December 4, 2023

China’s swift campaign to curb the power of internet giants has hit its newest brand: Ant Group, the fintech sister company of e-commerce giant Alibaba.

Ant announced Monday that the company would undertake a major, government-mandated overhaul of its business to address regulatory concerns about competition with competitors, the extensive collection of user data, and the risks its business poses to the entire financial world might, to disperse system.

Beijing made the corporate empire of Jack Ma, Alibaba’s billionaire co-founder and Ant’s majority shareholder, an early prime target as it drives the review of big tech. Chinese officials forced Ant to abandon the blockbuster’s IPO last November, just days before its shares were expected to debut. On Saturday, the Chinese antitrust agency fined Alibaba $ 2.8 billion for abusing its dominance in digital retail – a record fine for violating the country’s antimonopoly law.

Ant’s flagship Alipay app has become a must-have tool for more than 700 million monthly users in China, helping them pay for lunch, stash away savings, and shop on credit. But Alipay’s size and influence put Ant at the center of a number of Beijing concerns, including the power of Leviathan web platforms, the role of internet technology in finance, and the influence of humps like Mr. Ma as China’s leader Xi Jinping’s pursuit greater government control over the economy.

As part of what both Ant and Chinese officials referred to as an “amending plan,” the company said Monday it would apply to become a financial holding company, which would bring closer monitoring and requirements for more money than it could otherwise lend or use it profitably.

Ant said it would also “revert to its origins of payment”. Alipay started out almost two decades ago as a payment service for Alibaba’s shopping platforms. However, with Ant offering other financial services within Alipay, the app has become a major tool for consumer credit and small business lending in China.

The company also said it would strengthen security protections for the personal information it collects to help prevent misuse.

“Under the guidance of the financial regulators, the Ant Group will spare no effort to implement the rectification plan,” the company said in a statement. “The Ant Group will use the rectification as an opportunity and increase our commitment to consumers, small businesses and the real economy.”

Ant has tangled with Chinese regulators for years as its business has grown. Officials restricted the company’s expansion in certain areas and increased oversight. The fact that Ant was even able to prepare for an IPO last year was seen as a sign of easing at the time.

Now, the more determined hand of the authorities in the company’s future could dampen Ant’s attractiveness to investors if it tried again to go public.

Andrew Collier, founder and chief executive officer of Orient Capital Research, said the new legal framework for Ant could prove more damaging to the bottom line than the antitrust fine for 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 in seeking ways to contain internet giants. Regulators in all three locations now share roughly similar concerns about unfair competition, the collection and storage of data, and the impact of technology companies on large segments of economies.

Ant and other companies including Tencent, operator of the popular messaging app and payment platform WeChat, have helped bring China to the top of the global digital finance industry. But they have also weakened the influence that state-owned banks and other institutions have long had on the shaping of capital flows.

Mr. Ma, China’s most famous tycoon, saw Alipay’s growth in precisely these terms. And he wasn’t shy about saying so much. For years he railed against large Chinese banks for not lending enough to small businesses. His advocacy for small businesses and ordinary consumers gave Ant his name.

When Mr Ma spoke again in October about the backwardness of China’s financial regulators – this time when Ant was in the final stages of preparing his mega IPO – he appeared to have pushed the government’s willingness to be criticized too far.

“There is no such thing as risk-free innovation in the world,” he said, accusing the authorities of focusing too much on risk mitigation. He said big banks have a “pawnshop mentality” that is only given to those who can provide collateral and are unable to modernize with the help of technology.

Not long after, Ant’s stock listings were suspended. In December, regulators ordered the company to correct a so-called litany of mistakes in its business.

The revision was revealed on Monday shortly after financial regulators met with representatives from Ant, according to a statement from the country’s central bank.

During the meeting, regulators urged Ant to more clearly separate its credit products from its payment instruments, the statement said. They urged Ant to reduce the size of Yu’ebao, the company’s easy-to-use savings service, which was so popular that it at one point outclassed all other similar funds around the world. Officials also ordered Ant to do better to ensure that the mutual funds they were offering to users did not run out of money easily.

Beijing had telegraphed aspects of Ant’s restructuring for months. Chinese officials first said in September that companies that own two or more financial companies must register as financial holding companies and be subject to increased government oversight. At a press conference at the time, a central bank official named Ant one of several companies likely to have had to restructure under the new rules.

According to official sources, the aim was to better monitor the systemic risk that arose when more non-financial companies “blindly” entered the financial industry.

When Ant accepted his overhaul on Monday, China carefully coordinated its message to emphasize that the government continues to support the growth of large internet platforms.

A comment posted shortly after the Central Bank’s statement was published on Ant, Economic Daily, a state-run newspaper, said, “Only with standardized development will the platform economy have a better future.”

Technology “cannot be an excuse for platform companies to go beyond legal, ethical and other principles,” the article reads. “Financial technology hasn’t changed the risk of finance. Basically it’s still finance. The financial business must be licensed to operate and the financial activity must be placed entirely under financial regulation. “

In an interview published by The Paper, a government-controlled news site, Ant’s managing director Eric Jing praised the “scientific and pragmatic spirit” of Chinese regulators.

After the revision, said Jing, Ant will be even more committed to small businesses and the cause of technological innovation.