China tells Ant to return to its roots in payments services

The People's Bank of China also urged Ant to rectify illegal financial activities.
The People's Bank of China also urged Ant to rectify illegal financial activities.PHOTO: EPA-EFE

BEIJING • Chinese regulators have ordered billionaire Jack Ma's online financial titan Ant Group to return to its roots as a provider of payments services, threatening to throttle growth in its most lucrative businesses of consumer loans and wealth management.

The People's Bank of China summoned Ant executives over the weekend and told them to "rectify" the firm's lending, insurance and wealth management services, the central bank said in a statement yesterday.

While it stopped short of directly asking for a break-up of the firm, it stressed that Ant needed to "understand the necessity of overhauling its business" and come up with a timetable as soon as possible.

Ant said in a statement yesterday that it will set up a special team to create proposals and a timetable for an overhaul. It will maintain business operations for users, vowing to keep costs for consumers and financial partners unchanged, while stepping up risk control.

The edicts represent a serious threat to the expansion of Mr Ma's online finance empire, which has grown rapidly from a PayPal-like operation into a full suite of services over the past 17 years. Before regulators intervened, Ant was poised for a public listing that would have valued it at more than US$300 billion (S$399 billion). The firm now needs to move forward with setting up a separate financial holding company to ensure it has sufficient capital, and protect personal private data, the central bank said.

"This is the culmination of a string of regulations and sets the direction for Ant's business going forward," said Ms Zhang Xiaoxi, an analyst at Gavekal Dragonomics. "We haven't seen clear indication of a break-up yet. Ant is a giant player in the world and any break-up needs be to be cautious."

The authorities also blasted Ant for sub-par corporate governance, disdain towards regulatory requirements, and engaging in regulatory arbitrage. The central bank said Ant used its dominance to exclude rivals, hurting the interests of its hundreds of millions of consumers.

China last week intensified its scrutiny of the twin pillars of Mr Ma's Internet domain when it also kicked off an investigation into alleged monopolistic practices at Ant affiliate Alibaba Group Holding. The e-commerce firm's US-listed shares tumbled the most ever on news of the probe.

The State Administration for Market Regulation dispatched investigators to Alibaba last Thursday and the on-site investigation was completed on the day, according to a Saturday report posted on a news app run by the Zhejiang Daily. The report cited an unnamed official from the local market regulation watchdog in Zhejiang province, where Alibaba is based.

The pressure on Mr Ma is central to a broader effort to curb an increasingly influential Internet sphere. Once hailed as drivers of economic prosperity and symbols of China's technological prowess, the empires built by Mr Ma, Tencent Holdings chairman Pony Ma Huateng and other tycoons are now under scrutiny after amassing hundreds of millions of users and gaining influence over almost every aspect of daily life in the country.

Mr Jack Ma's own empire is in crisis mode. Early this month, with Ant under regulatory scrutiny, the man most closely identified with the meteoric rise of China Inc was advised by the government to stay in the country, a person familiar with the matter has said.

Alibaba has shed more than US$200 billion of market value since last month, when regulators torpedoed what would have been a record US$35 billion Ant debut.

Meanwhile, regulators are weighing which businesses Ant should give up control of to contain the risks it poses to the economy, officials with knowledge of the matter have said. They have not settled on whether to carve up its different lines of operations, split its online and offline services, or pursue a different path altogether.

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A version of this article appeared in the print edition of The Straits Times on December 28, 2020, with the headline 'China tells Ant to return to its roots in payments services'. Print Edition | Subscribe