They say talk is cheap. Tell that to Jack Ma.
Corporate China's shiniest star was just days away from seeing his Ant Group list on the stock market in a record $37 billion (28.40 billion pounds) deal, when he chose to launch a blistering public attack on the country's financial watchdogs and banks.
The regulatory system was stifling innovation and must be reformed to fuel growth, billionaire Ma told a summit in Shanghai on Oct. 24 attended by the great and the good of China's financial, regulatory and political establishment.
Chinese banks, he said, operated with a "pawnshop" mentality.
It was this speech that set off a chain of events that ultimately torpedoed the listing of Ant, the fintech titan Ma founded, according to interviews with government officials, company executives and investors. They all requested anonymity to disclose confidential details.
Stung by the attack, Chinese regulators and Communist Party officials set about reining in Ma's sprawling financial empire, culminating in the suspension of the IPO on Tuesday, two days before the eagerly awaited market debut in Shanghai and Hong Kong, the sources said.
While Ma might not have realised the impact his words would have, people close to him had been baffled to learn in advance about the tone of the speech he planned to deliver, according to two sources close to Ma.
They suggested the 56-year-old soften his remarks as some of China's most senior financial regulators were due to attend, but he refused to budge, believing he should be able to say what he wanted, the sources said.
"Jack is Jack. He just wanted to speak his mind," said one of the people.
It was a costly miscalculation.
Several senior financial regulatory officials were furious at Ma's criticism, two sources told Reuters, with one source characterising the speech as a "punch in their faces".
State regulators started compiling reports including one on how Ant had used digital financial products like Huabei, a virtual credit card service, to encourage poor and young people to build up debt, according to the two people.
The general office of the State Council compiled a report on public sentiment about Ma's speech and submitted it to senior leaders including President Xi Jinping, the sources said.
Some of the reports indicated public sentiment was negative on Ma and his remarks, the people said.
Top Chinese leaders then became more involved and asked for a thorough investigation of the company's business activities, which eventually led to the halting of the world's biggest IPO, three of the sources said.
The People's Bank of China (PBOC), the China Banking and Insurance Regulatory Commission, China Securities Regulatory Commission, the State Administration of Foreign Exchange，and the State Council Information Office did not immediately reply to Reuters requests for comment.
Ma could not immediately be reached by Reuters for comment and e-commerce group Alibaba, which handles media inquiries for Ma, did not respond to a request for comment on this story from its lead founder.
The chance of the flotation getting back on track in the near-term is slim, according to six of the people, as regulators look to tighten scrutiny of the company. No listing is expected for at least the next few months, two said.
It was a stunning reversal for Ma, who would have added at least $27 billion to his net worth from the IPO.
In years gone by, most regulators had left the billionaire to his own devices, partly because of his close ties to some senior government officials, according to five of the sources, but also because of national pride in his success.
Ma, a former English teacher, is one of China's internet pioneers, building an e-commerce empire with Alibaba and a fintech giant with Ant.
When the PBOC tried to regulate Ant's payment and wealth management business about five years ago, Ma bypassed the central bank after failing to reach a consensus with regulatory officials and lobbied the central government. The PBOC later dropped those regulation plans.
"Jack Ma did not bypass the customary process of communicating with relevant regulators regarding Ant's payment and wealth management business," Ant's spokeswoman said in an emailed response to Reuters.
But with his Oct. 24 speech, Ma misjudged the shifting priorities of Beijing, according to one senior regulatory source, believing he could challenge the financial establishment yet retain the support of the central leadership.
The bigger picture was that one of the government's main aims this year is to shore up the country's financial sector and tighten regulatory oversight to prevent systemic risks in a pandemic-hit economy, the person said.
Even before Ma's speech, Chinese regulators were gradually increasing their oversight of Ant, which has largely thrived as a technology platform free from costly banking regulations despite its bouquet of financial offerings.
The scrutiny has particularly intensified for the company's rapidly growing online consumer-lending business, a cash cow, which sources demand from retail consumers and small businesses and passes that on to about 100 banks for underwriting.
REGULATORS MAKE MOVE
The Shanghai speech was the trigger for a major escalation, according to half of the dozen people interviewed, prompting senior political officials to ask regulators, including the central bank and China's top banking regulator, for the thorough review of Ant's businesses.
The watchdogs, who had for years wanted to rein in Ma's fintech empire, moved fast after receiving written instructions from officials including Vice Premier Liu He, a trusted economic adviser to President Xi, said two of the people.
The State Council Information Office did not immediately respond to a Reuters request for comment from Liu.
As part of this drive, regulatory officials rushed to publish a consultation paper this Monday to tighten rules for the country's micro-lending business, which directly impacts Ant, said one person with direct knowledge.
The draft requires micro-lenders to fund at least 30% of any loan they fund jointly with banks. Only 2% of the loans Ant had facilitated as of end-June were on its balance sheet, its IPO prospectus showed.
Top Chinese industry players including Ant and Lufax Holding Ltd, an online wealth management platform, were aware of the draft details weeks before its public release, said two of the people.
Lufax, which raised $2.4 billion in a New York IPO last month, had informed investors that regulators had required leading online micro-lenders to provide about 20%-30% of any loan they fund jointly with banks, according to two investors who joined its roadshow.
Lufax declined to comment due to quiet period restrictions following its IPO.
By contrast, Ant's executives did not mention the possible regulatory changes during its two main calls with global investors during its roadshow last week, two other investors said.
Ant's spokeswoman said the company was not aware of the details of the draft online micro-lending rules until they were published on Monday.
HUBRIS AND HUMILITY
After the publication of the micro-lending consultation paper, Ma and the two top Ant executives were summoned to a rare joint meeting with four regulatory bodies.
They were told that the company, notably its consumer-lending business, would face tougher scrutiny over matters including capital adequacy and leverage ratios.
Regulators had been surprised by the scale and risk model of Ant's lending division, details of which were disclosed in the IPO-related filings since late August. The unit, which includes Huabei and short-term consumer loan provider Jiebei, contributed close to 40% of the group's revenue in the first half of the year.
A day later, the Shanghai stock exchange said it had suspended Ant's IPO, citing a "significant change" in the regulatory environment, prompting the company to also freeze the Hong Kong leg of its dual listing.
China's securities industry watchdog said subsequently that recent regulatory changes could have a "major impact" on Ant's business structure and profit model. It said suspending the IPO was a responsible move both for investors and markets.
The suspension marked the nadir of what has been a gradually souring relationship over recent years between Ma's corporate empire and Chinese regulators, from the central bank to the internet and markets watchdogs.
After the announcement, however, Ant released a statement in which it pledged to "embrace" regulation.
"It has no alternative but to do so," Gavekal Research analyst Andrew Batson wrote in a report this week. "Ma's hubris has now morphed into humility."