To comply with the requirements of Communist Party regulators, Ant Group plans to incorporate its divisions that require financial business licenses into a newly established holding company.
After rumors that Jack Ma‘s Ant Group will become a financial holding company that will be heavily regulated by Chinese Communist Party regulators, some foreign media believe the move shows that Ant Group will become a boring bank in the future, even if the Chinese Communist Party does not kill it.
If Ant Group does become a financial holding company, it would mean Ant Group would either have to significantly increase its cash reserves or otherwise reduce the size of its consumer lending business, CNN reported on Feb. 19. The move could hit Ma’s ambition to make Ant Group a dominant force in the tech world.
If Ant Group becomes a financial holding company, it will “lack flexibility and room for innovation,” according to Ji Shaofeng, chairman of the China Microfinance Industry Research Association. The vast amount of consumer data Ant Group collects through its digital payment services could also now be monitored by regulators, which could pose further challenges. He said, “For technology companies that need to constantly innovate, such regulations will put extreme pressure.”
Doug Fuller, an associate professor at the City University of Hong Kong, said the Communist authorities are using stricter means to regulate these apps involved in the financial business, with the aim not of putting them to death, but that the hope of these fintech companies replacing traditional banking is over.
Alex Capri, a visiting senior research fellow at the National University of Singapore, argues that the rapid growth of China’s tech giants has weakened the influence of state-owned and other commercial banks, as well as the power of the Communist Party. The authorities must therefore keep these companies under Beijing‘s control so that they can better serve the Communist authorities when building new financial infrastructure or launching digital currencies.
The Ant Group IPO was halted by Communist Party authorities two days before its A-share and Hong Kong listings after Jack Ma publicly criticized the Communist Party’s financial system last October, following which the authorities investigated and cleaned up the company. Ant Group set up a working group to rectify the situation at the request of the CCP regulators and communicate with the authorities at all times, while its de facto controller Jack Ma disappeared from the public eye.
On February 4 this year, Reuters and several media outlets quoted sources as saying that Ant Group had reached an agreement with the Chinese Communist Party authorities on the rectification, and that the rectification plan required Ant Group to incorporate all its businesses, including technology products in areas such as blockchain and Food delivery, into a holding company, accept regulation and meet corresponding capital requirements.
According to the agreement, Ant Group will be transformed from a “financial technology company” to a “financial holding company” and face stricter capital constraints, although it will avoid being split up. Ant Group’s previous plan was to include only its financial business in the financial holding company.
On Feb. 5, news broke that Ant Group plans to concede to Communist regulators that its massive credit messaging and rating business will not be merged into the holding company, but will instead be spun off as a separate enterprise.
The financial holding company will be granted a business license by the central bank of the Communist Party of China and will be allowed to go public within 2 years after the restructuring.
But some commentators say the overhaul marks a major shift for the digital payments giant, and that Ant Group’s profitability will be severely weakened. And Ant Group has been trying to shed its image as a financial services provider in recent years, portraying itself as an Internet technology company, and that has helped it achieve a fairly high valuation.
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