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The Story of the Chinese Miracle [Part 1]

George Gilder

Posted November 12, 2020

George Gilder

If you missed my introduction to my stellar team of analysts, go here to get caught up.

Today’s Prophecy was written by two of them — Richard Vigilante and Steve Waite.

What are we to think about the Chinese government’s last-minute cancelation of the Ant IPO? Which at an estimated $37 billion would have been the biggest in history, and a crowning moment in founder Jack Ma’s magnificent career.

Consider two widely bruited possibilities.

On one story, this was personal. Chairman Xi (as he apparently intends to start calling himself in 2022) is an egotistical thug, who hates the attention Jack Ma — founder of Alibaba and Ant — gets for his historic contributions to rebuilding the Chinese economy after communism.

(For our full appreciation of what Jack Ma achieved for China, with Alibaba and Ant, see the February issue of The George Gilder Report. Go here if you aren’t already subscribed for more details.)

On this theory, when Jack, just a few days ago, delivered a blistering speech denouncing the arrogance and incompetence of mainstream, state-controlled Chinese banks, Xi couldn’t put up with it anymore. He shut down the IPO to put Ma in his place.

Two Sides to Every Story

That explanation, according to much of the punditry, is the scary one. Confirming that the PRC is just a banana republic writ large, lacks the ‘rule of law,’ and is a hazardous place for investors of any nation.

The other story — supposedly more benign — is that Chinese banking regulators, anxious to get their bloated and unruly sector under control before it unleashes another global financial crisis, were anxious about Ant’s cowboy micro-loan programs.

That Ant customers could arrange for loans, sometimes in minutes, with essentially no oversight from government banks was giving regulators the willies. Before letting the IPO proceed, they wanted reassurances that Ant would comply with the regulators’ swelling rule book.

This is the “nothing to see here,” “it’s all part of China growing up,” point of view. The regulatory crack-down will make China safer for investors, not less.

They got it exactly backwards.

The ‘Xi as thug’ story is ugly, but unsurprising in a dictatorship. Because it is unsurprising it bears little information about potential damage to the Chinese economy.

Yes, if Xi acted out of personal pique, then Jack Ma’s rights under the law were violated.

That’s very bad. But it was also predictable, there for avoidable. Ma, whether you call him idealistic or irresponsible, provoked a response he could have avoided at no great cost.

If the only reason the Chinese stopped the IPO was because Ma publicly criticized the government, then other Chinese entrepreneurs now know how to keep their IPOs from being quashed — don’t do that.

If it’s possible to retain genuine control of one’s business simply by exercising a bit of prudent hypocrisy, liberal principles may be offended, but Chinese capitalism won’t collapse. And Chinese capitalism, led by entrepreneurs like Ma — not the bureaucrats in the Communist government — is what is fueling and will continuing driving prosperity in China.

What if, on the other hand, the second story is the true one, that the IPO was not stopped out of personal pique but the Chinese government is serious about regulatory “reform?” What if the current regime has reached the conclusion, bizarre given recent Chinese history, that government is the solution, not the problem?

What if, heaven forbid, Xi and his minions are sincere?

Then investors have a serious problem.

The stupendous growth of the Chinese economy and living standards since the death of Mao has been driven by two factors: government inaction and the entrepreneurship of men like Jack Ma.

It was Deng Xiaoping’s genius that aside from a bit of cheerleading (“to grow rich is glorious”), his growth policies consisted almost entirely of refusing to enforce existing anti-capitalist laws.

More on this tomorrow…


Richard Vigilante
Lead Analyst, The George Gilder Report

Steve Waite
Lead Analyst, The George Gilder Report

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