China’s Fintech Balancing Act

Days after the public reappearance of Alibaba founder Jack Ma, top Beijing authorities are facing a balancing act between reining in the dominance of internet giants while keeping the fintech industry sufficiently free to innovate.

Investigations into fintech giant Ant Group will not undermine the firm’s business development nor does it signal a move against private businesses in mainland China, according to recent comments from Liang Tao, vice president of the China Banking and Insurance Regulatory Commission (CBIRC).

In fact, banks and insurance agencies are encouraged to continue cooperation with internet platforms, said Liang in a recent press conference where he also credited the sector’s contributions to fintech advancements as well as improved financial efficiency and inclusiveness in China.

Separately last month, the People’s Daily – the Chinese Communist Party’s official newspaper – published an editorial that downplayed political factors in the ongoing antitrust investigations, adding that the strengthening of anti-monopoly supervision will not bring about a ‘winter’ in the industry, but rather a new starting point for better and healthier development.

Despite comments from state media and the CBIRC that tightening would have limited impact, China’s central bank recently signaled government intervention into payments providers deemed to dominant with the possibility of breakups should their market share be too high.

The People’s Bank of China (PBoC) defined a digital payments monopoly as any non-bank provider with at least half of the market share for online transactions; any two non-bank providers with a two-thirds; or any three providers with three-quarters.

The PBoC also proposed last week that it could advise the state council’s antitrust committee to take action should non-bank institutions severely hinder the healthy development of the payment service market».

Following the scrapped $35 billion Ant IPO, the formation of a dedicated task force for the firm and the three-month disappearance of Jack Ma, Beijing’s top watchdogs signal a renewed take on the mainland’s fintech sector with hopes of controlling growth without obstructing innovation.

Should Ma’s Ant Group be forced to break up as a result of the antitrust investigations, it remains to be seen how the outlook for the broader industry would be impacted but fintech giant could see its valuations slashed significantly.

According to estimates from «Bloomberg Intelligence», Ant’s payment arm Alipay could see its value halved under the draft regulatory proposals. This could result in the overall Ant Group’s valuation plunging to around $108 billion, down from the original $320 billion before the IPO pullout, with further decreases should a breakup occur.