Chinese President Xi Jinping really has it for Jack Ma. It is communism against capitalism.
Shares of Alibaba Group Holdings (BABA) closed today in Hong Kong trading, closing up 8.0%, deepening the decline that began in late October. Shares have now fallen 29.5% since October 23, leaving it almost flat during the year, and at its lowest point since June.
The company has lost about US $ 116 billion in market capitalization in the last two trading days. That was after China announced last Thursday that it would launch an antitrust investigation into Alibaba, which manages China’s dominant e-commerce sites Taobao and the luxurious Tmall.
In the latest wrinkle, Chinese regulators are trying to restructure and possibly break Alibaba’s fintech subsidiary, Ant Group, which manages the ubiquitous AliPay digital portfolio application.
In a country where credit cards are not commonly used outside of larger cities, AliPay allows users to use their mobile phones to pay for just about anything: groceries, taxis, train fares, movie tickets, phone bill mobile phone, insurance …
Chinese financial regulators are now studying the business of the Ant group. The focus of his concern is whether he has the necessary licenses and capital reserves to offer the type of financial services he performs.
Ant said Sunday he would improve his performance “a lot” by reviewing his business. Ant executives met on Saturday with officials from, well, almost any financial regulator involved: the Central Bank of China, the People’s Bank of China; the Banking and Insurance Regulatory Commission of China; the China Securities Regulatory Commission; and the State Foreign Exchange Administration (SAFE).
Central bank deputy director Pan Gongsheng turned to the official Xinhua news service to accuse Ant of “having a bad legal conscience, violating regulatory compliance requirements, playing poorly in regulatory arbitrage, taking advantage of market dominance to excluding competitors and harming the legitimate rights of consumers and interests “.
Financial regulators have identified “significant problems” in Ant’s business operations and urge him to set a timetable “as soon as possible” to address them.
Pan said Ant should “return to its original business as a payment service provider,” as well as to improve transparency. It needs to improve the way it stores personal data and make individual credit reports, he said.
It looks like Ant will be forced to restructure. Ant will have to set up a financial holding company, Pan said, with proper supervision, capital adequacy and legal authorization.
Aside from Ant’s problems, the State Administration of Market Regulation said on Thursday that it has initiated an antitrust investigation into Alibaba. Ant originally served as a depository service for the two parties trading goods at Alibaba’s Taobao e-commerce site. The buyer parked the cash with Ant, who then dispersed it to the seller. However, this left Ant with huge temporary batteries. This base was needed to build a wide range of financial offerings.
It has been common for Taobao and Alibaba rivals, such as JD.com (JD) and Pinduoduo (PDD), to require traders to choose “one of two”, selling their goods only on an e-commerce platform for fear of being kicked out. for serving the other. It is clearly anti-competitive and detrimental to consumer choice. The most successful Chinese companies also often restrict investors from placing money in their rivals if they want to continue investing in derivatives of this corporate group.
Fintech has already changed its name to Ant Financial’s Ant Group to distance itself from its original attempts to become a one-stop shop. After Alibaba chief Ma, who with a fortune of US $ 57.3 billion is the richest Chinese person, mocked the Chinese financial industry and regulators. extending credit: they took revenge.
It is clear that Communist Party officials are worried because Ant and Ma have been too liberal with their credit. The subtext of the struggle is that Communist Party officials want to remind Ma and other private sector successes who are really in charge.
Shortly after Ma’s speech in late October, which was attended by influential bankers and financial regulators, China’s Securities Regulatory Commission said it would convene Ma, Ant’s chief executive, Eric Jing, and CEO of Ant, Simon Hu, to interrogate them. The CSRC – the equivalent of the U.S. Securities and Exchange Commission – did not say what the discussions were about, but Ant said in a statement that “views were exchanged on the health and stability of the financial sector. “.
On November 3, Ant was forced to withdraw its initial public offering in Shanghai and Shenzhen, which with $ 37 billion would be the largest in world history. The cancellation came just two days before the shares were due to start trading and after regulators and markets in both cities had settled the bid. It is speculated that Chinese President Xi Jinping himself intervened to prevent the IPO.
Scrutiny is deepening. Ant last week suspended its service that allowed customers to deposit cash at regional banks across China. This can violate rules against operating across provincial borders.
The company has also lowered credit limits for many users, which it expanded so they can shop. Pan, the central banker, said Ant has been offering “illegal credit loans” and has questioned his insurance and wealth management services.
AliPay’s rival, WeChat Pay, is run by Tencent Holdings (TCTZF) and may soon come under similar pressure. Shares of Tencent fell 6.6% on Monday in Hong Kong, although they rose 38.2% in 2020 thanks to the boom in the company’s business in smartphones and online video games.
In contrast to Alibaba’s struggles, Chinese stock markets have generally been flying. The CSI 300 of the largest listed companies in Shanghai and Shenzhen will increase by 23.6% in 2020.
It is an impressive rebound after downtown Wuhan became the Chinese city where the Covid-19 pandemic first broke out. China’s economy is likely to grow 2.1% this year, according to Oxford Economics, and will translate into rampant growth of 7.8% in 2021.
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