As mentioned in an earlier post, “The Real Damage to China,”
one of the biggest stories to go relatively uncovered, was the cancellation of
the Initial Public Offering (IPO) of Ant Financial Group (“Ant”). The story was
overshadowed by the results of the US election, and while the identity of the US
President and his (they’ve always been men) policies are significant to the Asia-Pacific
region, the story of the cancellation of Ant’s IPO was perhaps more so for the region’s
wellbeing. Not only does the Ant IPO involve
the world’s second (and according to Purchasing Parity, the largest) economy in
the world, the story also underlines the type of economic models for countries in
Asia-Pacific should pursue.
How does Singapore fit into this debate? Well, while
Singapore has been held up in the Western world as the great beacon of
stability and safety for Western free market capitalism, Singapore has also
been a role model for countries in the Asia-Pacific region that looked forward
to getting rich quickly without giving up political control. The biggest fans
of the Singapore model were non other than China’s Communist Party (CCP).
Singapore’s founding Prime Minister, Mr. Lee Kuan Yew fondly recalls how Deng
Xiaoping, who was then China’s Paramount Leader, visited Singapore and reportedly
told him “If only all I had was Shanghai.” Lee Kuan Yew returned the favor and
became a groupie of all things China, so much so that he was openly disdainful
of the other Asian Giant (in part because he got snubbed by Indira Gandhi, who allegedly
asked him “Where is Singapore on the map”)
While the Singapore-China relationship hasn’t worked out as
Mr. Lee had hopped for (who can forget the royal screwing Singapore received over
the China-Shuzhou Industrial Park Co, Ltd – which only turned a profit when the
chaps in Shuzhou became majority shareholders), the CCP has been a keen understudy
of Mr. Lee’s PAP and rightly or wrongly, China’ incredible success from changing
from an economic minor contributing barely two percent of the world’s economy
in 1979 to nine point three in 2010 ( https://www.frbsf.org/economic-research/files/Lin.pdf).
To his credit, Deng Xiaoping had perhaps raised more people outside of absolute
poverty than anyone else in history.
It goes without saying that the CCP has grabbed the
headlines for this transformation, pretty much in the same way that the PAP has
done in Singapore. While Deng Xiaoping’s opening has undoubtedly raised
millions out of poverty, it has created a slight problem – namely it made the case
for strong authoritarian rule. The many Indian business people I’ve dealt with constantly
point out that China succeeds because of its’ government, while the bits of
India that function, do so despite the government. One of my favourite Indian executives
said it best – “When you tell Indian authorities that you have $10,000,000 to
invest and will create jobs, they’ll say “why,” but when you go to China, they
will say “When”
One only has to compare the 2008 Beijing Olympics to the
2010 Delhi Commonwealth Games. Beijing put up an incredible show, Delhi couldn’t
get toilet paper into the Games Village. Communist China gets things done while
democratic India does not. The comparison is not lost in this part of the
world. It also doesn’t help that the only other big democracy, namely the USA
has been, for the last four years, a mess.
I don’t deny that a competent autocrat can do good. I live
in Singapore, which, despite being increasingly expensive, remains relatively
safe and clean and our currency remains respectable. While we may have a veneer
of a democracy (there really is an election every five years), it’s sort of a “guided”
one, where things are generally dictated by our founding father from his grave.
However, the problem with autocratic systems is that you
have a situation where there’s no guarantee that that the proverbial top dog will
remain benevolent forever or that the successors will remain so in perpetuity. In
Singapore Lee Kuan Yew argued that he needed to step down because he wanted to
prepare the nation for life without him, a matter in which he is correct.
However, he didn’t quite let go and fade away and today, Singapore, while
functioning well in so many ways, seems to have become a prisoner in its old
business model.
Now, take that model and multiply it by many times when it
comes to China. Deng Xiaoping had the decency to relinquish his titles and two
of his successors (Jiang Zemin and Hu Jintao) did what they needed to do and
then gave up the top job after a decade. Sure, they have played politics but
they’ve done so from behind the scenes. Now, you have Xi Jinping, who decided
that he’s never going to stepdown. While Mr. Xi, has done some reasonable
things like reign in corruption (I only describe it as reasonable in as much as
it was probably necessary to reign in corruption, but it was probably also an
excuse to purge the system of his rivals), Mr. Xi is the one Chinese leader,
who bans Winnie the Pooh in China because someone on the internet compared him
to Winnie the Pooh. This being the leader of a China that is supposed to be far
removed from the dark days of Mao (who, for the record killed more people than
the entire Second World War, due to his managerial incompetence).
The other area where the Chinese model appears to be the magnified
version of the Singapore one, is in where the heroes are. Here in Singapore, the
economic story is either about a multinational pumping lots of money into the
country or a government controlled one doing all sorts of things to make
Singapore Inc shine. In China the story of great economic success is inevitably
about the State-Owned Giants that are competing with their American
counterparts to climb up the Fortune 500 rankings.
While the giants have great turnover, the real success of
China comes from small private enterprises in places like the Pearl River Delta
that don’t have state resources and are starved of capital. As such, they have
had to become innovative and creative in order to survive.
Mr. Ma’s Alibaba is what you’d call one of these small
enterprises made good and “Ant” is what you’d call the very type of enterprise
that China needs. Mr. Ma understood that Chinese banks, despite their size, don’t
serve customers well and so he used technology to make life easier. While the State-Owned
version of the financial system is generally speaking, awful, the private
fintech version of the system founded by the two Mr. Ma’s (Jack Ma of Alibaba
and Ma Huateng of Tencent Holdings Limited) works. Not only have China’s
natives taken to using QR codes to skip the local financial system (so much so
that the beggars in China prefer QR codes to cash), the system pioneered by the
two Mr. Ma’s scares the American banking system.
Mr. Ma of Alibaba is the type of ant that China needs. Small
and diligent enough to find creative ways to do things. It was of course all
very well, when he stuck to building his business and giving folksy talks to
the Western world.
However, things got a little different when he accused China’s
regulators of running the banking system like a “pawnshop” and stated that “The
game in the future is about innovation, not just regulatory skills."
https://fortune.com/2020/11/07/jack-ma-ant-ipo-suspended-china/
https://www.youtube.com/watch?v=DGzgpArH5AI
Let’s put it this way, good governance is an important
element to creating prosperity. China is the prime example. It floundered under
Mao but prospered under Deng. However, Mr. Ma has a point when he states that
it is not the only element in creating sustainable prosperity and that good
governance or good regulators are not much unless you have a culture of
innovation and creativity. Entrepreneurs can emerge without good regulators
(entrepreneurs for example pop up and get things done in the crappiest of
places), while good regulators are pointless if you don’t have the people get
things done. To most people, it would be an obvious point. To the CCP it was a
point that said that Mr. Ma needed to be taken down a peg and Mr. Xi himself
got involved.
The message should be clear to China’s entrepreneurs. No
matter how clever you are or how much you create for the nation, you are
ultimately subordinate the head of the CCP and this shouldn’t be limited to the
CCP but to all authoritarian states who believe that authoritarianism is good for
business.
Mr. Ma has made billions in China and let’s remember that
his first IPO in 2014 was on the New York Stock Exchange. Did he, a member of
the Communist Party, actually trust the Communist Party to protect prosperity?
The third world has plenty of small “Ants” who are hard
working and creative. Increasing education means they have the ability to understand
new technologies and to be innovative. This means that they have the ability to
cut through the power of established enterprises that have a cozy relationship
with the government. Is it something that authoritarian states can tolerate in
the long run? This an essential part of creating prosperity.
Copyright Phnom Penh Post
Third World is filled with Ants are an essential part of
raising prosperity
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