Opinion | Ant IPO rumors signal that tech crackdown is over

By Tom Fowdy

Last week, an unconfirmed "exclusive" report circulated in Bloomberg and later Reuters claiming that Ant Financial had been given an undisclosed "approval" by China's government to reinitiate moves towards an Initial Public Offering (IPO) in Hong Kong and Shanghai, should it wish to do so. The Hangzhou-based company however denied the rumors and clarified that it had "no plans" to do so. However, one should carefully note that reports of government approval and the company's own intentions constitute two separate things here, and in public relations usage of the term "no plans" is often referred to as a "non-denial denial" whereby a denial of one's intent to do something is feigned to give the impression of a denial at large, yet leaves the door open.

Irrespective of what Ant decides to do in the end, the political messaging decoded in this story is very clear: China's tech regulatory crackdown, a dominant feature of the 2021 political landscape, is coming to an end. The news is significant because this crackdown, commencing around October 2020, had in fact begun with Ant Financial and the government rejection of its initial IPO plans, which were set to be the largest in history. Now, the report that the Chinese government may consider permitting this again is a clear signal that this "phase" is coming to an end. It coincides with a rescinding of restrictions on ride hailing firm Didi as its cybersecurity probe ends, new approvals of games, all of which in turn is seeing the Hang Seng Tech Index recover after experiencing a torrent of pain last year.

Why is China's regulatory spree on technology now coming to an end? First of all, the mantle of domestic political priority has strongly shifted back towards the economy in China. The impact of recent Covid-19 lockdowns has led to a strong push to resuscitate economic growth for the rest of the year. In the view of this challenging environment, the digital economy remains ever more important for China, which has suffered significant losses from the crackdown and also contributed to a rise in unemployment through layoffs. It has also spooked investor confidence in the country, which has not helped in regards to recent capital outflows amidst geopolitical uncertainties. This is also an aggravated outcome of the war in Ukraine, which has ignited new fears regarding potential decoupling and ending a bonanza of foreign investment certainty which China previously offered amidst previous covid chaos throughout the rest of the world.

Secondly, the political aspect of the crackdown has now settled, with authorities firmly drawing "new lines" in the sand on where they want tech firms to be. This dynamic of the crackdown has been inseparable from the broader context of geopolitical competition between China and the United States, with Beijing moving to discipline tech firms concerning the sharing of private data, which was also a reaction to new Anti-China orientated laws in the US regarding IPOs. This ended Didi's doomed listing in New York, but the firm is now on the road to recovery and is allowed to enlist new users again. Going forwards, these cases will set a clear example for other Chinese internet companies on where the "political boundaries" are.

This builds the understanding that in many regards 2021 constituted a year of "political transition" in China. Whilst the technology regulatory spree was not an easy experience, it was nonetheless only a temporary and preparatory one. Leaders have long made it clear that this sector is integral to China's economic growth and development, which has already far exceeded that of most countries. However, with a new geopolitical environment comes new liabilities and new challenges, and Beijing was not intended to let the sector's growth run riot and become politically compromising. With this, the leak of the Ant story is not a coincidence, it is a timed and perhaps deliberative signal to the market at large that this period is over (irrespective of what Ant chooses to do) and a green light to investors.

Ultimately, facing a myriad of challenges, China now feels the time is now "right" to rekindle the confidence of foreign investors after having faced a sustained period of negativity. We should in turn expect Chinese tech stocks and indices to roar back throughout 2022, bucking a global trend of uncertainty and disruption in markets throughout the world. Alibaba and Tencent were for the last 12 months a liability, but it's certainly a good bet now.

The author is a well-seasoned writer and analyst with a large portfolio related to China topics, especially in the field of politics, international relations and more. He graduated with an Msc. in Chinese Studies from Oxford University in 2018.

The views do not necessarily reflect those of DotDotNews.

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