(Bloomberg Markets) -- In the seconds after headlines flashed an abrupt halt to what had been billed as the world’s biggest initial public offering, a chat shared by a group of Chinese friends exploded in disbelief. China had just delivered a public drubbing to billionaire Jack Ma, one of its most-revered entrepreneurs, days before his Ant Group Co. was to be listed.
The friends on WeChat understood well the sweat, tears, and brazen audacity it had taken to build Ant into a financial-services juggernaut in less than two decades: They used to work there, after all. The listing, expected to value Hangzhou-based Ant at $315 billion, would have delivered a long-awaited payday to many current employees just as an earlier IPO had enriched the chat group members. Then regulators slammed on the brakes.
One of the people on the WeChat group was Yuan Leiming, a 14-year Ant veteran who left the company in 2019. He recalls heading for Hangzhou and Shanghai, expecting IPO celebrations in both places. “Ant staff were promising to buy me dinner,” he says. “Now I have to buy them dinner to placate their wounded hearts.”
Yuan is among three dozen Ant tong xue—classmates—who meet regularly, usually in Shanghai, and have formed a powerful alumni network. Many of them became millionaires after Ma’s Alibaba Group Holding Ltd., which owns about a third of Ant, went public in 2014; others sold their Ant options back to the company when it was valued at $150 billion two years ago. All resisted the urge to hold on for Ant’s IPO. For employees who did hang on, or who joined the company more recently, the suspension threw their plans for a bonanza up in the air.
Perhaps the intervention from President Xi Jinping’s government was to be expected. Ten days before it happened, Ma took to a conference stage in Shanghai to deliver a stinging rebuke of regulations that stifled innovation. The company soon came in for a deluge of criticism on Chinese state media. Commentators faulted Ant for straying from its core payments business and called out Big Tech generally for misleading users to consume beyond their means. Guo Wuping, head of consumer protection at the China Banking and Insurance Regulatory Commission, said fintech companies used their market power to set exorbitant fees. QuickTake: Why China Changed the Rules on Jack Ma’s Ant Group
Three days before the planned listing, the China Securities Regulatory Commission summoned Ma to a conference room and informed him that Ant’s time as a beneficiary of relaxed government oversight and minimal capital requirements was over. Just before 9 p.m. the following day, the fintech company’s trading debut was suspended, with the securities regulator saying later that preventing a “hasty” listing while significant regulatory changes were afoot was a responsible move for potential investors.
The Ant tong xue call their WeChat group “The Best Has Just Begun—Alipay Mafia,” the last bit a pointed reference to the moniker once hung on the founders of PayPal Holdings Inc., including Elon Musk and Peter Thiel, who left and went on to establish successful tech enterprises. The Ant veterans chose to use the know-how gained in building the company’s ubiquitous Alipay-app ecosystem to reshape pockets of Chinese business with their own startups.
They took their cues from Ma, the charismatic onetime English teacher who’s achieved cult status in China not just because of his $54 billion fortune but also because of the combative culture he fostered across his e-commerce and financial-services empire.
Ma has lauded the Chinese tech industry’s notorious 996 workweek—9 a.m. to 9 p.m., six days a week—as “huge bliss,” a driving spirit crucial to a take-no-prisoners battle that disrupted the powerful state-owned monopolies’ control over the economy. In the early days, when Alipay operated in a legal gray zone—private companies were technically not allowed in finance—Ma encouraged his employees to press on, telling them, “If someone has to go to jail, I’ll go.”
Over the years, Ant and its alumni were hugely influential in reimagining China’s financial plumbing. Now, as Ma navigates once more the boundaries a communist state can impose upon private enterprise, these Antrepreneurs—almost all men—are learning new lessons, particularly about the systemically sensitive realm of finance, where fresh rules are being crafted to curb Ant and companies like it. Here are three of their stories.
The Golden Boy
A business management graduate of Shanghai’s elite Fudan University, Bill Deng joined Ant in 2010 after working for Visa Inc. in Shanghai, Beijing, and Singapore. He soon became a favorite of Chairman Eric Jing, who directed him to focus on competitive pricing for Alipay’s services: Before Alipay expanded into the fintech giant that is now Ant, it was a scrappy online payments company trying to onboard merchants.
That put Deng in regular contact with small-business owners in industries from finance to gaming to e-commerce. Immersing himself in the Yangtze and Pearl River delta regions where Chinese export manufacturers cluster, he gained insight into the challenges of operating cross-border businesses without the support of a global payments infrastructure. China’s internet boom, which would eventually fuel Alibaba’s growth into a $700 billion behemoth, was just beginning.
By 2017, talk of an imminent IPO abounded. Gatherings of Ant employees—at after-work dinners, during two-minute cigarette breaks—became opportunities for staff to trade their startup aspirations, Deng says, though Ant’s “golden handcuffs” prevented most from acting on their dreams. Flush with stock options, Deng timed his departure strategically. “I figured that if I waited until Ant listed to create my own startup, I would be competing with an exodus of extremely talented Ant staff,” he says. “If I did it early, most of these people would still be working at Ant, which could provide me a network of strong allies.”
Later that year, he and five former colleagues founded XTransfer Ltd., which handles cross-border financial transactions for small and medium-size businesses. The venture built on Deng’s experience of spearheading expansion in Thailand and on his relationships at work. “Ant pretty much corralled all the top talent there was in China fintech,” he says. “I was working with these men side by side in the trenches.”
XTransfer works with about 80,000 clients, mostly in China, helping them adhere to international standards against money laundering and terrorism financing. It’s also built a global, low-cost payments network that lets buyers transact in their local currency and enables merchants to be paid within 24 hours—a service banks rarely offer small companies directly. The company has raised at least $30 million from investors including the Alibaba-backed Electronic World Trade Platform initiative and Beijing-based Gaorong Capital; XTransfer was valued at more than $500 million in 2019.
Deng, 39, says having his own startup has helped him generate 10 times more wealth than he would have if he’d stayed at Ant. But that doesn’t mean he’s put his former boss behind him. “Jack Ma once said that he wanted to make sure even the janitor had company options,” Deng says. He got the message: At XTransfer, even the front-desk clerk has stock options.
The Pioneer
One of Deng’s role models is Yuan Leiming, a product pioneer in the mold of Silicon Valley explorers such as iPod creator Tony Fadell. A Peking University law major, Yuan, now 44, gained a reputation at Ant for meticulous planning and for his audacity in striking out into new areas of business.
Yuan spearheaded Ant’s online-payments infrastructure, as well as its Yu’ebao money-market fund, which grew into the world’s biggest within five years of its launch by appealing to hundreds of millions of mom-and-pop savers. In the early years, Yuan worked alongside Ma himself, negotiating collaborations with China’s largest banks, cementing Ant’s role as a matchmaker shaking up the old ties between borrowers and lenders.
Even before leaving Ant in 2019–and with Ant’s blessing, as there was no conflict of interest–Yuan zeroed in on transforming how Chinese pay for higher education. In China, tuition, though a fraction of what U.S. universities charge, is still unaffordable for many. “There’s something fundamentally wrong with the concept of student loans,” Yuan says. “We need to invest in ourselves most when we are young, but that burden falls predominantly on the family.”
Yuan, who gets around by subway and rents bikes when he travels, persuaded a dozen current and former Ant colleagues to put a total of $7 million into a blockchain-based charity called Justsure that he believes can be a model alternative in the student loan market. Built atop Ant’s blockchain, justsure.com supports prospective students based on need, not academic excellence. Borrowers who end up making more than $18,000 a year are expected to repay their loans to the nonprofit at no more than 5% of their salary. If they don’t honor their commitment, they could be blacklisted by the government and deprived of certain rights, including air travel.
“We are applying essentially a venture capital model to nurturing talent,” Yuan says. He expects just a small percentage of extremely successful students to account for the majority of repayments, not unlike the VC model of relying on a small number of winners to generate big returns.
The Risk Guru
Tang Kewei researched artificial intelligence applications in finance during his Ph.D. studies at the University of Nottingham in England. He later moved to London with Barclays Plc as a data scientist concentrating on machine learning and AI. As China’s entrepreneurial scene thrived, Tang was bitten by the startup bug but worried he was out of touch after 12 years in the U.K. When Ant recruited globally in 2015 for a chief risk control officer for its fledgling internet bank, he jumped at the chance.
At Ant’s MYbank, he built tools to analyze the risk of financing businesses in China’s rural heartland, then a greenfield market that would rapidly become heavily contested. The weight of expectation within the company was immense, Tang says, with senior executives counting on Ant’s expansion into the countryside to drive its valuation to 1 trillion yuan ($150 billion).
“I thought working for a global foreign bank was already stressful, only to find out work hours at Ant were even more intense,” says the 41-year-old, who still often works well past midnight. “It was like fighting a war every day.”
Sometimes a single business-development team would be pursuing as many as five initiatives simultaneously. It was common, Tang recalls, to find frontline salespeople arguing with back-end and support teams over differences in vision, banging their fists on tables or calling people out for underperformance in front of their bosses. “Some ‘sea turtles’ couldn’t stand it and left,” he says, using a colloquial term that describes Chinese people who return home after overseas educations. “To some it seemed like a lack of planning, but Ant was like that, always embracing change.”
Tang and Yuan Leiming became friends at Ant, working together to build risk-control models for bank loan issuance and explore new businesses. They still catch up at dinner, nowadays to share insights on their startup lives.
Tang left Ant three years ago to create Fullink Technology Co., which uses deep learning and image-recognition technology to build risk controls for companies in niche markets. Fullink has raised at least $10 million from BlueRun Ventures and Source Code Capital. In one of its projects, his team is working with a state-owned entity to create tools to evaluate the creditworthiness of cattle farmers in China’s northeast. In another, it’s joining hands with a city government to incorporate municipal data such as pension contributions, taxes, and utilities into a credit-scoring service.
“Some sectors in rural finance are too niche for a giant like Ant,” Tang says. “It also needs partners like us to open up new markets.”
China has changed profoundly since Ma, backed by $60,000, started Alibaba.com in 1999 as a business-to-business marketplace. A slowdown in economic growth, along with the pandemic, has created challenges as well as opportunities. The bruising back-and-forth between Washington and Beijing has choked the free flow of capital from American endowment and pension funds that used to nurture young Chinese startups. Boosted most recently by the advent of 5G and AI, challengers to Ma’s empire—and to his giant rivals, such as Tencent Holdings Ltd.—have multiplied dramatically in the two decades since he showed that business territories once dominated by powerful Chinese state-owned firms can be reshaped.
And yet, as the slap-down of the Ant IPO illustrates, an age-old test hasn’t gone away: reading the Beijing tea leaves. Even as the world’s second-largest economy opens its markets and produces global technology champions, the Communist Party’s grip on power hasn’t loosened and the issues of social and financial stability are nailed to the top of Xi’s agenda.
With the shock of the regulators’ rebuke to Ma still fresh, someone on the Alipay Mafia WeChat group shared a meme showing how the government is cutting Ant down to size, one rule at a time. The phrase pan ta—rein him in—was joined to an emoji of an animated cartoon character’s bottom being scrubbed over and over.
Not so fast, says Tang: “This thing is not a thing.” Don’t underestimate Ma, the tong xue, or any of his legions of tech disciples. “Ant folks,” Tang says, “are super tenacious.”
Chen covers investing for Bloomberg News in Hong Kong.
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