China Eyes Shrinking Jack Ma’s Business Empire

Beijing tries

Jack Ma

and the financial empire and could possibly take a larger stake in his business, according to Chinese officials and government advisers who are familiar with the subject, since regulators do not want the billionaire to increase supervision of the increasingly influential technology sector.

As part of a restructuring plan unveiled this week by China’s financial regulators, the Group’s financial technology giant ant Co. will return to its roots as an online payment provider, which is the example of the

PayPal Holdings Inc,

while reducing the more lucrative investment and credit activities.

The central bank led supervisors have also asked Ant to establish a separate financial holding company that will be subject to the bank’s capital requirements. Officials and advisors say this could open the door for large state-owned banks or other government entities to buy the company and strengthen its capital base.

National Pension Fund of China, Development Bank of China, and

China International Capital Corp.

the largest public investment bank in the country, is already an investor in the Ant Hill.

Mr Ma, China’s richest man, helped define China’s new economy with the two companies he founded – Ant and the e-commerce subsidiary Alibaba Group Holding Ltd. Its activities include payment services, e-commerce, cloud computing, asset management and lending. Moreover, Alibaba is the subject of an antitrust investigation which could also lead to a restructuring of the company and a divestiture.

The People’s Bank of China and the State Administration of Market Regulation, which regulates Ant and Alibaba, have not responded to requests for comments. Ant refused to comment. Mr. Ma and Alibaba did not respond immediately.

Just days before Chinese technology giant Ant Group was set up to go public in what would have been the world’s largest IPO, regulators put their plans on hold. Quentin Webb of WSJ explains what the sudden turn of events is and what the suspension of the IPO means for the future of Ant. Photo: Ali Song/Reuters

But in Mr. Ma’s pursuit, China’s leaders face a difficult balancing act: It should try to keep entrepreneurs like him at bay without undermining the spirit of innovation that has driven China’s technological and economic development.

There is no doubt that the goal is to contain Ma Yun, said an advisor to the anti-monopoly committee of the State Council of China, the country’s main state institution, using Ma’s Chinese name. It’s like putting a bridle on a horse.

The role played by Mr Ma’s companies in China’s economy cannot be overestimated. Together Ant and Alibaba have enabled hundreds of millions of Chinese consumers and companies to make a purchase, deposit money, make an investment or take out a loan with the touch of a thumb.

Mr Ma’s companies, which until recently benefited from relatively simple regulation, have begun to challenge the dominance of the public sector in areas such as banking and money management.

Chinese officials are concerned about the way the ant uses the Alipay payment application data to influence the banks’ credit decisions.

Photo:

Alex Plewski/Shutterstock

But the days of laissez-faire are over. In recent months, the authorities have promised to strengthen regulation of the increasingly important and influential Internet sector. Other companies also under scrutiny are the operator of the popular social media application WeChat, Tencent Holdings Ltd. and Didi Chuxing Technology Co.

Mr Ma, who is irritable and abrupt, has long been in conflict with supervisors, particularly the People’s Bank of China, who fear that a vast empire is getting out of hand and are trying to impose restrictions.

Tensions peaked at the end of October when Mr Ma openly criticised the leader.

Xi Jinping

The initiative to control the risks of signature, as well as the condemnation of regulators to stifle innovation – a speech made public a few days before the ant, of which he is a majority shareholder.

Prior to the speech, Mr. Xi paid little attention to Ant’s planned IPO, according to a person familiar with the regulatory process. It was by Ma himself that Xi got to know the IPO, he says.

Mr. Ma’s attack on the regulators quickly backfired. This prompted Mr Xi to personally cancel the IPO, which was to be the largest IPO ever and was worth over $300 billion, and to instruct the regulators to investigate the risks associated with Mr Ma’s empire.

Battle of Jack Ma for Beijing

Since then, market and financial regulators have emerged in China. Officials are particularly concerned about the way the Ant uses data from its Alipay payment application to encourage banks to cooperate with it on consumer and small business loans. Anta only finances a part of the loans, most of the funds come from the banks, which therefore bear the credit risks.

But even Mr. Xi, the most powerful leader in China’s modern history, faces limitations in his government’s ability to strengthen Mr. Ma’s empire.

The most important thing is to avoid giving the impression that entrepreneurship is being hit hard at a time when the private sector is ahead of public companies. Moreover, management is concerned about the resistance of international investors at a time when Beijing wants to dispel growing doubts about its commitment to market reform and encourage more local companies such as Alibaba to compete with their US counterparts.

To allay fears of excessive government intervention, officials released in a question-and-answer statement this week that authorities have chosen a deputy central bank governor with a market-friendly reputation to explain the ant-control measures.

Pan Gongsheng,

The Deputy Governor, who previously oversaw the sale of shares in China’s two largest state-owned banks before moving to the People’s Bank of China, has asked Ant to review his activities in light of the market and legal principles.

But Pan stressed the need to integrate business development with overall national development, the central bank said on Sunday.

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In a statement issued on Sunday, Mr Ant said that he would meet regulatory requirements and develop a plan and program for the orderly review. At a meeting with the regulators in November, Mr Ma suggested that the government should take any platform as long as the country needs it, in an apparent attempt to save the relationship with Beijing. Mr. Ma hasn’t appeared in public since his speech in October.

Meanwhile, last week the Chinese market regulator launched an antitrust investigation into Alibaba, which owns a third of the ant, over allegations that the company used its dominant market position to pressure traders to sell only on its platforms.

The authorities are also concerned about the threat Alibaba poses to the traditional retail trade in bricks and mortar. We have received numerous complaints that Alibaba is displacing smaller competitors and that its online platforms are taking business away from others, said a regulator who is aware of the investigation.

Wang Fujian,

who owns a laptop shop in Beijing, is one of the people who feel like something’s wrong. Sales of Mr. Wang’s store have been steadily declining as more and more people shop at Taobao, Alibaba’s online shopping site, and

JD.com Inc,

another major player in e-commerce.

Today, most customers come to my store to try out laptops and take pictures, said Mr. Wang, who has been running the store for 17 years. Then they went to buy it online.

-Binyan Wang contributed to this article. -Binyan Wang.

Write to Lingling Wei at [email protected].