Contextualizing China’s plans to restructure Ant Group’s AliPay
According to a report by Financial Times (FT), China is planning to break up Ant Group’s online payment platform Alipay. The group has been instructed to create a separate application for its loan payment business. Ant Group’s shares have fallen by more than 4% since the news of the break-up first broke.
Let’s try to get a complete picture of what it means for tech companies, what the lead-up to the clampdown was like and what it seeks to achieve.
What does this clampdown mean?
This decision by the Chinese government will mean that the Ant Group will no longer be able to check the creditworthiness of their customers internally. They would now have to rely on third-party credit scores. Alipay will not be the only online money lending service to be affected by these changes, according to FT’s sources.
In August 2021, China passed the Personal Information Protection Law. This law puts checks and measures on how companies store, regulate and process the personal information of their customers. Following the implementation of this law, companies will have to reduce data collection and obtain user consent. Companies that fail to comply with this law will face a fine of CNY 50 million (US$7.7million). This law will take effect starting November 1, 2021 and will prevent companies from using a client’s shopping history to set different prices for the same services.
Preventing strongholds of data and economic crisis
One of the primary reasons behind this clampdown according to an unnamed source, is to prevent data monopolies. The move will loosen Ant Group’s hold on the data of the over one billion users that rely on its services. An unnamed source for the FT said that the government believes that big tech companies gain monopolistic power through control of data. The source claimed that the Chinese government seeks to eliminate this monopoly.
Another reason behind this decision is the Chinese government’s concern over the financial risk that Ant Group’s monopoly can have. The group issued 10% of China’s non-mortgage consumer loans in 2020. Even way back in April when the government first took steps to rein in Ant Group, they wanted the group to rectify unlawful activities in credit, insurance and wealth management. Thus, the decision to break up Alipay may hardly come as a surprise.
Leading up to the clampdown
This is not a first-of-its-kind step from the Chinese government. In April 2021, the government ordered Ant Group to restructure its business after a US$2.75 billion antitrust penalty for abusing its dominant market position. The group was urged to cut off linkages between its virtual credit card business Jeibei and consumer loan business Huabei.
Following this, in the first week of September, a report by Reuters detailed how state-backed firms were readying themselves to buy a substantial stake in Ant Group. These new partners would then establish a credit-sharing company where Ant Group and Zhejiang Tourism Investment Group Co Ltd would each have a 35% share. The venture will include state-backed Hangzhou Finance and Investment Group and Zhejiang Electronic Port with both holding a little over 5% respectively. The news of this reported joint venture was solidified with the breakup decision reported by FT.
Ant Group’s CEO Jack Ma has said that the group will follow regulators’ demands. As of September 10, Ant Group shares in the Hong Kong stock market have fallen by more than 27% since the beginning of 2021.
Header image courtesy of AliPay’s website