Chinese President Xi Jinping really wants Jack Ma. It is communism versus capitalism.
Alibaba Group Holdings (BABA) shares plunged today in Hong Kong trading, closing at 8.0%, deepening a drop that started in late October. The stock has fallen 29.5% since October 23, remaining almost stable for the year, and at its lowest low since June.
The company has lost about $ 116 billion in market capitalization in the past two trading sessions. That was after China announced last Thursday that it was launching an antitrust investigation into Alibaba, which runs Chinese e-commerce sites Taobao and the sophisticated Tmall.
At the last moment, Chinese regulators are looking to restructure and possibly break Alibaba’s fintech subsidiary, Ant Group, which runs the ubiquitous AliPay digital wallet application.
In a country where credit cards are not commonly used outside major cities, AliPay allows users to use their cell phones to pay for almost anything: groceries, taxis, train tickets, movie tickets, their phone bill cell phone, insurance …
Chinese financial regulators are now examining the Ant Group’s business. At the center of your concern is whether you have the licenses and capital reserves necessary to offer the types of financial services you offer.
Ant said on Sunday that it would “greatly” improve compliance by conducting a review of its business. Ant executives met on Saturday with officials from, well, almost all of the financial regulators involved: the central bank of China, the People’s Bank of China; the Banking and Insurance Regulatory Commission of China; the Securities and Exchange Commission of China; and the State Exchange Administration (SAFE).
The central bank’s deputy chief, Pan Gongsheng, went to the official Xinhua news service to accuse Ant of “having little legal awareness, disregarding regulatory compliance requirements, foul play for regulatory arbitrage, leveraging market dominance to exclude competitors and prejudice consumers’ legitimate rights and interests. “
Financial regulators have identified “major problems” in Ant’s business operations and are asking him to establish a “as soon as possible” schedule to correct them.
Pan said Ant would be required to “return to its original business as a payment service provider” as well as increase transparency. It should improve the way it stores personal data and carry out individual credit reports, he said.
It looks like Ant will be forced to restructure itself. Ant will have to set up a financial holding company, Pan said, with adequate supervision, capital sufficiency and legal release.
Separated from Ant’s problems, the State Administration for Market Regulation said on Thursday that it had launched an antitrust investigation into Alibaba. Ant originally served only as a escrow service for the two parties that traded goods on Alibaba’s Taobao e-commerce site. The buyer parked the money with Ant, who then distributed it to the seller. This left Ant with huge temporary stacks of money, however. This basis was necessary to create a wide range of financial offers.
It is common for rivals from Taobao and Alibaba, such as JD.com (JD) and Pinduoduo (PDD) to require traders to choose “one of two”, selling their products only on an e-commerce platform for fear of being kicked out for serving. the other. This is clearly anti-competitive and detrimental to the consumer’s choice. The most successful Chinese startups also tend to restrict investors from putting money in their rivals if they want to continue investing in spinoffs from this corporate group.
Fintech has already changed its name to Ant Group from Ant Financial to distance itself from its original attempts to present itself as a one-stop financial one. After the leading figure of Alibaba Ma, who with a fortune of $ 57.3 billion is the richest person in China, made the Chinese financial industry and regulators public – he said at a conference in Shanghai that state-owned banks Chinese had a “pawnshop mentality” when it came to extending credit – they got their revenge.
Of course, Communist Party officials are concerned that Ant and Ma have been too liberal with their credit. The subtext for the fight is that Communist Party officials want to remind Ma and other private sector successes about who is really in charge.
Shortly after Ma’s speech in late October, attended by influential bankers and financial regulators, the Securities and Exchange Commission of China said it was calling Ma, Ant’s chief executive Eric Jing and the CEO of Ant, Simon Hu, for questioning. The CSRC – the equivalent of the United States Securities and Exchange Commission – did not say what the discussions were about, but Ant said in a statement that “views on the health 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 at $ 37 billion was considered the largest in global history. The cancellation occurred just two days before the stock trading began, and after regulators and markets in both cities released the offer. There is 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 money at regional banks across China. This can violate the rules against operating across provincial borders.
The company also cut the credit limits of many users, which it extended so that they can make purchases. Pan, the central bank, said that Ant has offered “illegal credit loans” and questioned its insurance and wealth management services.
AliPay’s rival, WeChat Pay, is managed by Tencent Holdings (TCTZF) and may soon face similar pressures. Tencent’s shares fell 6.6% on Monday in Hong Kong, although they rose 38.2% in 2020 thanks to the company’s expanding business on smartphones and online video games.
In contrast to Alibaba’s difficulties, Chinese stock markets are generally flying. The CSI 300 of the largest listed companies in Shanghai and Shenzhen increased 23.6% in 2020.
It is an impressive recovery after the center of Wuhan became the Chinese city where the Covid-19 pandemic broke out for the first time. China’s economy is likely to grow 2.1% this year, according to Oxford Economics, leading to accelerated growth of 7.8% in 2021.
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