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Jack Ma’s Ant Group was the next big one. It could be a boring bank now |

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Jack Ma’s Ant Group soon became one of the most powerful companies in China, and plans to connect the world of technology and finance became more and more ambitious day by day.

Now it looks like it has turned into a kind of highly regulated Chinese bank that it wanted to replace.

A few months after the company’s blockbuster initial public offering was shelved at the last minute, a move that appeared to have originated from horse criticism of Chinese regulators was with authorities to make Ant a financial holding company. Several media outlets reported that they had agreed.

Ant declined to comment on these reports earlier this month, and details of the potential agreement were not immediately revealed. The company did not answer additional questions about dealing with authorities this week.

However, according to the report, Alibaba’s affiliates may have to follow rules similar to those required of traditional Chinese banks.

The company is best known for its Alipay digital payments app, which boasts over 700 million active users each month. He also has a strong interest in online investment, insurance and consumer finance, contributing to the growth of a business that manages approximately $ 635 billion worth of assets.

The company has been able to grow with little restraint over the last decade, but Beijing’s political climate is changing. Authorities are becoming more and more aware of how Ant and its associates are affecting the country’s financial system. For example, Ant currently dominates more than half of China’s mobile payments market and is looking for ways to curb them.

“The Chinese government is trying to regulate these apps with a much heavier hand,” said Doug Fuller, an associate professor at City University of Hong Kong, who studies technological development in Asia. “The purpose is not to kill these apps, but the era of unlimited growth and the hope that one day it will replace traditional banks are over.”

Meaning of being a bank

Beijing’s technology crackdown has taken many forms over the past few months. Regulators can not only force Ant Group to stop record-breaking IPOs, but also begin antitrust investigations against Alibaba, ask Tencent and Pinduoduo executives, and control the operations of many tech companies. Announced new rules.

There are still some loose ends, but at least there are some clues as to what the final fate of Ant will be. Last September, the People’s Bank of China outlined new measures requiring financial holding companies to hold “sufficient capital” commensurate with the amount of assets they hold.

If Ant falls into one of these companies, it could mean that Ant needs to significantly increase the amount of cash it holds or otherwise reduce the size of its consumer finance business. There is sex.

The details of Ant’s reported agreement have not yet been confirmed, but it’s easy to see why these new rules are at stake.

According to the IPO’s prospectus, Ant had about 2.15 trillion yuan ($ 333 billion) worth of consumer and small business loans as of June last year. By comparison, according to data from the People’s Bank of China, the central bank of China, more than 4,000 commercial banks in China held only six times the loan balance at the time.

Ant held only 16 billion yuan ($ 2.5 billion) in authorized capital for the huge loan book.

Beijing, on the other hand, has at least risk-weighted assets with rules adopted from the widely used international banking guidelines called the Basel Agreement for “systemically important” banks or banks that seem too big to fail. We require that we have sufficient funds to cover 11.5%. .. Ant’s balance sheet is well below that ratio. (In particular, China’s proportions are even tighter than those used by other countries following Basel.)

Ant will “less flexibility and innovative space” when it comes to financial holding companies, wrote Ji Shaofeng, chairman of the China Small and Medium Credit Industry Research Association, in Caixin Global magazine last November after the IPO was withdrawn. He added that the large amount of consumer data Ant collects through digital payment services could also be under regulatory scrutiny, which could pose further challenges.

“For technology companies that always need it [to] With innovation, such regulation would put tremendous pressure on us. “

Years of public tension

This is exactly the kind of pressure that Ant and Alibaba co-founder Ma was worried about when he was soaking in hot water with regulators late last year.

“The Basel deal is like a club for the elderly,” Ma said in a speech in Shanghai last October, before the IPO of Ant was withdrawn and a major withdrawal from public life. Said in the speech.

“What we want to solve is the aging problem of the financial system that has been in operation for decades,” Ma said. But while systems like Europe are complex, he calls China’s financial system “puberty” and is an innovation that can bring banks to the poor and small businesses that are locked out of traditional banks. Better provided by the technology companies.

“The Basel agreement is about risk management,” Ma added. “But the problem in China is the opposite. There is no systematic financial risk because China basically has no financial system.”

The tech entrepreneur’s choice of words in his speech became even more colorful, he criticized China’s traditional state-run bank for having a “pawnshop” mindset, and probably acted swiftly in retaliation against Beijing. Prompted.

The Shanghai Stock Exchange was at the time wondering why it withdrew its IPO and said there was a “serious problem” with Ant’s listing, but the government’s response was that the decision was about exercising authority and control. It shows that it was.

“The main concern of China’s core planners is for the party to continue to control all aspects of the economic and business sectors,” said Alex, a researcher at the Hinrich Foundation and a visiting senior researcher at the National University of Singapore.・ Capri said. “The rapid growth of China’s tech giants has clearly weakened the influence of state-owned banks, [other] Financial institutions, and it weakens the Communist Party. “

China’s tricky balancing act

Beijing’s calculated technology crackdown is as rooted in economic concerns as it exercises control.

Authorities have long been very cautious about whether the impact of tech companies on the financial sector will make the industry vulnerable to structural risks. If any of the major players fail for any reason, it can cause havoc in the Chinese economy.

“The idea is that putting these companies under the control of Beijing will enable us to better serve the nation in the construction of the next generation. [the Internet of Things] Or financial infrastructure or digital deployment [yuan]”All of these actions are promoting and predicting Beijing’s power,” Capri said.

But it’s also a tricky balancing act. Xi Jinping Jintao of China, but has been a long time support the state-owned enterprises than private companies such as Alibaba and Ant, analysts, these state-owned enterprises, to promote productivity and innovation as public enterprises He points out that he is not good at it.

Julian Evans Pritchard, senior China economist at Capital Economics, said in a note last week, “There are legitimate concerns about financial risk and anti-competitive behavior that justify increased tech giant surveillance. “. “But I think the desire to reassert control means that regulators are now swinging too far in the opposite direction, in support of recent economic growth due to rapid productivity gains in the tech sector. There is a risk of damaging. “

“Don’t kill the golden egg-laying geese,” said Martin Chorsempa, senior researcher at the Peterson Institute for International Economics, which studies China’s financial innovation, said Beijing will continue to be cautious. It was.

“The importance of SuperAppli to China’s innovation ecosystem, its expectations for international influence and status, and its economic importance is widely recognized,” he added.

Fuller of City University of Hong Kong agreed. If China wants to compete with the West, it must “pursue industrial and technological policies in a more efficient way,” he said.

“There is a trade-off between promoting state ownership and innovation,” he added.

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