Ant, Yukos and the Warning to Rebel Billionaires
(Bloomberg Opinion) -- In the thick of it, back in Moscow in 2003, it never seemed possible that the onslaught would go as far as it did. In the end, it took only months for Mikhail Khodorkovsky to find his oil empire under siege, and not much longer for the edifice to crumble.
The parallel between the Yukos Oil Co. debacle almost two decades ago and the crackdown on Alibaba Group Holding Ltd. and affiliate Ant Group Co. over the past weeks will seem at best inexact. And, to be clear, it is. Jack Ma didn’t benefit from a chaotic and often murky privatization process, nor has he been involved in the direct political machinations of the kind dabbled in by Russian oligarchs in the 1990s. Ultimately, Khodorkovsky spent more than 10 years behind bars — though he has maintained his innocence — and the bulk of the company he had turned around was taken over by state-owned Rosneft. Blunt, devastating blows.
By contrast, e-commerce giant Alibaba and the payments company it backs are facing antitrust scrutiny and questions over risks to financial stability that many will argue are long overdue, even if the method has been abrupt.
Still, there are striking similarities. Here are two political systems led by strongmen with a penchant for cutting hubristic entrepreneurs down to size with precision strikes — regardless of the financial impact. Then, there’s the timing. Khodorkovsky’s problems began after he publicly challenged President Vladimir Putin on state corruption, just as Ma’s problems surfaced after he was a little too candid when discussing China’s banking system at a financial forum, promptly derailing Ant’s record-breaking initial public offering. Both figures loom large in the economy. And in both cases, there is a clear warning for the wider business community.
Yukos marked a watershed for Russia. It was the end of the relative liberties of the early 2000s and the start of a shift towards greater national control. The state, it was made clear to investors, had clout and would use it. The entire episode fed an atmosphere of uncertainty and fear which has punished entrepreneurship, innovation and foreign investment.
It’s worth bearing that in mind when considering what may be coming next in China, after the past few weeks. That doesn’t mean forecasting Yukos-like annihilation. But it’s still an open question whether what follows is simply tighter regulation for Ma’s realm and peer Tencent Holdings Ltd — which may well benefit the wider tech ecosystem in China — or a more draconian and damaging, Russia-style shift.
There is clearly a need to redress the balance in the Chinese tech universe, and the tech competition debate is raging well beyond China. Beijing’s regulators for years allowed innovators like Ant to roam free, with occasional raps on the knuckle — as, for example, with restrictions imposed after a student died following an experimental cancer treatment found among Baidu Inc.-promoted search results, or more recently by delaying video game approvals. Ma expanded because he was given space to.
In this reading, and as Martin Chorzempa of the Peterson Institute for International Economics pointed out to me, the timing of the crackdown may be partly explained by the fact that the extent of Ant’s breadth may not have been fully understood before the detail in its IPO prospectus. There was then a need to step in quickly before trade began, to avoid hurting mom-and-pop investors. Ma’s Shanghai speech, which suggested pressure had been building, made it politically possible.
It’s plausible too to argue that a relatively young antitrust system can overcompensate. In the past, the tycoons who have come in for the dismantling treatment in China have largely been punished for dabbling in debt-fueled sprees — like Tomorrow Holding Co.’s financier Xiao Jianhua, seized from a luxury Hong Kong hotel despite his team of female bodyguards, or Anbang Insurance Group’s Wu Xiaohui. That’s not true of Ma, who has also been at pains to do his national service.
It’s worth going back to Yukos. Then too, there were legitimate questions to be asked. Some high-profile investors actually cheered the move at the time, says economist Sergei Guriev at Sciences Po in Paris, who has written on the significance of the episode. But what followed was something far more sweeping than an effort to clean up after the chaos of the 1990s. The state’s grip tightened. The very pardoning of Khodorkovsky in 2013, just before the Sochi Olympics, was an expression of Putin’s control.
The full impact of such lightning bolts, a mark of policymaking in countries balancing economic freedoms and political restrictions, is always hard to forecast. Allowing more state-owned entities to buy in, for example, may be a slippery slope. Certainly the ripple effect from any further blows to Ma and his empire would be significant, given his charismatic image. He is far more popular than Russia’s widely disliked oligarchs ever were.
In the end, it may simply be impossible to clip Ma’s wings and pull back past freedoms without hurting innovation, as Russia did. And then there’s the desperate need for credit. Jack Ma’s saving grace may be that he is not just a problem, but part of the solution.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Clara Ferreira Marques is a Bloomberg Opinion columnist covering commodities and environmental, social and governance issues. Previously, she was an associate editor for Reuters Breakingviews, and editor and correspondent for Reuters in Singapore, India, the U.K., Italy and Russia.
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