In a development that marks the risks of doing business in China, where Chinese rulers through courts hold absolute power, Chinese regulators have imposed a sweeping restructuring on Jack Ma’s Ant Group, in a move aimed at curbing its valuation and profitability by curtailing some of its freewheeling businesses.
The development comes two days after regulators hit Jack Ma’s Alibaba Group Holding Ltd with a record $2.75 billion antitrust penalty.
The move subjects Ant to tougher regulatory oversight and capital requirements requiring it to cut links between its hugely popular payments app Alipay and its other businesses.
“This restructure effectively splits Ant into a few independent businesses to stop Alipay from being a super app capable of controlling the day to day lives of the Chinese people,” said Lightstream Research analyst Oshadhi Kumarasiri. “We believe it will limit Ant’s growth prospects and also open up the market for competition.”
Alipay has more than 730 million monthly customers in China and handles more transactions a year than Mastercard or Visa.
In a statement the People’s Bank of China said, under a “comprehensive and feasible restructuring plan,” Ant would cut the “improper” linkage between Alipay, Jiebei and consumer loan unit Huabei.
The central bank also directed Ant to break its “monopoly on information and strictly comply with the requirements of credit information business regulation.”
In a statement An said, it would set up a personal credit reporting company, which will comply with relevant laws and strengthen the protection of personal information. It will also apply for a license for the credit reporting company.
“The restructuring plan is stricter than expected,” said Dong Ximiao, chief analyst at Zhongguancun Internet Finance Institute, who said Ant would need at least 200 billion yuan ($31 billion) in registered capital to comply with the capital adequacy rule for financial holding companies. “There’s less uncertainty now as the restructuring plan finally lands, but we still need to wait and see how Ant implements all those requirements during the process.”
($1 = 6.5440 Chinese yuan renminbi)