China’s rapid campaign to curb the power of internet giants has reached its latest mark: Ant Group, the sister fintech company of e-commerce giant Alibaba.
Ant announced on Monday that it will carry out a comprehensive overhaul, ordered by the government to ease regulators’ concerns about how it competes with rivals, collecting data from people. use of scale and the risks that their business can expose to the large financial system.
Beijing made the corporate empire of Jack Ma, the billionaire co-founder of Alibaba and a controlling shareholder of Ant, a major initial target as it intensified oversight of Big Tech. Chinese officials forced Ant to cancel its initial public offering in November, just days before the company’s shares were scheduled to launch. On Saturday, China’s antitrust agency fined Alibaba $ 2.8 billion for abusing its dominant position in digital retail – record fines for antitrust violations of this country.
Ant’s flagship Alipay app has become an indispensable tool for the more than 700 million monthly users in China, helping them pay for lunch, send savings and shop with credit. But Alipay’s size and influence have made Ant at the center of a spiral of concerns for Beijing, including the power of the leviathan web platform, the role of internet technology in finance and the influence of the men. bosses like Ma at a time when the leader of China, Mr. Xi. Jinping is looking for greater state control over the economy.
As part of what both Ant and Chinese officials call a “rectification scheme,” the company said on Monday that it would apply to become a finance company, which would bring the monitor more closely and require that they hold more money that they could otherwise lend or put to profitable use.
Ant said it will also “revert to its payment origins.” Alipay launched almost two decades ago as a payment service for Alibaba’s shopping platforms. But since Ant has provided other financial services in Alipay, the app has become a major vehicle in China for consumer credit and small business loans.
The company also said it will increase the security of the personal information it collects to prevent misuse.
“Under the guidance of the financial regulators, Ant Group will make no effort in implementing the rectification plan,” the company said in a statement. “Using reform as an opportunity, Ant Group will reinforce our commitment to serving consumers, small businesses and the real economy.”
Ant has struggled with Chinese regulators for many years as its operations evolved. Officials have restricted the company’s expansion in certain areas and intensified scrutiny. The fact that Ant could even prepare for an IPO last year has been seen as a sign of a failure.
Now, the firm’s future authorities may lessen Ant’s appeal to investors if it tries to list again.
Andrew Collier, founder and chief executive officer of Orient Capital Research, said the new regulatory framework for Ant could do more harm to the company’s bottom line than the antitrust penalty imposed on Alibaba.
Much will depend on how the restructuring plan is implemented, Collier said. “The devil is in the details,” he said.
China has only recently joined the United States and the European Union to find ways to curb the internet giants. Regulators in all three regions share concerns about unfair competition, data collection and storage, and the impact technology companies have on large segments of the economy. nation.
Ant and other companies, including Tencent, the operator of popular messaging app WeChat and payment platform, have helped put China in the top spot globally in digital finance. But they have also undermined the influence that government-owned banks and other institutions have long enjoyed in shaping capital flows.
Mr. Ma, China’s most famous tycoon, witnessed Alipay’s development precisely in those terms. And he is not afraid to talk that much. He has been against major Chinese banks for many years for not lending enough to small businesses. His unrivaled small businesses and casual consumers are what made Ant’s name.
But when Mr. Ma spoke again last October about the backwardness of Chinese financial regulators – this time, as Ant was in the final stages of preparing for his massive IPO – he seems to have pushed the government’s readiness to be criticized too far.
“No innovation is risk-free in the world, at the same time accusing the authorities of being too focused on containing risk,” he said. Big banks have a “pawnshop mentality”, he said, lending only people with collateral and not modernizing with technology.
Not long after, Ant’s stock listing was suspended. In December, managers ordered the company to repair what it called a series of failures in its business operations.
The revamp was announced on Monday, shortly after financial regulators met with Ant representatives, according to a statement from the country’s central bank.
At the meeting, the regulators asked Ant to more clearly separate credit products from its payment tools, the statement said. They asked Ant to scale down Yu’ebao, the company’s easy-to-use savings service that has become so popular that at one point it shrank all other similar funds anywhere on the planet. Officials have also ordered Ant to better ensure that the investment funds it offers its users will not easily run out of cash.
Beijing has telegraphed aspects of Ant’s restructuring for months. Chinese officials for the first time said last September that companies that own two or more financial businesses would have to register as financially owned and subject to increasing scrutiny of their own. covered. During a press conference at the time, a central bank official called Ant one of the companies likely to be restructured under the new rules.
The aim, officials said, is to better monitor the systemic risks that arise when many non-financial companies have “blindly” entered the financial industry.
When Ant accepted the overhaul on Monday, China carefully coordinated its message to emphasize that the government still supports the development of major internet platforms.
In a comment published shortly after the central bank made its statement in Ant, Economic Daily, a state-run newspaper, said that “only with standardized development will there be one. Brighter future for the platform economy. “
“Technology cannot be an excuse for platform companies to go beyond legal, ethical, and other critical points,” the article said. “Financial technology does not change the risk of finance; In the end, it is still financial. Financial business activities must be licensed, and financial operations must be completely executed according to financial regulations ”.
In an interview published by The Paper, a government-controlled news site, Ant’s chief executive, Eric Jing, praised the “scientific and pragmatic spirit” of the regulators. China.
After the improvement, Mr. Jing said, Ant will be more firmly committed to serving small businesses and a technological innovation career.