Ma's retreat forms an island of its own, with a moat of ponds and levees and a couple of guards at the foot of the main bridge leading to it.
The colony spreads across one corner of the Xixi National Wetland Park, an 11 sq km nature preserve known as the lungs of the city, which forms the centre of Ma's empire. It holds the Jack Ma Foundation and his tai chi studio, where in better times he received visitors but which has more recently become a shrine to his former life: Ma on magazine covers; Ma ringing in Alibaba's listing; for-purchase Ma mementos such as a replica of the orange electric guitar he strummed while belting a Chinese rock song to 60,000 screaming Alibaba employees.
It remains unclear if Ma will be allowed to add any new victories to the collection. "As a private entrepreneur it's very important to find the right degree of publicity and Ma hasn't yet mastered this. It didn't matter before. Now it is necessary to start learning," says a former official in Hangzhou who dealt with Alibaba for a decade. Another local official adds: "Jack Ma has to keep a low profile now."
A large portion of the Chinese public has turned against him, eager to see the downfall of the country's greatest celebrity capitalist. Whereas in the past he was affectionately praised as Daddy Ma or Teacher Ma, comments on Ma's videos are now along the lines of "Proletariat of the world, come together!" Teacher Ma's greatest lesson for the legions of Chinese entrepreneurs he's inspired may be reminding them that the Communist party reigns supreme and that any private business, no matter how strategically important to the country's future, will be brought to heel if it is perceived to jeopardise the party.
The country's tech groups in particular are in for change. Alibaba and Tencent expanded mostly unchecked over the past two decades, growing to control vast swaths of the digital and even physical economy. Last weekend, authorities fined Alibaba a record $2.8bn for abusing its market dominance and ordered the company to "rectify" its behaviour, and regulators quickly followed on Monday by announcing a plan to shrink Ant's business.
Ma's rivals have been quick to understand which way the wind is blowing. At China's annual legislative session last month, Tencent's Pony Ma proposed tighter regulation of internet businesses such as his own and has had a "voluntary" meeting with antitrust authorities. JD.com called off the IPO of its finance unit and put a compliance officer in charge. Colin Huang of ecommerce juggernaut Pinduoduo exited the company he founded altogether — after giving away a large chunk of shares over the summer in what one friend said was a move designed to keep his name from topping the rich list.
As the Chinese Communist party approaches its 100th birthday this summer, a landmark event, it is cementing its control over private enterprise. The party committees that all private companies must have are being reinvigorated, with their oversight roles growing. State-owned businesses are expanding. "For the past four decades the relationship between the private sector and the Chinese Communist party has been contingent and tenuous, with undulations between control and autonomy," says Jude Blanchette, a China expert at the Center for Strategic and International Studies.
"We're in another cycle of control and I expect this one to be enduring."
Written by: Ryan McMorrow and Sun Yu
© Financial Times
