China prepares ‘rectification’ campaign to bring Jack Ma’s Ant Group in line

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Ant Group Updates

Beijing is speeding up plans to bring Jack Ma’s Ant group more closely under its control as part of a “rectification” campaign that would make it difficult for one of China’s richest men to completely rebuild his empire by line.

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

The reorganization would put Ant directly under the thumb of regulators Mr. Ma has long rubbed shoulders with, with public criticism that angered authorities and officials at China’s state-owned banks. The PBoC issued a public reprimand Ant this weekend, calling for a corporate overhaul 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 that will be under full regulatory oversight, and a less regulated technology and data unit. “

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 maintaining a “pawnshop mentality” in public remarks made shortly before Ant’s initial $ 37 billion public offering was made. canceled by regulators in November.

The ant has reshaped his business in response to regulatory guidance several times over the past few years. But Pan Gongsheng, vice governor of the PBoC, made it clear in an interview transcript released on Sunday that bigger changes were coming. Ant “must integrate its development into the overall development plan of the country,” he said.

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

The plan under consideration for Ant involves moving its financially licensed business – which includes 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 corporations. technological.

The plan could significantly reduce the value of Ant, according to investors; the group was valued up to $ 300 billion before its IPO.

Ant has repeatedly emphasized that this is a technology company and that the market appreciates it as such, but if it is transformed into a financial holding company, it will become a financial institution at heart, and the market will have to reassess it, ”said He Zhisong, an attorney at Zhong Lun, a law firm. “To avoid competition concerns, Ant may also have to divest some of its businesses.”

Stricter regulation of sprawling financial companies has been in the works for at least last year, when new rules were first set by the PBoC. Anticipationally, Ant designated its Zhejiang Financial Credit Network Technology Unit as its primary portfolio vehicle.

“Ant has a lot of financial licenses, but as of yet it is unclear exactly how business in different industries intersects,” 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.

There is growing concern that stricter regulations could curb the fintech sector rapid growth since the suspension of Ant’s IPO, given the subsequent influx of official and public criticism of the group.

China’s competition regulator also announced last week that it is starting a anti-monopoly investigation in Alibaba, Mr. Ma’s e-commerce company, and collected testimonials from its headquarters in Hangzhou, eastern Zhejiang Province.

An attorney familiar with the antitrust process said Alibaba would likely be fined an amount equal to 1 or 2% of its sales in the previous year, or around 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.

from Alibaba stocks went down by almost a quarter since the withdrawal of Ant’s IPO.

Bloomberg data shows that the net worth of Mr. Ma, who has topped the list of rich Chinese in recent years, has fallen by nearly $ 10 billion to $ 50.9 billion in the same period.

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

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