China Tells Ant to Return To Its Roots, Imposes Curbs
(Bloomberg) - Chinese regulators ordered Jack Ma's online financial titan Ant Group Co. to return to its roots as a payment services provider, which threatens to slow growth in its most lucrative businesses, consumer credit and wealth management.
The central bank summoned Ant executives over the weekend and told them to "correct" the company's credit, insurance and asset management services, the People's Bank of China said in a statement on Sunday. While the central bank did not ask directly about winding up the company, it insisted that Ant "understands the need to overhaul its business" and put a timeline in place as soon as possible.
The suite of edicts poses a serious threat to the expansion of Ma's online financial empire, which has rapidly evolved from a PayPal-like operation to a full suite of services over the past 17 years. Before regulators intervened, Ant was ready for a public listing that would be valued at more than $ 300 billion. The Hangzhou-based company must now press ahead with the establishment of a separate financial holding company to ensure it has sufficient capital and protects personal private information, the central bank said.
"This is the culmination of a series of regulations and sets the direction for Ant's future business," said Zhang Xiaoxi, a Beijing-based analyst at Gavekal Dragonomics. "We haven't seen any clear signs of a breakup. Ant is a huge player in the world and any breakup has to be careful."
Authorities have also beaten Ant for underperforming corporate governance, disregarding regulatory requirements and engaging in regulatory arbitrage. The central bank said Ant used his dominance to shut out rivals and harm the interests of its hundreds of millions of consumers.
China stepped up its scrutiny of the two pillars of billionaire Ma's Internet domain last week when it launched an investigation into alleged monopoly practices at Ant subsidiary Alibaba Group Holding Ltd. launched the probe.
The state administration of market regulation dispatched investigators to Alibaba on Thursday, and the on-site investigation was completed that day. This came out from a Saturday report published on a news app operated by the Zhejiang Daily. The report cited an unnamed official from the watchdog for local market regulation in Zhejiang Province, where Alibaba is based.
Ant said in a statement on Sunday that it will set up a special team to come up with suggestions and a schedule for an overhaul. It will keep business operations going for users and promises to keep costs unchanged for consumers and financial partners while tightening risk control.
The pressure on Ma is central to broader efforts to contain an increasingly influential Internet sphere.
The empires built by Tencent Holdings Ltd. Chairman Ma, "Pony" Ma Huateng, and other tycoons, once hailed as drivers of economic prosperity and a symbol of the country's technological prowess, are now being scrutinized after hundreds Amassed by millions of users and users have gained influence on almost every aspect of daily life in China.
Ma's own realm is in crisis mode. In early December, when Ant was under regulatory scrutiny, the man most likely linked to the meteoric rise of China Inc. was advised by the government to stay in the country, said a person familiar with the matter. Alibaba has lost more than $ 200 billion in market value since November, when regulators torpedoed a record $ 35 billion debut for ants.
Alibaba's chief executive officer Daniel Zhang said in a meeting with local regulators on Friday that the only way the company will thrive in the future is by following the rules, the state-backed China News Service reported.
Ant's top executives are part of a task force that already interacts with watch dogs almost every day. Meanwhile, regulators, including China's Banking and Insurance Regulators, are considering which companies Ant should give up control in order to mitigate the risks it poses to the economy. They haven't made up their mind whether to split up their various business areas, split their online and offline services, or take a different route.
Ant supporters include Warburg Pincus LLC, Carlyle Group Inc., Silver Lake Management LLC, Temasek Holdings Pte, and GIC Pte.
Read More: Jack Ma Goes Calm After Ant Group's Spectacular Undo
"Ant's growth potential is limited by its focus on its payment services," said Shujin Chen, director of Chinese financial research in China at Jefferies Financial Group Inc. "On the mainland, online payments are saturated and Ant's market share is pretty much limited reached. "
(Updates with Ants investors in the penultimate paragraph)
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