Friday, March 31, 2023

China plots ‘rectification’ attempt to bring Jack Ma’s Ant group to heel

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Beijing Steps Up Plans To Bring Jack Ma’s Ant Group More Closely Under Its Control In A “Rectification” Campaign That Would Make It Difficult For One Of China’s Richest Men To Completely Rebuild His Empire Online .

The consumer loan unit of Ant and other fast-growing parts of the financial technology group will be transformed into a new financial holding company that will be regulated by the People’s Bank of China, according to people familiar with the discussions between the central bank and society.

The reorganization would put him directly under the thumb of regulators Mr. Ma has long been brushed against, his public criticism angering Chinese authorities and state bank officials. The PBoC issued a public reprimand de Ant this weekend, calling on the company to recast and accusing it of “turning a blind eye to compliance requirements.”

A former regulator said: “The best solution is to split Ant into a financial unit for its online lending, brokerage and insurance business which will be subject to full regulatory oversight, and a technology and data unit less. regulated. ”

Mr. Ma has long spurred officials on with his ambitions to reshape the country’s state-run financial system.

“If the banks don’t change, we will change the banks,” he said ten years ago. “We want to shake up public companies.”

More recently, he accused Chinese banks of harboring a “pawnshop mentality” in public remarks made shortly before Ant’s. Initial public offering of $ 37 billion has been canceled by regulators in November.

Ant a reshaped his business in response to regulatory guidance on several occasions in recent years. But Pan Gongsheng, vice governor of the PBoC, made it clear in an interview transcript released on Sunday that bigger changes are coming. Ant “must integrate its development into the country’s overall development plan,” he said.

Chinese public lenders have long complained that their online competitors have gained an unfair advantage by being subject to less stringent regulations.

The plan under consideration for Ant is to move its financially licensed businesses – which include its payments, lending, insurance and wealth management businesses – to a new holding company, people familiar with the matter said. However, they warned that talks with regulators are continuing.

Bloomberg News first reported the plan.

Ant may also need to raise capital to meet PBoC guidelines, which, along with capital adequacy, risk control, and governance requirements, make financial holding companies closer to banks than technology companies.

The plan could dramatically reduce Ant’s value according to investors, with the group valued at $ 300 billion ahead of the IPO.

“Ant has repeatedly emphasized that this is a technology company and the market values ​​it as a business, but if it is transformed into a financial holding company, it will become a financial institution at heart and the market will have to re-evaluate it, ”said He Zhisong, a lawyer at Zhong Lun, a law firm. “To allay antitrust concerns, Ant may also need to divest from some of its lines of business.”

Stricter regulations for sprawling financial companies has been in the works for at least last year, when they were first sketched out by the PBoC. In anticipation of the new rules, Ant has designated its Zhejiang Finance Credit Network Technology unit as its primary portfolio vehicle.

“Ant has a lot of financial licenses, but as of yet, it’s unclear how companies in different industries blend together,” said Zhao Xijun, professor of finance at Renmin University in Beijing. “Regulators ask Ant to explain [its structure] and ensure that each company complies with the regulations in its sector. “

Fears that tighter regulations could dampen the rapid growth of the fintech sector has increased since regulators suspended Ant’s IPO, given the subsequent outpouring of state and official media and public criticism of the group.

China’s competition regulator also announced last week that it was opening an anti-monopoly investigation into Alibaba, Mr. Ma’s e-commerce company, and gathered evidence from its headquarters in Hangzhou, eastern province of China. Zhejiang.

An attorney familiar with the antitrust process said Alibaba would likely be fined equal to 1 or 2% of its sales in the previous year, or about 7 billion rmb ($ 1.1 billion), for having abused its dominant position in the market.

“The government doesn’t really want to kill Alibaba, it just wants to teach them who the boss is,” the lawyer said.

Alibaba shares have fallen nearly a quarter since Ant’s IPO was withdrawn.

Bloomberg data shows Mr. Ma’s net worth, which has been a staple at the top of China’s rich list in recent years, has fallen by nearly $ 10 billion to $ 50.9 billion during the same period.

Additional reporting by Sun Yu, Xinning Liu and Nian Liu in Beijing


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