1/21 A long thread of local context for Ant Financials’ Credit Scoring Joint Venture and Chinese state ownership. There has been significant recent news of Chinese SOEs taking stakes in private companies. #PBOC #BABA #China #Ant #Didi #ByteDance #Hefei #ZheJiang #Evergrand 
2/21 How to make sense of this trend? ONE: the government’s goal is to take enough equity to acquire a seat in the board, bail out a locally troubled company, or pure investment return, not necessarily ownership and control per se.
3/21 Taking state ownership means government needs to pony up significant capital. In BOE Tech deal, Hefei city put in more than $2 billion. It had four more investment deals with >$1 billion. Many numerous deals like PuDao Credit, the Beijing-affiliated SOE put up $52.5million.
4/21 TWO, local provincial or city SOEs are taking the charge, not national SOEs. In many of these, the goal is not management control but investment returns. This is a bit neglected in English media and is the key nuance and complexity of these state ownership headline news.
5/21 THREE, organization that exists at most levels of Chines government will become more prominent. State-owned Assets Supervision and Administration Commissions (SASAC, or GZW 国资委). These commissions act somewhat like government’s private equity arm and coffer.
6/21 From the top view, 36% of the largest 500 companies by market weight are in state-owned companies. State-owned assets fell under the umbrella of supervision and administration by national SASAC and many local government SASACs. #China #SOE
7/21 To understand Ant’s credit scoring Joint Venture, we must dig into the three existing credit scoring entities, all new in Chinese history. Keep in mind my parents’ generation almost never had a credit card, a mortgage or filed income tax return.
8/21 PBOC has its own credit reference center, together with two other tech-driven credit scoring companies. As expected, Tencent, Alibaba through Ant, JD and Xiaomi are major private players.
9/21 With Ant Credit JV coming online, the locations of future three private credit scoring companies mimic geography of China’s economy. Similarly, Beijing is setting up its own stock exchange, adding to the Shanghai and ShenZhen locations mirroring the same geographic layout.
10/21 The history of BaiHang Credit’s and PuDao Credit ownership structures are case studies for what Ant’s Credit Scoring JV might look alike.
11/21 When BaiHang Credit announced it acquired a personal credit scoring license in 2018, it kept the government at bay by introducing a private company alliance Internet Finance Association as the 36% major shareholder, plus two small city level SOE entities.
12/21 When PuDao was announced in 2020, the government likely felt private industry association was not enough and decided to take direct ownership, making Beijing Financial Holdings, a local SOE, the largest shareholder, though overall it’s still 65% private.
13/21 @ReutersChina unofficial, Ant Credit Shareholders: If Ant and Transfar are the only two private firms in the shareholder list, it would make it majority state owned, which will be a significant departure from PuDao where the majority ownership is still private.
14/21 Amid the English news of Chinese state ownership in private businesses, a missed piece of context is an emerging situation that economically powerful provinces and cities are using their existing state-owned capital under SASAC to make private equity style investment.
15/21 One example is the city Tencent is headquartered, ShenZhen’s State-owned Assets Supervision and Administration Commission (SASAC, or GZW 国资委in Chinese). It was the original dealmaker in the Suning case before it bailed out of the company. gzw.sz.gov.cn
16/21 Zhejiang, Alibaba headquartered, and Hangzhou, the capital city, also has its own state-owned Asset Supervision and Admin. Commissions. They are behind the SOE entities among the unofficial Ant Credit JV shareholders. gzw.zj.gov.cn gzw.hangzhou.gov.cn
17/21 Almost every level of government has its own State-owned Assets Supervision and Administration Commission (SASAC). Jobs in these commissions are highly coveted by ambitious government officials.
18/21 Anhui Province and its capital city Hefei ’s SASAC made shining returns by investing in high flying tech companies like BOE Technology Group(京东方) and GigaDevice Semiconductor(兆易创新), using 1/3 of its city revenue for investment return, attract jobs with $billions.
19/21 There is an implicit competition among these state-owned asset commissions(SASAC 国资委) in generating investment returns, similar to the implicit competition among university endowment and state pension funds in the US.
20/21 Real Estate Company Evergrand, headquartered in Guangzhou from Guangdong province. If liquidated, unlikely to cover debt. However, due to its too big to fail nature, there is a high chance it may follow Suning’s fate with capital help from local provincial SASAC.
21/21 In #Fed we Trust, in #PBOC we Ignore: PBOC just released the 2021 Financial Stability Report, 3 months ahead of usual schedule. I will bring my own analysis. If you like these long threads on #China, please help retweet or like. Thanks! pbc.gov.cn/goutongjiaoliu…
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