China surrounds Alibaba and Ant to launch the digital yuan
Ant Group, the fintech arm of the Alibaba group, will become a financial holding company by decision of the Central Bank of China. Facts, analyzes and scenarios
Chinese tech giant Alibaba gives in to Beijing's pressure on Ant Group.
The Central Bank of China (PBOC) has ordered that Ant Group, the fintech arm of Alibaba, the e-commerce giant founded by Jack Ma, is transformed into a financial holding, as anticipated by the media in recent months.
This opens the way to removing the regulatory hurdles that led to the collapse of the $ 37 billion record-breaking IPO in early November .
The deputy governor of the central institute, Pan Gongsheng, quoted in a statement released by the official Chinese media, announced the news at the end of a meeting yesterday between the leaders of Ant Group and the financial authorities of Beijing.
The PBOC move comes just days after the $ 2.8 billion antitrust sanctions imposed on Alibaba on Saturday to hit its dominant market position.
The company's shares, in spite of the fine, closed in Hong Kong with a jump of 6.51% on the hypothesis that the Beijing crackdown is over.
All the details.
ANT GROUP, ALIBABA FINTECH, WILL BECOME HOLDING
Ant Group, the fintech giant owned by Alibaba (33%), will become a wholly financial group, accepting the conditions set by the Beijing authorities.
Originally an online payment service, the company has evolved into a full-fledged virtual financial services mall. From loans to mutual funds, insurance policies and travel bookings, to become a potential factor of instability.
The restructuring plan requires all of Ant's activities including those in the areas of blockchain technology and food delivery, and not just financial ones, to re-enter the company.
The plan therefore makes Ant subject to the same requirements that banks in China are subject to. The changes will leave China's largest mobile payment company subject to stricter capital requirements.
The defined plan, under the supervision of the People's Bank of China, “corrects the unfair competitive behavior of payment activities and offers consumers more choices in payment methods”.
WHAT WILL HAPPEN TO ALIPAY
Ant Group will cut “improper” ties with Alipay, Alibaba's payments app, and other digital payment operators, such as Jiebei or Huabei.
As the Financial Times recalled, Ant organized about one-tenth of China's total consumer loan in 2020 via two products: Huabei, similar to a credit card, and Jiebei, which offers unsecured small loans via the Alipay app. Ant.
According to Chen Long, a partner of the research firm Plenum, the regulatory changes "would eliminate much of the business that Jiebei and Huabei have right now."
Furthermore, the group will have to "break the information monopoly and strictly adhere to the requirements on the regulation of credit information."
ANT GROUP WILL CORRECT ILLEGAL FINANCIAL ASSETS
Ant Group will, by agreeing, "rectify illegal financial activities in credit, insurance and asset management" and "strictly" implement the supervisory requirements to control high leverage and liquidity risks.
THE ROLE OF THE CHINESE CENTRAL BANK
According to the release, the Chinese central bank "will urge Ant Group to effectively implement the rectification plan". And to “maintain business continuity and normal business operations, to ensure that financial services for individuals do not decline and to continue improving the level of inclusive financial services”.
THE OBJECTIVE OF THE RENOVATION
“The goal is to limit the financial nature of Ant's business and get it back to basics as a payment platform. It will have a big impact on Ant's suppression of consumer credit lending business, ”said a senior official at a state bank who deals regularly with Ant.
THE CONSEQUENCES
The move could reduce Ant to a mobile payment platform and severely weaken its lending business according to analysts. Currently only 36% of Ant's revenue comes from its payment services, while the rest comes from digital finance.
BEIJING PLANS FOR DIGITAL MONEY
The moves to stem Alibaba's dominance are part of Beijing's plans to launch the digital yuan.
In fact, Pboc has been working for years on the digital yuan, also called e-CNY, with the establishment of a specialized research team in 2014.
Chinese officials said the digital yuan's main intentions are to replace banknotes and coins. In addition to complementing the current electronic payments system managed by the private sector. The latter is dominated by Ant Group's Alipay and Tencent Holdings' WeChat Pay.
THE DIGITAL PAYMENTS SECTOR DOMINATED BY ALIBABA AND TENCENT
As Il Sole 24 Ore recalled , "at this moment for the leaders of Beijing the digital currency is proving to be a deadly weapon to conquer the kingdom of Alibaba and Tencent which, alone, through the Alipay and WeChat Pay platforms, have the monopoly of digital payments. Alibaba & co, in fact, were forced to join the Digital Currency Electronic Payment (DCEP), through pilot tests together with mobile phone manufacturers, including Xiaomi, at POS, ATMs ".
The People's Bank of China has launched a trial issue of a digital yuan in cities across the country. It thus aims to become the first major central bank to issue a virtual currency. A larger launch is planned for the Beijing Winter Olympics next February.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/innovazione/la-cina-circonda-alibaba-e-ant-per-lanciare-lo-yuan-digitale/ on Tue, 13 Apr 2021 14:32:52 +0000.