China clips AliPay's wings in attack on tech giants

Ant Group, Alibaba‘s sister company, was nearly carved up by the Chinese authorities: the creator of AliPay is forced to restructure its operations. China is the first country to do what experts have been advocating for years: curbing the power of technology giants.

“Rectification” and split

On Sunday, Ant Group, the parent company of AliPay, was severely reprimanded by the Chinese authorities: the financial group of Alibaba founder Jack Ma is forced to restructure its operations. Regulatory bodies and the Chinese Communist Party are demanding a “rectification”, Reuters writes: Ant will have to set up a separate holding company to ensure that the group has sufficient capital and complies with the law. 

The banking group must also review its credit rating, insurance and capital management systems to better protect its customers’ personal data. If Ant still wants to grant personal loans in the future, it will also have to obtain an official licence. The Chinese government is further demanding greater transparency on third-party payments at AliPay and is asking the company not to engage in “unfair competition”.

Monopolistic behaviour

In concrete terms, this means that the state will supervise the technology giant more closely. In November, President Jinping announced a series of new anti-monopolistic regulations that were intended to curb the unbridled power and monopoly formation of technology giants, particularly Alibaba and Tencent. 

Western regulators are attempting a similar move – Europe is imposing hefty fines and experts have long argued for the break-up of major technology companies – but China is the first country to take action. China is indeed experiencing a similar situation to the West, where giants like Amazon and Google are becoming “too big too fail” and are gradually turning into monopolies. 

In China, AliPay dominates the digital payment market with more than 730 million monthly users. But what concerns the Chinese government most is the fact that Ant is now the gateway par excellence for capital in China: as a bank, it connects borrowers and lenders and can grant short-term loans in a matter of minutes.

Jack Ma called to order

In China, however, such an intervention also means that the Communist Party wants to regain control after having created a climate that has favoured the birth and growth of these Internet giants. As further proof of its determination, the party announced that multi-billionaire Jack Ma was asked to stay in the country. The government has meanwhile opened investigations into Alibaba, the group’s retail arm, and its rival Tencent.

Ant Group has already announced the establishment of a working group that will look into the requested “rectification”. The group also aims to comply with all regulations. On Monday, Alibaba announced 10 billion dollars worth of share buybacks – instead of the 6 billion planned – in order to soften the fall of its share, which lost 7% of its value at the announcement of Beijing’s intervention.

Jack Ma, who was counting on an initial public offering of more than 300 billion dollars this autumn for Ant, is thus facing a tough end to the year. He is paying a heavy price for his public statements that current regulations were stifling innovation in China.