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Chinese President Xi Jinping really has a crush on Jack Ma. It’s communism versus capitalism.
Shares of Alibaba Group Holdings (BABA) plunged today in Hong Kong trading, closing down 8.0%, deepening a decline that began in late October. The stock has lost 29.5% since October 23, leaving it almost flat for the year and at its lowest point since June.
The company has lost about $ 116 billion in market capitalization in the last two trading days. That’s after China announced last Thursday that it was launching an antitrust investigation into Alibaba, which runs China’s dominant e-commerce sites Taobao and exclusive Tmall.
At the last minute, Chinese regulators are looking to restructure and possibly split Ant Group, Alibaba’s fintech subsidiary, which runs the ubiquitous AliPay digital wallet app.
In a country where credit cards have not been commonly used outside of the larger cities, AliPay allows users to use their mobile phones to pay for practically anything: groceries, taxis, train fares, movie tickets, their bill from mobile phone, insurance …
Chinese financial regulators are now scrutinizing Ant Group’s business. At the core of your concern is whether you have the necessary licenses and capital reserves to offer the type of financial services that you offer.
Ant said Sunday it would “greatly improve” its compliance by conducting a business review. Ant executives met on Saturday with officials from, well, just about any financial regulator involved: 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 Administration of Foreign Exchange (SAFE).
The deputy head of the central bank, Pan Gongsheng, addressed the official Xinhua news service to accuse Ant of “having little legal conscience, disobeying regulatory compliance requirements, playing dirty in regulatory arbitration, taking advantage of market dominance to exclude competitors and harm consumers’ legitimate rights and interests. “
Financial regulators have identified “major problems” in Ant’s business operations and are urging it to set a schedule “as soon as possible” to fix them.
Pan said Ant would be required to “return to its original business as a payment service provider,” as well as improve transparency. You need to improve the way you store personal data and do individual credit reports, he said.
It looks like Ant will be forced to restructure. Ant will have to establish a financial holding company, Pan said, with proper supervision, capital adequacy and legal authorization.
Aside from Ant’s troubles, the State Administration for Market Regulation said Thursday that it has launched an antitrust investigation into Alibaba. Ant originally served only as an escrow service for the two parties transacting goods on Alibaba’s Taobao e-commerce site. The buyer parked the cash with Ant, who then handed it over to the seller. However, that left Ant with huge temporary stacks of cash. That foundation was needed to build a wide range of financial offerings.
It has been common for rivals to Taobao and Alibaba, such as JD.com (JD) and Pinduoduo (PDD), to require merchants to choose “one of two”, selling their products only on an e-commerce platform for fear of being fired for serving the other. That is clearly anti-competitive and detrimental to consumer choice. The most successful Chinese startups also tend to restrict investors from placing money with rivals, if they want to continue investing in spin-offs of that business group.
The fintech has already changed its name to Ant Group from Ant Financial to distance itself from its original attempts to present itself as a financial one-stop shop. After Alibaba front man Ma, who with a fortune of $ 57.3 billion is the richest person in China, publicly mocked the Chinese financial industry and regulators, he told a Shanghai conference that Chinese state banks They had a “pawn mentality” when it came to extending credit – they got their revenge.
It is clear that Communist Party officials are concerned that Ant and Ma have been too liberal with their credit. The subtext of the fight is that Communist Party officials want to remind Ma and other private-sector successes who is really in charge.
Shortly after Ma’s speech in late October, which was attended by influential bankers and financial regulators, the China Securities Regulatory Commission said it was calling Ma, Ant CEO Eric Jing, and Ant CEO, Simon Hu, 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 “views were exchanged on the health and stability of the financial sector.”
Then Ant was forced on November 3 to withdraw its initial public offering in Shanghai and Shenzhen, which at $ 37 billion would become the largest in world history. The cancellation came just two days before the shares were supposed to start trading, and after regulators and markets in both cities had approved the offer. There is reported speculation that Chinese President Xi Jinping himself intervened to prevent the IPO from taking place.
The scrutiny is now deepening. Ant last week suspended its service that allowed customers to deposit cash at regional banks in China. That may violate the rules against operating across provincial borders.
The company has also cut the credit limits of many users, which it has extended to allow them to make purchases. Pan, the central banker, said Ant has been offering “illegal credit loans” and has questioned his insurance and wealth management services.
AliPay’s rival WeChat Pay is run by Tencent Holdings (TCTZF) and could soon face similar pressures. Tencent shares fell 6.6% on Monday in Hong Kong, although they are up 38.2% in 2020 thanks to the company’s burgeoning business in smartphones and online video games.
In contrast to Alibaba’s struggles, Chinese stock markets have generally been flying. The CSI 300 of the largest companies listed in Shanghai and Shenzhen has risen 23.6% in 2020.
It’s an impressive rebound after central Wuhan became the Chinese city where the Covid-19 pandemic first broke out. China’s economy will likely grow 2.1% this year, according to Oxford Economics, leading to unbridled growth of 7.8% in 2021.
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