Oct 26, 2020 07:47 PM

Analysis: Jack Ma Needs a Refresher on How Financial Regulation Works

On Saturday, actual controller of Ant Group Co. Ltd. Jack Ma sparked debate among financial professionals by criticizing the industry for hampering innovation in the name of preventing risks.

Ma said at the Bund Summit in Shanghai that global financial regulators tend to only talk about preventing risks, but do not talk about development and seldom think about opportunities for young people and developing countries. “The game in the future is about innovation, not just about regulatory skills,” he said.

He also said that the Basel Accords banking regulations are like “a club for the elderly,” as they focus on solving problems in decades-old, sophisticated financial systems, whereas China’s financial industry is still young and lacks a mature ecosystem.

Although some points in his speech may make sense, he made many mistakes in terms of his ideas about financial innovation and regulation.

Innovation comes with inherent risks. Regulation is necessary because of externalities: financial institutions manage others’ money. So the point of regulation is to keep risks controllable. Regulators should ensure no institution’s reckless growth could pose a risk to the entire system through funding chains.

Without effective regulations, financial entrepreneurs can reap all the benefits from innovations while society bears the risks.

The art of supervision is maintaining a balance. At the same summit, Chinese Vice President Wang Qishan said authorities should find a balance between financial oversight and encouraging financial innovation and openness. Application of new financial technologies and the emergence of new businesses has increased efficiency and convenience, but also amplified financial risks, he said.

In reality, Ant Group has benefited greatly from regulatory arbitrage. For many years, the company has not been subject to the same capital adequacy and leverage requirements as traditional financial institutions, and it has launched businesses that traditional financial institutions are not allowed to.

Ant Group has made remarkable achievements in developing inclusive finance. For example, Alipay has made payments dramatically more convenient and more efficient. But the app has also brought alarming risks by providing easy credit while neglecting whether it goes to appropriate customers.

Easy credit giving rise to increasing household debt has drawn concern from experts and regulators. Zhou Xiaochuan, the former central bank governor, said at the summit that some young people borrow and spend too much. Zou Jiayi, a vice finance minister, said that authorities should prevent fintech companies from enabling excessive consumption of financial services.

As to Ma’s criticism of the Basel Accords, some experts pointed out that his comment is reasonable to some extent. Zeng Gang, a deputy director of the National Institution for Finance and Development, a government-linked think tank, told Caixin previously that the Basel Accords use traditional risk measurement measures and historical data that fit economies that are more mature and more stable. As the digital finance models used by Ant Group and Tencent Holdings Ltd. have not been included in those risk measurement standards, oversight based on the Basel Accords may not be a good match. In the long run, it will be necessary to make changes to financial regulations.

But if regulators easily loosen or roll back standards that have evolved over many years, they may trigger tremendous systemic risks, Zeng said.

Ma’s speech shows that he neglects how China’s current financial system transitioned from its origins in the planned economy to the new market economy. As an influential internet finance institution, Ant Group should have a basic understanding and respect for the principles, ideas and history of financial regulation.

Hu Yue is a finance reporter at Caixin Media.

This translation has been edited for length and clarity.

Contact translator Guo Yingzhe ( and editor Gavin Cross (

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