China has stepped up its campaign to control the vast technology empire controlled by Jack Ma, Alibaba’s co-founder and one of the country’s richest people.
Officials in Beijing, who on Christmas Eve ordered an investigation into allegations of “monopoly practices” by the online retail giant of Ma, have now ordered their financial technology company Ant Group to reduce its operations.
Pan Gongsheng, deputy governor of China’s central bank, said Ant’s corporate governance “was not sound” and ordered him to “return to his origins” as a payment service provider.
Pan, who called Ant representatives to a meeting with regulators in Beijing on Saturday, said that Ant should “strictly rectify illegal financial activities in credit, insurance and wealth management”. The ant divisions that offer these services are the fastest growing and most profitable operations in the business, analysts said.
In a statement, the Ant Group said it would establish a “rectification working group” and “fully implement the requirements” requested by the regulator.
“We will expand the scope and magnitude of the openness for win-win collaboration, review and rectify our work in protecting consumer rights and comprehensively improve our business compliance and sense of social responsibility,” said the company. “Ant will make its rectification plan and work schedule in a timely manner and seek guidance from regulators in the process.”
The latest blow to Beijing’s battle against Ma – who was celebrated as the biggest businessman in modern China until he began to speak out against strict regulations – wiped out 8% of Alibaba’s share price in Hong Kong’s talks on Monday.
Alibaba’s shares have lost more than a quarter of their value since October 24, when Ma accused Chinese financial regulators and state-owned banks of operating a “pawnshop” mentality at a high-level summit in Shanghai.
Chinese Communist Party officials counterattacked, accusing Ma’s Company of violating several regulations and stepped in to block Ant Group’s $ 37 billion (£ 27 billion) fluctuation just two days before negotiations began in Shanghai and Hong Kong.
The crackdown on Ma’s business activities took more than $ 10 billion (£ 7.4 billion) from his fortune and placed him second on the list of China’s richest people with about $ 49 billion, according to the Bloomberg billionaire index. The richest person in China is now Pony Ma (unrelated), president and CEO of rival Tencent.
Zhang Zihua, chief investment officer at asset manager Beijing Yunyi Asset, said investors fear that the Beijing campaign against Ma companies could continue, even if they make all the necessary changes. “The antitrust investigation into Alibaba has not yet specified the penalties, which is of great concern to investors,” he said.
Li Chengdong, a Beijing technology analyst, said the action against Ant also weighed on other Chinese technology companies. “The new regulations are hurting big Internet platforms, so Tencent and other technology companies are also seeing their stock prices drop,” said Li. “Alibaba is now the target of regulators, so the reaction is stronger . ”
On Christmas Eve, China’s state market supervision administration said it had ordered an investigation into Alibaba Group Holdings Ltd because of “suspected monopolistic practices”.
An editorial in the state spokesman People’s Daily Chinese said that efforts to prevent monopoly and anti-competitive practices were “requirements for improving the socialist market economy system and promoting high-quality development.
“This investigation does not mean that the country’s attitude towards encouraging and supporting the platform economy has changed.”
Analysts and policy experts said Beijing’s action against Ma’s companies was probably triggered by the blunt speech he gave at the Bund’s summit in Shanghai on Oct. 24, criticizing authoritarian regulation and state domination of banks.
“We shouldn’t use the way of running a train station to regulate an airport,” said Ma, according to a transcript. “We cannot regulate the future with yesterday’s means.
“It is impossible for the pawnshop mentality to withstand the financial demand for global development over the next 30 years,” said Ma, who started Alibaba in a one-bedroom apartment in China 21 years ago. “We must leverage our technological capabilities today and build a credit system based on big data, to get rid of the pawnshop mentality.”
Ma spoke alongside officials like Wang Qishan, a former security czar and the right hand of Chinese leader Xi Jinping; Yi Gang, the governor of China’s central bank; and Zou Jiayi, deputy minister of the Ministry of Finance. Ma’s comments went viral on Chinese social media and were seen as a direct attack on government officials.
In November, the Ant Group was preparing for what would have been the largest initial public offering in the world when it was suddenly closed by Beijing, 48 hours before negotiations began in Shanghai and Hong Kong. Prior to the suspension, investors had valued Ant at $ 316 billion (£ 234 billion), more than the valuations of the largest banks in China and the United States and the United Kingdom.
At the time, the suspension was attributed to “changes in the financial technology regulatory environment and other important issues”, but analysts interpreted the intervention as a warning to Ma.
“The party once again reminded all private entrepreneurs that no matter how rich and successful you are, she can pull the rug out from under her feet at any time,” wrote Bill Bishop, author of the China-focused newsletter Sinocism.