Following in Jack Ma’s footsteps? Tencent is targeted by the Chinese Communist Party as the next target

On Friday, the Communist Party’s General Administration of Market Supervision issued administrative penalties for acquisitions by Tencent Holdings and 10 other Internet giants. Bloomberg reports that the move expands a crackdown that began with Jack Ma‘s Internet empire.

Bloomberg reported on March 12 that on Friday, Communist Party regulators fined Tencent, search engine giant Baidu, online car giant Drip Travel, and several other companies RMB 500,000 each.

The penalties involved Tencent Holdings’ acquisition of a stake in Saru Tutoring, Baidu Holdings’ acquisition of a stake in Xiaoyu Group, Drip Mobile Private Limited’s establishment of a joint venture with SoftBank AG, Good Future Education Group’s acquisition of a stake in Ta Ta Education Group, and Shanghai Oriental Newspaper’s establishment of a joint venture with Beijing Quantum Leap Technology.

The report said the 500,000 yuan fine is a symbolic one, but it is just the beginning of a significant escalation in the Communist Party’s campaign to curb the tech giants. At the recently concluded Communist Party’s two sessions, Li Keqiang promised to expand regulation of fintech, eliminate monopolies and prevent “unregulated” capital expansion.

According to people familiar with the matter, Tencent is seen as the next target by the Communist Party’s top regulator after a regulatory crackdown on Jack Ma’s Ant Group. Like Ant Group, Tencent could be required to set up a financial holding company that would include its banking, insurance and payment services.

The source declined to be named because those discussions are taking place privately.

The two companies would set a precedent for other fintech companies in complying with stricter regulations, the person familiar with the matter added.

Bloomberg reported that the Communist Party’s proposed rules to break up concentration in the digital payments market and control online consumer lending would hurt the prospects of Tencent WeChat Pay and its broader fintech business.

In an emailed statement, Tencent said, “We will continue to adapt to changes in the regulatory environment that we believe are beneficial to the industry and will seek to ensure full compliance.”

Tencent’s WeChat has more than 1 billion users, and WeChat Pay holds nearly 40 percent of China’s mobile payment market, second only to Alipay, according to data from Avery Consulting.

Tencent, along with Alibaba, Jingdong and Baidu, jointly control more than 40 financial licenses through acquisitions or investments, according to a report by Caijing, cited by the Communist Party’s official media Xinhua.

On Friday, Tencent fell 4.5 percent in Hong Kong stocks. Shares of Tencent investor Naspers and its subsidiary Prosus also fell. Tencent’s 2.39% dollar bond spread due in 2030 widened by up to 6 basis points, according to traders.