Alibaba’s spin-off financial arm, the Ant Group, has it received Regulatory approval to raise $1.5 billion to expand consumer finance business. With the approval, the Chongqing-based China Banking and Insurance Regulatory Commission will allow Ant Group to raise its capital from 8 billion yuan to 18.5 billion yuan. Once the deal is concluded, Ant Group will control 50 percent of the shares of a new subsidiary, according to the restructuring plan.
This is significant against the background of two events. First up is Jack Ma, the founder of Alibaba and one of the leading Chinese entrepreneurs relinquished control group of ants. Second, the approval marks a contrast to the backlash Alibaba received in 2020, when government regulators nullified Ant’s initial public offering — expected to be the largest in history — as part of their antitrust regulatory practices. With the financing and restructuring approved, Alibaba’s two-year sentence appears to be coming to an end.
However, the restructuring and financing plan comes with the condition of making Hangzhou the second largest shareholder in the consumer financing business. This begs the question whether the approval is a green light to ease harsh regulatory oversight of the state or just another attempt to engage the state as an anchor in a private company. With that in mind, recent developments say a lot about China’s regulatory approach to the technology sector, when a brilliant businessman who built an empire over decades is forced to leave his company after running into regulators’ crossfire for not complying with state goals.
Rocky Road Ant Group
The history of the Ant Group, though short, is indeed riddled with bumps. Ant Financial Services Group was established as a subsidiary of the Alibaba Group in 2014 to deal with Alipay and other consumer financial services. The company controls nearly all of Alibaba’s consumer payments business, including Alibaba’s own e-commerce platform, Taobao, with more than 1 billion users, and constitutes one of the world’s largest microlending companies.
The group of ants simultaneously rose to fame and controversy in 2020. Soon after public speech Written by founder Jack Ma criticizing the heavy hand of the Chinese state in regulating business in China, planned public offering, Expected to be the largest in history, it was canceled by order of the state. Had it gone public, Ant would have been worth more than $300 billion. As part of the country’s crackdown on the tech giants, so are government regulators fined Ma to follow unfair monopolistic market practices. Despite not being on the Ant Group board of directors, he owned 50.2 percent of his shares via one of his entities and was an older-than-life figure in the company.
in 2020, The People’s Bank of China summoned Ant Group executives and ordered them to formulate a rectification and restructuring plan to put things right in the company’s credit, investment, insurance and wealth management services. The Ant Group was also asked to determine its ownership structure before it applied to become a financial holding company.
Amid much anticipation, Ant Group has been restructured canceled In January 2022 when Cinda Asset Management canceled a deal to buy 20% of Ant Group shares (worth $944 million) without any explanation. to me Reuters After the CBIRC approved the Cinda financing plan, the Chinese State Council questioned investing in Ant Group without restructuring it according to the country’s demands.
This led to a huge loss for the Ant group, after Ma disappeared publicly. Had the deal been approved by regulators, Ant Group would have secured an investment of about $3.2 billion, nearly double what was offered under the last deal.
According to industry experts, to facilitate the process, company executives informed regulators of Ma’s intention to divest his stake in Ant Group. In fact, given state-run regulatory hurdles, Ant Group has been trying cut it off Relationships with Ali Baba’s parents. More than seven senior Ant Group executives have already waived their partnership with Alibaba and other subsidiaries in the past two years. Furthermore it , long-term Trade agreements and data exchanges between the two companies were terminated due to Ma’s complex relationship with government regulators.
The latest blow dealt by Jack Ma’s complete withdrawal from the Ant Group – soon followed by the approval of a new financing deal – suggests two things. First, the billionaire’s controversial remarks about the Chinese state and party – and his relationship with the Ant Group – have already doomed the financial services firm’s business over the past two years. Secondly, the final deal that reshaped the company’s ownership structure and formed a financial holding company was associated with regulatory pressure on Ant Group to cut ties with Ma.
Restructuring or joint ownership?
on me December 28, 2022The Chongqing Department of the China Bancassurance Regulatory Commission approved the plan to increase the capital of Chongqing Ant’s consumer finance unit to 18.5 billion yuan from 8 billion yuan. Chongqing Ant Consumer Finance Group was set up by Ant Group in 2021 after China’s crackdown on technology. Interestingly, the second largest shareholder of the company’s board of directors, which owns 10 percent of the shares, will be Hangzhou Jintou Digital Technology Group, a Hangzhou-owned company.
In other words, after Ma’s ouster, Ant Group, a private sector-led startup, is now forced into co-ownership with the government. Other shareholders included in the transaction are Sunny Optical Technology and Transfar Zhilian Co. With this restructuring, the company’s consumer finance business is expected to be subject to regulatory limits, rather than being led by Ma, with his earlier criticisms of the state.
Moreover, the regulatory reform also directed the company to create CreditTech, a division that manages Ant Group’s loan services — namely Huabei, which issues virtual credit cards, and Jiebei, which provides consumer loans — into a separate entity with co-ownership of the government. This means that Ant Group’s consumer loan business will now operate separately from Alipay, Alibaba’s online payment app.
Carrot or stick?
The Ant Group’s long-running regulatory approval, financing and restructuring are fueling hopes that Chinese authorities may prioritize economic growth over a regulatory crackdown against the tech giants. The move comes weeks after Beijing pointed out It will support the growth of technology companies. December 2022 too a saw Chinese video game regulators have approved licenses for 44 foreign games to be released in China.
In the midst of social and economic discontent due to the surge of COVID-19 and the previous zero COVID policy, lifting the party’s tough approach to business may provide hope to the Chinese people that the CPC is now focused on economic growth. In the past two years, the Chinese state, claiming to ensure the positive growth of its technology companies, has introduced a large number of measures such as new anti-monopoly laws, data protection regulations, And a law Algorithms control Introduction of technology companies.
However, it would be foolish to expect the state’s crackdown on the tech sector to end anytime soon. Although there have been some setbacks in Ant Group’s fortunes, with regulatory reforms, financing approvals and a restructuring plan, the state keeping a piece of the pie for itself points to tighter control over China’s tech companies. Although the measures indicate a priority in development, Beijing still adheres to the concept of “development and regulation in parallel”. With the Chinese state’s motivation behind its tech crackdown unchanged, it’s unlikely that we’ll see any major policy reversals toward the big internet companies.