Ant and AliPay focus on expanding Alibaba repression

Chinese President Xi Jinping really put it in for Jack Ma. This is communism versus capitalism.

Alibaba Group Holdings (BABA) shares traded in Hong Kong today, up 8.0%, deepening a decline that began in late October. The stock has now shaken 29.5% since October 23, leaving it almost flat for the year and at its lowest decline since June.

The company has lost about $ 116 billion in market capitalization over the past two trading days. This is after China announced last Thursday that it will launch an antitrust investigation into Alibaba, which runs the dominant Chinese e-commerce sites Taobao and the luxury Tmall.

In the latest wrinkle, Chinese regulators are trying to restructure and possibly break Alibaba’s fintech subsidiary Ant Group, which manages the ubiquitous AliPay digital wallet app.

In a country where credit cards are not widely used outside of major cities, AliPay allows users to use their cell phones to pay for virtually anything: groceries, taxis, train tickets, movie tickets, your cell phone bill, insurance …

Chinese financial regulators are now investigating the business of Ant Group. The core of their concern is whether it has the necessary licenses and capital reserves to offer the kind of financial services it does.

Ant said on Sunday he would “significantly improve compliance” by doing a new venture. Ant managers met on Saturday with officials from, well, just about any particular financial regulator: China’s central bank, the People’s Bank of China; the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission, and the State Foreign Exchange Administration (SAFE).

The deputy head of the central bank, Pan Gongsheng, accused the official Xinhua news service of accusing Ant of having a poor legal awareness, of complying with the requirements of the regulations, of playing illegally for arbitrations in the regulation, the exploited market dominance to exclude competitors and infringed on the legitimate rights of consumers. and interests. ‘

Financial regulators have identified ‘major problems’ in Ant’s business operations and insist on setting up a timetable ‘as soon as possible’ to rectify this.

Pan said Ant would be expected to ‘return to its original business as a payment service provider’, as well as to improve transparency. It should improve how it stores personal data and performs individual credit reports.

It appears that Ant will be forced to restructure. Ant will have to set up a financial holding company, Pan said with the right oversight, capital compliance and legal approval.

Aside from Ant’s problems, the state administration for market regulation said on Thursday that it had launched an antitrust investigation into Alibaba. Ant originally only served as a sponsorship service for the two parties transporting goods on Alibaba’s Taobao e-commerce website. The buyer parks the cash with Ant, who then distributes it to the seller. However, this left Ant with temporary large piles of cash. It needs the basis to expand a wide range of financial offerings.

It was common for Taobao and Alibaba competitors such as JD.com (JD) and Pinduoduo (PDD) to require merchants to choose ‘one out of two’, and sell their wares on only one e-commerce platform because they fear they will be launched. serve the others. This is clearly against competitive and detrimental to the choice of the consumer. The most successful Chinese companies also usually restrict investors to put money in their competitors if they want to continue investing in spin-offs of that corporate group.

The fintech has already changed its name to Ant Group of Ant Financial to abandon its original efforts to consider itself a financial one-stop shop. Speaking at a conference in Shanghai, Alibaba arch-figure Ma, who is the richest Chinese with a fortune of US $ 57.3 billion, revealed at a conference in Shanghai that Chinese state-owned banks have a “pawn shop mentality” “when it comes to expanding credit – they have taken their revenge.

It is clear that Communist Party officials are concerned that Ant and Ma were too liberal with their credit. The subtext of the struggle is that Communist Party officials want to remind Ma and other successes in the private sector who really is the leader.

Shortly after Ma’s speech at the end of October, which was attended by influential bankers and financial regulators, the China Securities Regulatory Commission said that he had Ma, Ant’s chairman, Eric Jing, and Ant’s CEO, Simon Hu , ask for questioning. The CSRC – the equivalent of the US Securities and Exchange Commission – did not say what the discussions were about, but Ant said in a statement that “opinions on the present and stability of the financial sector have been exchanged.”

Ant was then forced on November 3 to withdraw its initial public offering in Shanghai and Shenzhen, which would be the largest in world history at US $ 37 billion. The cancellation took place just two days before the shares had to be traded, and after regulators and the markets in both cities approved the offer. There are informed speculations that Chinese President Xi Jinping himself stepped in to prevent the IPO from taking place.

The investigation is now deepening. Ant last week suspended its service that allows customers to deposit cash at local banks across China. It may violate the rules to work across provincial boundaries.

The company has also lowered the credit limits of many users, which it has extended so that they can make purchases. Pan, the central banker, said Ant offers ‘illegal credit loans’ and questions its insurance and wealth management services.

AliPay’s competitor, WeChat Pay, is managed by Tencent Holdings (TCTZF) and may soon experience similar pressure. Tencent shares fell 6.6% in Hong Kong on Monday, although they rose 38.2% in 2020 thanks to the booming business in smartphones and online video games.

In contrast to Alibaba’s struggle, Chinese stock markets have generally been booming. The CSI 300 of the largest companies listed in Shanghai and Shenzhen rose by 23.6% in 2020.

This is an impressive setback after central Wuhan became the Chinese city where the Covid-19 pandemic first broke out. According to Oxford Economics, the Chinese economy will grow by 2.1% this year, which will bring unbridled growth of 7.8% in 2021.