The past couple of weeks has seen China’s government begin to crack down on its biggest innovators. Taking a page from the Ant Group playbook, China has imposed sweeping restrictions on the fast-growing financial divisions of 13 companies including Tencent, ByteDance, JD.com, Meituan and, Didi. The new requirements are much stricter regarding compliance when these companies list abroad. Also, they are curbing their monopolies on information and gathering personal data. If the company has a financial unit, it must be restructured into a holding company, and it must also sever “improper links” between their existing payments services and financial products.
This comes on the backdrop of China shelving what would have been the world’s largest Initial Public Offering or IPO last year when it pulled Ant Group’s listing after its founder Jack Ma made comments criticizing the government’s lack of innovation regarding regulation and the tightening of financial regulation. The month of April saw Chinese regulators outline an overhaul of Ant, which would shake up its business to be supervised more like a bank and cut off any “improper linking of payments with other financial products.” The company would also be required to fold its Jiebei and Huabei lending services into its consumer finance arm, as well as apply for a license for personal credit reporting and improve consumer data protection.
This is just another example of the rising tensions between the state and China’s growing private sector. Present Xi has been exerting more grip over the economy by tightening regulations and cracking down on individual sectors, he is said to be concerned by tech companies’ growing influence over every aspect of Chinese life as well as the vast amounts of data they’ve collected. The Party has said that this crackdown is needed because of “widespread problems” that have the potential to jeopardize China’s financial system, which has recently been struggling with its rising levels of debt. Among the deep-rooted issues brought up were these fintech’s offering banking and other financial services without a license, engaging in unfair competition and, inadequate corporate governance.
“Good days have gone,” wrote Jefferies analyst Shujin Chen, adding that the changes will likely hit profits and growth on several fronts. “We reiterate that China has shifted from encouraging personal consumption lending to curbing rapid increases in residential leverage.” This will no doubt hit the bottom lines of these fintech’s hard, they will have to look for other ways to acquire new sources of revenue as they expend more capital to set up these holding companies. This will be especially difficult if they are never allowed to be listed on public stock exchanges again.
Minkoff, Yoel. “As China Widens Crackdown on Fintech, Industry Could See Fundamental Shift (OTCMKTS:TCEHY).” SeekingAlpha, 30 Apr. 2021, seekingalpha.com/news/3688473-as-china-widens-crackdown-on-fintech-industry-could-see-fundamental-shift.