China told Ant Group to become a financial holding company regulated more like a bank, directing an overhaul set in motion when the fintech giant’s record initial public offering was abruptly halted last year. It all started in November when the authorities abruptly stopped the Ant Group from going public.
Long-awaited, it should be the most important thing of all time. There were two reasons for this. The first is a Communist Party demonstration following comments from its founder, billionaire Jack Ma, criticizing the authorities’ lack of innovation and vision, particularly in financial technologies.
The second, more logical, is that Alipay, the Ant Group’s payment service that offers credit to its 700 million users, could pose a systemic risk. The app funded only 2% of the value of the loans it gave directly to various banks. In addition to exposing financial institutions to high risk, Ant Group collected many data to reuse at its discretion. Too significant a threat to China is letting go.
If the fate of the Ant Group remained unclear for a while, it quickly became a “forced” restructuring. Therefore, the giant is becoming a financial holding company after telling the authorities about an “adjustment plan.” On the one hand, payment services, on the other hand, credit offers. As a result, Ant Group is subject to numerous rules and restrictions enacted by the People’s Bank of China (PBOC), China’s central bank.
“Under the leadership of the financial regulators, the Ant Group will go out of its way to implement the rectification plan. Using this rectification as an opportunity, the Ant Group will strengthen its commitment to consumers, small businesses, and the real economy,” the company said in a statement.
While the Ant Group was the government’s primary target, it shouldn’t be viewed as a scapegoat. After leaving too much room for FinTechs, the Middle Kingdom intends to regain control of a sector so structural for its future that the digital Yuan is pointing the tip of its nose.
In parallel to the talks with the Ant Group, the entire FinTech sector is being targeted by the Chinese authorities. On the one hand, we are doing an example with the largest of the structures; on the other hand, we are starting to regulate the sector. In December, the chairman of China’s banking and Insurance Commission said that the country needed to promote innovation, risk mitigation was taken, and introduce “timely and targeted measures to prevent further systemic risk.”
A new law regulating microcredit was born very quickly. In February, a text was passed on platforms to invest at least 30% of the capital of a loan and banks not to use 25% of their net capital to extend loans. As many Chinese digital giants offer microcredit offers in their payment applications, Alipay isn’t the only destination. Affected companies have until July 17, 2022, to comply with this new rule, indicating that other laws could supplement them by then.
More recently, the PBOC announced new rules that would directly affect executives in large tech companies. They would aim to subject large groups to rules similar to those used by the banks. For example, their leader must have at least eight years of experience in finance and cannot stay at the top of the company indefinitely. These rules are expected to be released on May 1 and are intended to “normalize the business of financial holding companies and prevent operational risks,” said the Chinese central bank.
If the Ant Group has been presented as a privileged destination, it is mainly the most critical industry. The regulation that China is adopting will affect all of its rivals, particularly Tencent or ByteDance, to ultimately serve its ambitions.
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