China continues to take action in its tech industry. The government in Beijing wants to smash the highly profitable Alipay payment app from the fintech company Ant Group and create a separate platform for the company’s lending business, the Financial Times wrote on Sunday.
The plan also provides that Ant must hand over the user data underlying his credit decisions to a new joint venture for credit checks. This is partially state-owned, the newspaper reported, citing two people familiar with the matter.
The move joins a whole series of measures that the Chinese authorities are taking to tighten their oversight of many industries – from technology to education. This is intended to strengthen control over the economy and society after years of rapid growth.
If the reports are confirmed, this would be another bitter blow for Ant: Above all, the separation of the lending business would hit the company hard. This area accounted for around 39 percent of the Group’s revenue in the first half of 2020, more than its core business, payment services.
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The share prices of Chinese tech stocks reacted with losses on Monday: The Hang Seng index, which summarizes the most important Chinese tech stocks listed in Hong Kong, fell by up to 3.1 percent. The shares of the Ant parent company Alibaba, founded by the Chinese billionaire Jack Ma and which holds around a third of the financial company, lost more than five percent, Tencent fell by three percent.
As early as July, Chinese tech stocks came under pressure around the world due to increasing government regulations. The minus on the US stock exchanges was particularly high. The Golden Dragon China Index, which tracks the 98 largest Chinese tech stocks in the US, lost more than 20 percent in July, more than ever since the financial crisis. The Hang Seng Tech Index lost around 17 percent at the time.
Ant has long been in the sights of the authorities
The Ant Group wanted to make its debut on the Hong Kong and Shanghai stock exchanges in November 2020. With a volume of $ 37 billion, it should have been the largest IPO of all time. But at the last moment, the Chinese authorities stopped the project. Two days before the planned debut on the stock exchanges in Shanghai and Hong Kong, the financial supervisory authority criticized the fact that the disclosure requirements for IPOs were not being met due to changes in regulations. Shortly before the finish line, the IPO of China’s industry leader in mobile payments failed.
The second blow followed last April: By order of the Chinese financial supervisory authority, Ant had to be converted into a financial holding company under which all business areas were combined. This had far-reaching consequences for the group. The Ant Group had previously been classified as a tech company and was able to develop largely free of regulations. As a financial holding company, the group has since been supervised by the central bank and treated like a bank – with the consequence of stricter regulation.
The regulatory requirements have already torn deep holes in the balance sheet of Internet giant Alibaba, which holds around a third of Ant: The financial investment, the results of which are incorporated into Alibaba’s figures with a quarterly delay, managed just under in the months of April to June 4.5 billion yuan (585 million euros) contributed 37 percent less to net income than in the first quarter.
More: July was the blackest month for Chinese tech stocks since the financial crisis. Now the next industry is in the pillory. What investors should know.