Tag Archives: Ant Group

Reining In All Round

Screenshot of China Cinda Asset Management web site captures on January 16, 2022

IT TAKES SOME deft reading between the lines to understand the unexpected decision by China Cinda Asset Management, a bad-debt manager controlled by the finance ministry, to drop its backing for the restructuring of Ant’s consumer finance business.

The only public reason that China Cinda has given for backing out late last week from its announced 6 billion yuan ($940 million) participation in a 22-billion-yuan funding round for the reformulated version of Ant’s consumer finance business is “further prudent commercial consideration and negotiation.”

As part of the ‘rectification‘ of Jack Ma’s Ant Group that commenced with regulators pulled the rug from under the group’s planned blockbuster $37 billion initial public offering in November 2020, Ant’s two consumer finance businesses, Huabei and Jiebei, were to be consolidated as Chongqing Ant Consumer Finance, in which Ant’s stake would be capped at 50% and regulatory oversight extended.

Authorities are pruning back the growth of China’s tech platforms for various policy reasons, from reining in financial risk to concerns about misuse of consumer data, overweening market power and a feeling that the platforms and their billionaire owners are just getting too big for their boots.

Yet authorities also have concerns about the four bad-debt managers straying from their core mission, especially now their cash flows are being squeezed and debt ratios rising. After all, there is still a potential real-estate sector meltdown to worry about. There is no appetite to repeat the bailout of China Huarong Asset Management, the largest of the four state-backed bad-debt managers established in the late 1990s to clean up the ugly parts of the large state-owned banks’ loan books.

The China Banking and Insurance Regulatory Commission (CBIRC) recently instructed the bad-debt managers to return to their core businesses of managing bad loans and distressed assets.

China Cinda already owns 15% of Chongqing Ant through its wholly-owned subsidiary Nanyang Commercial Bank. Expanding that to become the second-largest shareholder in China’s largest consumer finance company does not fit CBRIC’s mandate.

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China’s Regulators Will Squeeze, Not Crush Fintech

CHINA’S TWIN CRACKDOWNS on shadow banking and fintech are aimed, in part, at protecting the country’s staid state-controlled banks and, in part, at reining in a sector of the economy that is growing too fast and too powerful for authorities liking.

Fintech platforms and online payments have attracted many depositors and borrowers dissatisfied with the low interest rates and limited access to credit for non-state borrowers within the state-controlled banking sector. This is draining liquidity from state-controlled banks.

It also deepens authorities’ concerns about the extent to which the tech giants are expanding their influence over every aspect of life and about the vast amounts of data they amass from providing services from online payments to shopping, chatting and ride-hailing.

The summoning of 13 tech companies by financial regulators last Thursday, including Tencent, which is the largest shareholder in the online bank WeBank (seen above), to inform them of a raft of new compliance requirements for their fintech businesses, signals that regulators are expanding their campaign to rein in the tech giants’ drive into the financial sector.

Yet it is only the latest example of official pushback. Previous measures include the cancellation of the planned public offering by Alibaba’s fintech spin-off, Ant Group, which was followed by antitrust actions that resulted in a ‘rectification plan‘ to correct unfair competition practices in its payment business, broke down its information monopoly and required it to apply to become a financial holding company. The newly summoned 13 are being given the same treatment.

Even before all that, authorities had instituted a de facto ban on peer-to-peer lending platforms. Indeed, the crackdown on shadow banking dates back to 2016 when concerns about the need to deleverage the economy started to take hold among policymakers.

Further regulation and investigations of fintech businesses will likely continue. However, demand for and supply of alternative finance is unlikely to disappear, and the state-controlled banks are unlikely to meet it any time soon. Their legacy modus operandi as policy agencies rather than independent financial services providers is a heavy one to cast off. Until they do, innovative fintech alternatives will find a way to emerge.

The catch-22 for authorities is that non-bank finance will remain crucial for the private sector, which, in turn, supports much of China’s economic growth and jobs. Thus non-state borrowers are likely to continue to be allowed access to non-bank credit and the tech giants to provide it through their fintech platforms, but both sets will need to be sensitive to the fact that that will increasingly be on authorities’ terms, not theirs, and that those terms may change unexpectedly.

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Ant Knuckles Down

Logos of Ant Group and Alipay

ANT GROUP HAS applied to become a financial holding company. That will put Jack Ma’s fintech group spun out of Alibaba under central bank oversight. Thus authorities tighten their grip a significant notch over the sprawling fintech sector.

The somewhat imposed decision on Ant will require it to restructure itself as a payments services company. That was what regulators told the company to do after forcing the pulling of Ant’s proposed blockbuster initial public offering (IPO) last November. However, the first go-round did not pass muster. The central bank and the three other top financial regulators hauled in Ant executives on Monday for further talks.

Following those, the People’s Bank of China announced the company will now adopt its new structure as part of a ‘comprehensive and feasible rectification plan’ following its coming under strict regulatory oversight last year.

Critically, Ant has agreed to decouple its Alipay mobile payments app from other financial services it offers, such as unsecured online lending via its Huabei virtual credit card and Jiebei consumer loans. The company says its focus will be on enabling micro-payments for consumers and small-and-medium-sized enterprises, which is how it started. As part of this, it will set up a personal credit reporting company and improve consumer data protection. A separate (regulated) Ant consumer finance company will run Huabei and Jiebei.

The company also says it will improve its consumer data protection, rectify monopolistic behaviour and shrink the assets under management of Yu’e Bao, its giant money-market mutual fund. These changes all toe the new party lines for reining in the internet giants and scaling back highly leveraged lending.

Ant also contritely says it will plan its growth ‘within the national strategic context’ and ‘contribute to the new development paradigm of domestic and international circulations’. This reinforces the view this Bystander expressed previously about the platform companies being marshalled into becoming a ‘strategic height’ of the economy and a competitive advantage for China internationally.

The freewheeling days for fintech are now over. Ant’s affiliate Alibaba’s record 18.2 billion yuan ($2.8 billion) antitrust fine was further warning that Ant and all the other fintech companies will have to behave like traditional financial institutions and do as their regulators tell them in line with national policy objectives.

Where this leaves Ant’s IPO is uncertain. The restructuring will make the group less valuable than the $34 billion it was initially hoping to raise. Alipay has more than one billion users in China and holds approaching three-fifths of the $17 trillion mobile payments market, well ahead of its closest rival Tencent’s WeChat Pay’s two-fifths. That dominant market share tied together a vast and detailed trove of consumer data collected across Alibaba and Ant.

Weakening the ability to use Alipay across all its services will reduce those market shares, which is also the intent of new draft measures announced in January to curb market concentration in online payments.

Update: The State Administration for Market Regulation has told 34 internet platform companies, including Tencent, ByteDance, Pinduoduo, Baidu and JD.com, to get any anti-competitive practices sorted out within the next month — confirmation, as if it was needed, that the crackdown on Ant Group and Alibaba is neither all about Jack Ma nor over.

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Jack Ma Peeks Above The Parapet

Screenshot of Jack Ma, founder of Alibaba and Ant Group, seen in a video clip posted to social media on January 20, 2021, addressing an audience of rural teachers by video link.

JACK MA’S REAPPEARANCE speech was as humble and dutiful as his previous one, last October, was caustic and critical.

After a nearly three-month absence from public view that sparked rumours that the high-profile billionaire founder of Alibaba and its fintech spin-off Ant Group had been detained by authorities displeased by his dismissive criticisms of China’s financial regulators, Ma joined a meeting of 100 rural teachers by video link. (The screenshot above is from a clip posted to social media.)

His presentation touched on two issues dear to the heart of Party leadership: that the country had eradicated poverty; and that entrepreneurs had a duty to serve society, in this case by supporting teachers and improving rural education.

It was unclear where Ma was speaking from, nor did he mention where he had been of late.

Between Ma’s two public appearances, regulators had forced the last-minute pulling of Ant Financial’s initial public offering and started an antitrust investigation into Alibaba as part of a broader reining-in of the private tech companies.

Ma, too, will find himself on a tighter leash and make sure not to strain against it. The same will be true for his companies, as this Bystander suggested previously.

However, his reappearance alone will be of some reassurance to investors. Nonetheless, that does not give China’s tech giants and their leaders any latitude to step out of line.

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Regulators Will Bend Not Break Ant Group

JACK MA’S ANT GROUP, the fintech affiliate of e-commerce giant Alibaba, is to be restructured following the regulatory squashing of its would-be blockbuster initial public offering in November. The company says it is working on a timetable to meet the requirement of China’s regulators that it returns to being a payment-services provider at core (ie, go back to being just Alipay).

This will involve overhauling its lending, insurance and wealth management businesses to strip down their complexity, and then putting them under a single financial holding company. People’s Bank of China officials have told the company to do that to ensure both capital adequacy and compliance regarding related transactions while protecting personal data privacy in its credit-scoring services — the velvet glove of prudential regulation over the iron fist of supervision.

By corralling its financial businesses in a separate subsidiary, Ant will be better placed to comply with the new regulations on financial holding companies that took effect in November and mitigate the risk of a forced full-scale break up of the group, if not of having to bend to the regulators’ will.

November’s regulations require non-financial companies that control businesses in at least two different financial sectors to have a central bank-approved financial holding company to control them.

There is an element of bringing Ma to heel in the high-profile application of the new regulations to Ant. It also fits with the reining-in of the large tech companies that grew up outside the orbit of state-owned industries.

However, regulators are intent on tightening their grip on non-financial companies moving into financial services, including innovative fintech-enabled services such as online microcredit, as part of their broader desire to rein in systemic financial risk.

The restructuring will likely crimp Ant’s growth. For one, it will face tighter oversight and higher capital adequacy requirements, especially in highly-leveraged business lines such as online microcredit.

The overhaul of Ant’s financial businesses may also result in some regulator-driven divestment. That could eliminate synergies between Ant’s fast-growing fintechs and its existing businesses. It is in exploiting those synergies that the group’s real value lies.

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Regulators Rule

WHEN WE SAID we thought that the initial public offering (IPO) of Jack Ma’s Ant Group might come to be seen as an inflexion point in global capital markets, we thought it would be because raising such a considerable sum –$35 billion — outside of the United States would be a milestone in the development of China’s capital markets. But the abrupt pulling of the IPO of the fintech affiliate of Ma’s Alibaba group just days ahead of its scheduled launch because of ‘unexpected changes in the regulatory environment’ lays down a marker of a different sort, the power of China’s regulators.

Authorities from the People’s Bank of China and three other top financial regulators summoned Ma on Monday to inform him they had belatedly detected shortcomings, reportedly in Ant’s lucrative micro-lending units that will require reapplications for national operating licences and capital increases and restructurings. These will be necessary to comply with new regulations that took effect on November 1 to rein in systemic risks posed by companies that straddle at least two financial business lines. Ant’s businesses range from payments to lending, asset management and insurance.

This was no quiet word to the wise, but a none-too-thinly-veiled reminder to a business — and its owner — that is a threat to China’s state-run lenders, and thus by extension to the administration of state capitalism, that political loyalty and effectiveness as a policy instrument is just as expected of private companies as state-owned enterprises. Whether further actions are taken against other parts of Ant’s business will indicate the severity of the warning.

Ma may now judge as injudicious his recent likening of the big, state-owned banks to pawn shops and criticism of the Basel Accords, which set out capital requirements for banks, as a club for geriatrics.

The latter was part of a provocative futurist speech delivered in front of many of the country’s top financial regulators. They hold to the old-fashioned view that risk management, not innovation and growth is the foundation of a sound financial system. Nor will they have cared for Ma’s argument that China has no systemic financial risk as it has no financial system, and thus no need for systemic risk management. Authorities believe with good reason that there is cause to be wary of financial instability.

Ma is not the first fintech entrepreneur to hold that regulators and legacy lenders are dinosaurs, out of touch with digital innovation and the financial systems of tomorrow. He will not be the last to learn that until tomorrow comes, it is the innovators who have to comply with the regulators, not the other way round.

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Ant’s Incredible IPO

THE INITIAL PUBLIC offering (IPO) of shares in Jack Ma’s Ant Group may become to be seen as having been an inflection point in global capital markets. Even just a few years back the thought of raising $34 billion anywhere but in New York would have been incredible.

No longer. Next week’s dual listing in Shanghai and Hong Kong will be evidence of that. Ant’s IPO will be the largest ever and will value the Alibaba Group financial technology affiliate at $313 billion. That would make Ant more valuable than the largest US bank, JP Morgan Chase.

The Trump administration talks of excluding Chinese firms from US capital markets as a sanction. That is what is now starting to sound as lacking credence.

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