Editor’s note for Wednesday, November 25, 2020

Dear reader,

We’ll be taking tomorrow, November 26, off for the American holiday of Thanksgiving — best wishes for a happy holiday if you celebrate it. We’ll be back in your inbox on Friday.

My thoughts today:

Xí Jìnpíng 习近平 has congratulated Joe Biden: “Mr. Xi’s message to Mr. Biden — as reported by Beijing — echoed his 2016 cable in calling for cordial, collaborative and respectful relations with the U.S., though this time the Chinese leader didn’t make a personal appeal to his soon-to-be counterpart, nor did he express hope for ‘greater progress’ in two-way ties,” says the Wall Street Journal.

“Short sellers target Ping An fintech unit after Ant IPO halt” is the Bloomberg headline for a story about Lufax, a fintech company of which state-backed insurance giant Ping An owns a 39% stake.

While Lufax, “which offers wealth management and retail lending services, was able to complete its U.S. IPO days before new Chinese rules torpedoed Ant’s $35 billion sale, the stock has given up early gains and is now a target for short sellers, [and is now] the community’s No. 1 consensus short,” according to a survey of global investors.

Beijing’s growing desire to regulate fintech firms will make it more difficult for Lufax to gain the stratospheric valuations that internet firms — such as Ant Group — have. So it is understandable that the Ant affair has taken the wind out of investors’ enthusiasm for Chinese fintech.

But perhaps the short sellers have a shortsighted interpretation of what is going on?

The Chinese government wants to control fintech, sure, but Ant’s IPO ran into trouble because of other, more political reasons (as I argued here). Ant Group is a private company that has a testy relationship with financial regulators. Whereas Lufax is backed by Ping An, a state firm that has been in the financial sector since 1988, and has traditionally had strong backing from China’s senior leadership.

Lufax also has a history of thriving despite regulatory purges. The company began in 2011 as a peer-to-peer (P2P) platform, where consumers and small companies could directly borrow and lend. But the P2P industry grew to the point where literally thousands of companies, many of them fraudulent, were offering financial products over the internet, leading to a series of government crackdowns. Lufax survived and went on to IPO. Its management team already knows how to talk to the financial regulators, and it has the right people on speed dial.

Ant Group’s loss might very well be Lufax’s gain.

Our word of the day is using “national security” as an excuse (以“国家安全”为借口 yǐ guójiā ānquán wèi jièkǒu), which is what Beijing said India was doing by banning Chinese apps — see our top story today, or this statement from the Chinese embassy in New Delhi.

—Jeremy Goldkorn, Editor-in-Chief