Chinese multinational e-commerce firm, Alibaba Group Holding, has launched a new nonfungible tokens (NFTs) marketplace allowing trademark holders to sell tokenized licenses to their intellectual property.
The new NFT marketplace, dubbed “Blockchain Digital Copyright and Asset-Trade,” can be accessed via Alibaba’s Auction platform. NFTs launched via the platform will be issued on the “New Copyright Blockchain” — a distributed ledger technology platform centrally operated by the Sichuan Blockchain Association Copyright Committee.
According to an Aug. 17 report from the Alibaba-owned news publication, South China Morning Post (SCMP), the marketplace hopes to target writers, musicians, artists, and game developers.
The marketplace is already live, hosting several NFTs that are set to be auctioned next month. Bidders must post a deposit of 500 yuan (roughly $77) to participate in auctions. Each upcoming auction has set a reserve price of $15 each.
Buyers can view their collections via crypto portfolio application, Bit Universe, which is integrated into WeChat.
Commenting on the new marketplace, SCMP reporter Josh Ye tweeted that “although the technology itself does not prevent unauthorised copying. Sales include complete ownership of works purchased through the platform.”
Many NFTs on display do not articulate what rights are afforded to purchasers, with one NFT even appearing to depict unlicensed Star Wars fan art.
Related: Musician sells rights to deepfake her voice using NFTs
While this is Alibaba’s biggest NFT announcement to date, many of the firm’s subsidiaries have are already embracing nonfungible tokens.
In July, Cointelegraph reported that Alibaba-owned e-commerce platform Taobao showcased NFTs for the first time in its annual Maker Festival celebrating Chinese art and entrepreneurship. The event hosted the sale of NFT-based real estate created by Chinese artist, Huang Heshan.
In the same month, SCMP launched an NFT project named ‘ARTIFACT’ which included tokenized historical moments reported by the publication from its 118- year-old archive, such as the handover of Hong Kong from the U.K. to China in 1997.
What is the new “China Model”? And why would that country ban an industry that made them the ultimate leaders in the most important development in recent times? The world is still scratching its head. There has to be something else to this story. Is it only control that they want? Or does China have a secret plan nobody’s been able to figure out?
We at NewsBTC have been studying the case, looking for clues, reporting on related news. After the ban, whenBitcoin’s hash rate collapsed, we posed Bitcoin Magazine’s Lucas Nuzzi’s theory that it all had to do with the Digital Yuan, China’s CBDC. Then, we found outChinese entrepreneurs are selling small hydropower stationsand wondered if decommissioning them was part of their plan. After that, the shocking reveal that China’s dominance overBitcoin mining was already waningbefore the ban raised more questions than answers.
The fine people at Bloomberg might’ve found new clues by tackling a related but different question. In the article titled “The China Model: What the Country’s Tech Crackdown Is Really About,” they pose a theory about the reasons behind their attack on Alibaba and DiDi. Two of China’s giant unicorn tech companies, also world leaders in their respective fields. Bloomberg thinks that, after following Silicon Valley’s footsteps for years, China is trying a new model.
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Do they have a case or do China’s motives remain a mystery for us westerners? Keep reading to find out.
What Does The New China Model Consists Of?
The article starts by summarizing what happened when Uber-clone DiDi and “Alibaba’s fintech offshoot, Ant Group Co.” tried to do public in the United States. The Chinese government started actions against both companies. Alibaba’s Jack Ma disappeared from the public eye as a result.
“Just because you are a highly successful tech company does not mean you are above the CCP,” says Michael Witt, a senior affiliate professor of strategy and international business at Insead in Singapore. “Ant Group and Jack Ma found that out for themselves last year, and it is surprising DiDi did not get the message.”
What does this “China Model” have to do with Bitcoin mining? Well, the Chinese government seems to be cracking down on everything huge and technological that isn’t aligned with their interests. And we in the industry know how much Bitcoin those immense mines were producing.
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“China is actually taking the lead in setting some boundaries around the power of Big Tech,” says Thomas Tsao, co-founder ofGobi Partners, a venture capital firm based in Shanghai. “People are missing the bigger picture. They’re trying a new model.”
Is Size the Problem For The Chinese Government?
As we learned whenwe analyzed the “The Death Of China’s Bitcoin Mining Industry” article, China only banned industrial Bitcoin mining. Individuals can still mine.
“Despite the government’s hardline approach, Ye is determined to carry on: “This industry is extremely volatile. High emotions and stress are involved, but that’s also its appeal. Companies are banned from mining Bitcoin, but individuals aren’t,” Ye said, adding that he plans to turn around his operation by purchasing old equipment and downsizing.”
The Chinese government was only worried about industrial-sized private mining operations. The question is why. What are they planning?
The Chinese government seems to be playing a similar game when it comes to Big Tech.
Andy Tian, who led Google China’s mobile strategy in the 2000s and is now CEO at Beijing social media startup Asian Innovations Group, says it will be “positive for innovation” and “competition in China will be fiercer than in the U.S.,” because smaller companies will benefit from policies that rein in the largest competitors.
And they’re using the country’s unique characteristics to do this fast and mercilessly.
Angela Zhang, director of Hong Kong University’s Centre for Chinese Law and the author of Chinese Antitrust Exceptionalism, says the intervention will reshape the tech industry in China faster than it could happen elsewhere. “The case against Alibaba took the Chinese antitrust authority only four months to complete, whereas it will take years for U.S. and EU regulators to go after tech firms such as Facebook, Google, and Amazon, who are ready to fight tooth and nail,” she says.
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What Does The New China Model Want To Achieve?
This is where Bloomberg’s case falls flat. They have no idea what the Chinese are thinking.
If China is abandoning the Silicon Valley model, what will it replace it with? Insiders suggest it will be less founder-driven and more China-centric.
Why is China dwarfing its biggest industries and players? Is the “China Model” just concerned with scale? Or is control their focus? Are they cracking down on people and companies with too much power that work on a global scale? We wouldn’t know. However, this paragraph’s facts and assumptions could provide a clue.
Xi has called the data its tech industry collects “an essential and strategic resource” and has been pushing to tap into it for years. Following a 2015 mandate, cities from Guiyang to Shanghai have set up data exchanges that facilitate the transfer of anonymized information between corporations. This could lead to a nationalized data-sharing system that serves as a kind of digital public infrastructure, putting a massive trove of data into the central government’s hands.
Is it data they’re after? Does Bitcoin’s pseudo-anonymity scare them? Is their crackdown on Big Tech even related to their crackdown on Bitcoin mining? There’s only one thing we can know for sure: China’s making big coordinated moves when it comes to tech. And they seem to have a plan. A “China Model,” if you will.
Featured Image by Markus Winkler from Pixabay - Charts by TradingView
Major Chinese tech and commerce firms are starting to open up regarding their involvement in developing the digital yuan.
Ant Group and Tencent Holdings revealed the extent of their collaboration with the People’s Bank of China in developing the digital yuan at the Digital China Summit, an annual trade fair in the city of Fuzhou in southeastern Fujian province.
According to the South China Morning Post, Ant Group starting working with the PBoC on the digital yuan in 2017, years before China officially debuted digital currency pilots in 2020. In June 2019, China’s digital currency institute reportedly used Ant’s mobile app development platform to create its own digital yuan app.
Ant Group said that it started officially testing China’s digital yuan in July 2020, launching a digital currency trial in Shanghai late that year. The company also noted that Ant-backed digital bank MYBank became one of the financial institutions to offer the Chinese CBDC.
Tencent said that it started CBDC tests as early as February 2018, forming a team of digital yuan experts by the end of that year. “Tencent has been taking part in the PBOC’s e-CNY project from the start, and will continue to carry out pilot trials in accordance with the guidance of the PBOC,” a spokesperson for the firm said.
Other companies like smartphone giant Huawei Technologies and e-commerce platform JD.com have also been involved in the digital yuan’s development. Huawei became the first smartphone to feature a hardware wallet for China’s digital currency last year. JD.com started collaborating with the PBoC in September 2020, providing its technology and service support for currency pilots. The company reportedly became the first online platform to accept the digital yuan in late 2020.
For the past several years, the trade war between China and the U.S. has been at the center of international relations, with technology playing an outsized role.
Within crypto, advancing interest in central bank digital currencies has become part of that narrative of geopolitical competition. Many have framed the development of CBDCs in China and the U.S. as a race — in which case, China is clearly closer to launch and, hence, the “winner.”
But a race to the finish is a flawed paradigm, and one to which Cointelegraph has contributed its fair share. For the moment, China is actively working to get its digital payments infrastructure out from under the overwhelming dominance of Ant Group’s Alipay and Tencent’s WeChat Pay. Longstanding designs upon the U.S. dollar have faltered. The narrative of the digital yuan taking aim at the dollar has most prominently come from U.S. firms who were trying to redirect scrutiny from U.S. regulators onto a foreign threat.
The digital currency race that wasn’t
Though it dragged Alipay and WeChat Pay into the geopolitical arena, a midnight executive order from Trump banning use of all Tencent, Alibaba and Alipay apps in the U.S. was more a symbolic attack on China’s malfeasance in international trade that would also complicate Biden’s early diplomacy. Claude Barfield, who studies China trade policy for the American Enterprise Institute, said of Trump’s last-minute move: “That is not rooted in economics, that is just rooted in the last gasp of this administration to set down a record and to in some ways tie Biden’s hands.”
There is also certainly a major competition in tech between the U.S. and China. Martin Chorzempa of the Peterson Institute for International Economics told Cointelegaph:
“I’m under no illusions that the Biden administration is going to let go of the tech competition. The tariff stuff is going to phase out eventually, but my bet is that the tech competition is only going to heat up.”
For all of this hubbub, China’s payments industry has not seen the international penetration necessary to constitute the clear and present danger — which is distinct from other tech firms like Huawei. As far as payments, the firms running them are almost entirely within China’s walled garden. Despite user bases that dwarf U.S. payments apps like Apple Pay or Google Pay, both Alipay and WeChat Pay almost exclusively depend upon Chinese bank account holders for those numbers.
While a digital yuan is obviously a major priority for China, the country’s work against its domestic payments industry proves that it is looking first at home. International usage of the traditional yuan has stalled, despite a slight uptick in the composition of foreign reserve currencies, and clamping down on its internal private payments industry does not help a Chinese CBDC go international..
“Renminbi internationalization has been on the backburner for years now. It continues to be talked about but very few actual decisions have been made to make it usable,” said Chorzempa. “I’m not convinced that the PNC is going to let people use the digital renminbi outside of China.”
The tech monopolies that were
The current anti-monopoly push indeed seems pretty straightforward. Alipay and WeChat Pay control 95% of the digital payments market between the two of them. Adding to the problem is that digital payments have become the standard in China, with many merchants refusing to accept government-issued currency. It’s a problem widespread enough that the People’s Bank of China warned in December that “Renminbi (yuan) cash is the most basic means of payment. Entities or individuals cannot refuse to accept it.”
Keep in mind that plenty of countries would look askance at private hands with such a chokehold on the national payments system. 95% between two private companies is unheard of in any major global economy, and it’s a 95% that is part of two massive conglomerates that independently serve as e-merchants, social networks and messengers. Whatever problems the U.S. faces with its own tech giants are even more heavily concentrated in the Chinese market.
“The Chinese financial regulators reacted just as American, Japanese or European regulators would react,” Barfield noted, referring to a similar antitrust battle in the U.S. “You have this irony where in an authoritarian regime you’re getting echoes of what you’re getting in market economies.”
The IPO offering that almost was
While 2020 saw a number of signals that the Chinese government was going to rein in monopolies that Xi Jinping had allowed to flourish for so long, it was the crackdown on Ant Group’s initial public offering that got everyone’s attention.
Scheduled for November 5, the IPO for Ant Group was supposed to issue $37 billion in equity based on a $300 billion valuation — a world record. At the time, many attributed its last-minute cancellation to Jack Ma’s criticism of China’s financial regulation at the end of October.
A Wall Street Journal investigation published last week suggests otherwise. The results claim that Ant Group had been under investigation prior to Ma’s speech for its opaque ownership. Per that report, the investment vehicles that held private equity in Ant Group stood to gain a fortune when it went public — a fortune that they would then pipeline back into the hands of the richest people in China.
Publicizing underlying beneficial ownership is a very reasonable expectation for a firm about to be let loose upon the public, even when you aren’t already concerned about its stranglehold over financial services in the world’s most populous country.
The crypto outcry that shouldn’t have been
All of which are concerns fairly localized to China. For the foreseeable future, a digital yuan is, likewise, a domestic rather than international tool. In this, the crypto community’s response to its continued development has been interesting.
Many have commented, with more or less skepticism, on a digital cold war. The race to be first simile has also gained enough traction that Fed Chairman Jerome Powell himself took time to dismiss it.
But cycle back through those who have most zealously pushed that narrative. It’s largely composed of people trying to get the U.S. government to look anywhere else. It includes the usual cast of permabulls like Anthony Pompliano, but it’s also heavy on parties facing intensive scrutiny from U.S. regulators.
Mark Zuckerberg threatened Chinese dominance of international payments if Congress continued to stonewall his Libra (now Diem) stablecoin. Incidentally, Tencent said much the same thing about Libra to Chinese authorities. But the biggest culprit has been Ripple.
Almost the entire cast of Ripple’s executive board made effectively the same threat about the U.S. losing the tech cold war to China. Which, in retrospect, seems like a distraction from a firm that was pulling out all the stops to divert the attention of U.S. regulators. And hey, nationalism is a classic card to play. A trump, you might say.
The CBDC that may one day be
None of this is to say that a digital dollar or renminbi doesn’t matter. The point is that framing the competition as a race to be first is risky practice, precisely because it shuts down critical thinking about an important area and also assumes that everyone in the world is chomping at the bit to entrust all of their money to a brand-new technology.
In a January paper, Chorzempa pointed out that China’s private payments giants, which hit the market long after Apple and Google Pay, actually benefited from a second-mover advantage. They could learn from the mistakes of the original American firms. The race paradigm is just inappropriate for money, which people are most conservative about implementing changes to. Less obviously, it’s not even the main consideration when it comes to technology. Think of Skype vs. Zoom, or BlackBerry vs. IPhone.
Congressman Bill Foster spoke to Cointelegraph way back, following the Zuckerberg hearing, about the China argument, when the idea of a race was really taking hold. He said: “When you start to move into financial instruments you have to be very careful that you are not reinventing a lot of the problems that we’ve learned the hard way creep up again and again in financial services.”
Money has a weird set of priorities. Continuing to explain the pros of a digitized dollar, Foster said:
“I think that will be a competitive advantage for the United States and the free Western world, is that we have a transparent court system where you know the rules you’re playing with and you won’t have the party leaders come in and say, ‘ok, I want all your information.’”
Alongside unconsidered advantages like court transparency, it takes much more than a new technology to overthrow the leading global currency. In the U.S.’s case, it took two world wars, economic ascendancy and fears of a global takeover by Communism. As appealing as the idea of digitized bearer instruments that could even skip the hassle of international banking and settlement may be, it’s not going to happen all of a sudden.
China and the U.S. are going to continue to duke it out in the tech arena. But there is a reason people like Chairman Powell or digital dollar advocate J. Christopher Giancarlo had to decry the haste to launch. Money is not something that a government can afford to get wrong.
China’s central bank is pushing exposure to its ongoing national digital currency pilot by enlisting two major private banks in the project.
According to a Feb. 22 Bloomberg report, MYbank and WeBank will help the People’s Bank of China extend its user exposure in the ongoing pilots of its central bank digital currency, the digital yuan
As part of the integration, MYbank’s service will soon be introduced to the PBoC’s digital yuan app, people familiar with the matter told Bloomberg.
The e-wallets by MYbank and WeBank will reportedly have exactly the same functions as those from the six state-owned lenders in the trial. As previously reported, the PBoC has been collaborating with state-owned banks like the Bank of China, China Construction Bank, the Industrial and Commercial Bank of China, and the Agricultural Bank of China on the project.
A spokesperson for MYbank told Bloomberg that the bank will “steadily advance the trial pursuant to the overall arrangement of the PBoC.” MYbank and WeBank did not immediately respond to Cointelegraph’s request for comment.
As previously reported by Cointelegraph, WeBank is China’s top digital bank, providing service to more than 200 million customers as of May 2020. The bank has been actively experimenting with blockchain technology in recent years, becoming one of the world’s biggest blockchain patent filers in 2019. Chinese internet giant Tencent is reportedly the biggest stakeholder in WeBank, owning a 30% stake.
Launched by Alibaba and its affiliate firm Ant Financial in 2015, MYbank is a major online private commercial bank focused on lending services to small and medium-sized enterprises. Alibaba founder Jack Ma is the biggest shareholder in MYbank, reportedly holding a 30% stake.
Last week, China’s state commercial bank, the Postal Savings Bank of China, released a biometric hardware wallet in a move to simplify access to the CBDC.
Every Friday, Law Decoded delivers analysis on the week’s critical stories in the realms of policy, regulation and law.
Editor’s note
As they say, the sun never sets on the Google empire. That said, the role of antitrust law in tech has been on the rise in recent years. Every indication is that the situation is only going to get worse for mega tech firms.
So Jeff Bezos’ departure from the top spot at Amazon may well have been a beautifully timed case of quitting while you’re ahead. As I’ve mentioned before — “harped on about” might actually be more accurate — this is a widespread problem. The titans of tech have stepped on the wrong toes the wide world over. While governments spent much of the past 20 years looking indulgently upon tech industries, those wells of goodwill are running dry.
But what does that mean for crypto? Despite acting at times like an island, the crypto industry is still tightly tied to the mainland of the tech industry. But current crypto industry players are not really on the radar of antitrust enforcement. The industry’s familiar mechanisms for decentralized governance, open-sourcing software, and real-time viewable data, however, stand to attract more interest as regulators crack down on abuses of client data and proprietary digital secrets at firms like Facebook and Apple. A number of regulatory bodies are actually looking to blockchain technology as a means of securing data on firms that they might want to investigate for anticompetitive practices.
Casting back, the first mass push for antitrust laws came about in the U.S. after the Civil War, as a means of cracking down on Rockefeller/Vanderbilt/Carnegie-era dominance of shipping, rail, steel and oil industries — critical network industry for the task of united a nation recently divided against itself. Similarly, the highest profile enforcements of the past 50 years were modern variants like AT&T and Microsoft. Political antipathy towards Web 2.0 kingpins continues to grow and seems to be shaping into a new wave of antitrust.
Anarchy in the M&A
Yesterday, Amy Klobuchar, who chairs the Senate’s Antitrust Subcommittee, introduced new legislation to overhaul the U.S.‘s foundational anti-monopoly laws.
Taking particular aim at tech, the new bill would allocate major boosts for the budgets of the Federal Trade Commission and the Justice Department’s antitrust division. In particular, it earmarks new authority to gather data on and nix new mergers and acquisitions among major companies. Companion legislation is expected in the House’s Antitrust Subcommittee.
`Coming on the heels of a tide of antitrust suits against Google and Facebook and the DoJ stamping out acquisitions of fintechs by Visa and Intuit, the new legislation will obviously stir up waves amid an industry that has become dependent on a strategy of gobbling up user data.
Though the current bill has four sponsors, they are all democratic senators. The party has a wide majority in the House, but only a razor-thin margin in the Senate. More business-friendly republicans will likely take issue with the sweeping provisions of the current bill, but big tech firms seem to have run out of friends in Congress on both sides of the aisle. Seem! The Biden administration is stacked with former employees of Facebook, and the Big Four have broken into the ranks of largest spenders on lobbying in the country. As always, money makes miracles.
The Chinese variation
China has been busy getting its home-grown tech industry in line. Ant Group has had to restructure to placate authorities, who shot down its IPO back in November after CEO Jack Ma criticized the country’s financial regulations.
Ant Group is the fintech wing of Ma’s empire, which most famously began with Alibaba — confusingly, Alipay is actually an Ant Group product. Alibaba is the largest private company in China, and Ant Group’s prospective IPO had hinged upon an unprecedented $300 billion valuation. This success had given Ma special privilege to speak his mind, until it didn’t.
The newly proposed structure would reconfigure Ant Group as a holding company for separate firms handling different branches of its business. Less punitive than investors had feared, it would subject the firm to stricter capital requirements, along the lines of what is required of banks. However, none of this has been finalized.
More broadly, China has been at a crossroads when it comes to its tech industry for some time. Giants like Alibaba and Huawei have proved critical economic ambassadors for a country that’s made huge strides in its international presence over recent years. Hesitant to kill these geese while they were still laying golden eggs, capitalism with Chinese characteristics has let these firms flourish. But, those characteristics still require these firms to pay tribute to the Party. Leaders like Ma may have gotten above themselves.
At the same time, many have associated these efforts to curtail the local tech industry with that industry’s dominance in the Chinese payment market. With China’s central bank pushing its digital yuan forward, they may be working to clear away private competitors, or at least put them in their place.
The Senate’s new Bitcoin champion
Following committee appointments, recently elected Senator Cynthia Lummis has gotten a strong position for her pro-crypto platform.
The Senate Banking Committee is the tip of the spear for financial regulation in Congress’ upper chamber. Lummis is the first vocal Bitcoin bull in the Senate. This week, she also expressed interest in establishing a financial innovation caucus.
Featuring both more frequent turnover and a much wider cast of characters, the House of Representatives has long been home to a small but growing contingent of congresspeople openly interested in the fate of digital asset regulation, including a Blockchain Caucus and a Fintech Task Force. Those representatives have, however, faced a chronic bottleneck when it comes to getting legislation introduced in the Senate. Lummis’ dedication to crypto has, therefore, been worth watching for a long time. A spot on the Banking Committee promises, at the very least, to give the crypto industry an ally in critical discussions on new applicable legislation.
That said, Lummis’ success will depend on her ability to forge alliances in the Senate. Congress is also currently tied up with both the Trump impeachment and a new stimulus package. I anticipate very little forward motion for financial regulation in general and crypto in particular until those issues are resolved.
Further reads
Law professor J.W. Verret argues for greater clarity from the SEC on the subject of digital assets.
Reporters for Bloomberg run down the challenges that the rash of class-action suits against Robinhood are likely to face.
Brendan McCord and Zoe Weinberg of Brookings TechStream propose a new approach to emerging technologies at national security agencies.
Ant Group, the financial affiliate of China’s e-commerce giant Alibaba, has reportedly reached an agreement with Chinese regulators over the company’s status.
According to a Feb. 3 report by Bloomberg, Chinese regulators have agreed on a restructuring plan that will turn Jack Ma’s fintech giant into a financial holding company.
Ant Group’s new status will reportedly make it subject to capital requirements similar to those for Chinese banks. The agreement will impact a wide scope of Ant’s business operations, including its technology offerings in areas like blockchain and food delivery, unnamed sources told Bloomberg.
According to the report, the restructuring plan marks the first step of an upcoming overhaul, which is expected to be a continuous process as regulators are set to develop detailed capital requirements and other guidelines for companies spanning multiple financial business lines.
The new holding status will reportedly have crucial implications for Ant Group in terms of its planned initial public offering. According to Bloomberg, Ant is still exploring opportunities for its potential IPO, but the new holding framework could make it more difficult as it is unclear how long it will take for authorities to come up with a listing decision.
As of publishing time, Ant Group has not responded to Cointelegraph’s request for comment.
As previously reported, Ant Group filed its IPO in Hong Kong and Shanghai in August 2020, projecting to become the largest IPO in history. The $37 billion offering was subsequently halted by Chinese authorities amid concerns about Ant’s size as well as new rules requiring online platforms to provide more of their own funding for arranged loans.
Ant Group eventually became the subject of an antitrust investigation in late 2020. The latest news about Ant’s agreement with regulators comes shortly after Ma made his first public appearance since late 2020, after nearly three months of intense speculation about his whereabouts.
Jack Ma, the founder of Chinese e-commerce group Alibaba, has made his first public appearance since October, bringing almost three months of intense speculation about his possible whereabouts to a close.
In a new video clip published online on Jan. 20, Ma was reportedly shown visiting a school rebuilt by his foundation — a glimpse that was enough to spur Alibaba’s Hong Kong-traded shares to rise by almost 9%.
Investors’ momentary reassurance follows months of inscrutable actions from the Chinese state to reassert control over one of the country’s wealthiest figures, whose conglomerate provides over 70% of China’s citizens with fintech services through AliPay.
A representative for the charitable Jack Ma Foundation confirmed to reporters that Ma had “participated in the online ceremony of the annual Rural Teacher initiative event on January 20.” In the video, Ma is said to have pledged his commitment to working with his colleagues to improve education and public welfare.
Ant Group has, over these months, come under fire for its allegedly monopolistic overreach and fallen prey to the Chinese Communist Party politburo’s intent to prevent a “disorderly expansion of capital” in the national economy. The conglomerate’s present difficulties date back to late October, the last time Ma was seen in public, when he delivered a speech that was sharply critical of both regulators and China’s banking sector.
The speech was delivered on the eve of Ant Group’s planned initial public offering, which had been expected to draw in $37 billion at a company valuation of well over $300 billion.
Ma’s ill-received speech sparked the Chinese authorities to step up their moves to rein in the corporate giant, pulling the plug on its plans to go public and then launching an antitrust probe into Alibaba — while keeping media coverage of the investigation tightly under control. There have been unverified suggestions that Chinese President Xi Jinping had himself been behind the decision to halt Ant’s initial public offering.
Uncertainty as to the eventual outcome of ongoing regulatory and state intervention into Ma’s business persists, notwithstanding the entrepreneur’s brief resurfacing earlier today.
Antitrust regulators have meanwhile been stepping up their efforts to reassert control over tech behemoths such as Facebook in the United States, where the outgrowth of tech empires has similarly raised increasing concern at a federal level.
Chinese fintech giant Ant Group was expected to go public on Nov. 5, until founder Jack Ma provoked regulators in Beijing, prompting China’s President Xi Jinping to personally pull the plug on the record-breaking $37 billion initial public offering (IPO).
After the Ant Group IPO was suspended, founder and China’s second-richest man Ma disappeared from the public view for over two months and China’s regulatory authorities also put forward five restructuring requirements for Ant Group.
The five requirements are as follows:
A return to the original intention of payment services and improve transaction transparency, and strictly prohibit unfair competition;
Operate personal credit investigation services legally and in compliance with laws and regulations, and protect personal data privacy;
Legally establish a financial holding company to strictly implement regulatory requirements to ensure sufficient capital and compliance with related transactions;
Improve corporate governance, strictly rectify financial activities such as illegal credit, insurance, and wealth management in accordance with prudential regulatory requirements; and,
Conduct securities and fund business in compliance with laws and regulations, strengthen the governance of securities institutions, and carry out asset securitization business in compliance.
However, whether Ant Group will manage to restructure itself to meet the new tightened regulatory requirements of China’s regulators still remains anyone’s guess.
How will Ant Group Restructure?
On January 15, Chen Yulu, deputy governor of China’s central bank, stated that Ant Group has established a restructuring work group under the guidance of the financial management department, and is formulating a schedule while maintaining business continuity of financial services to the public.
According to the SCMP, Ant Group is currently formulating a plan to establish a financial holding company in accordance with China’s new Financial Control Measures—officially implemented on Nov. 1. It will then fold certain businesses into the newly established financial holding company.
Ant Group had already preemptively taken steps against the financial control measures while preparing for its IPO, which were not yet in effect. The fintech giant’s prospectus—released on Aug 25, 2020—outlined that Ant Group planned to use its wholly-owned subsidiary Zhejiang Rongxin as the main body to apply for the establishment of a financial holding company and accept supervision.
There is speculation in the market that Ant Group may integrate financial-related businesses such as personal credit, fund sales, insurance, and payment into financial holding companies and accept the supervision of financial holding companies.
Currently, Ant Group already has traditional financial licenses for banking, insurance, funds, securities, as well as consumer finance, third-party payment and online small loan licenses—the most valuable financial licenses for Internet finance companies.
Ant’s subsidiary, Zhejiang Rongxin is expected to hold the equity of the relevant financial activity license subsidiary. Once included under the financial holding company, the financial business of Ant Group will be subject to strict regulatory supervision and restriction.
However, according to the types of financial institutions recognized by the central bank, it is still controversial whether or not all of the financial business of Ant Group will be included in the financial holding company.
Controversy and Controls
According to the China state regulators definitions of financial institutions, Ant Group’s most profitable quasi-financial institutions—Alipay, Huabei, and Jiebei—are out of place. And finding an appropriate definition for these businesses for them to be recognized by China’s financial management department is a major factor affecting the future of Ant Group.
Although Ant Group claims to have always been a technology company rather than a financial company, it is well known that from the perspective of revenue contribution, the micro-credit technology platform (mainly “Huabei” and “Jiebai” ) created the most important revenue, accounting for nearly 40% of the total revenue, surpassing its payment business. In addition, if online small loans (Huabei and Jiebei) and Alipay are included in the financial holding company, it will be a heavy blow to Ant’s capital adequacy ratio.
According to the “Financial Control Measures“, the establishment of a financial holding company requires that the paid-in registered capital is not less than RMB5 billion, and not less than 50% of the total registered capital of the financial institutions directly controlled.
Excluding financial services such as banks and funds, as of June 30, 2020, Ant Group has only two small loan companies in Chongqing with a total registered capital of RMB16 billion yuan.
After being included in the financial holding company, these companies may face stricter supervision. According to Article 24 of the “Financial Control Measures,” financial holding companies shall conduct comprehensive and continuous control over the corporate governance, capital and leverage ratios of the holding institutions included in the scope of consolidated management, and effectively identify, measure, monitor and control financial holdings.
But previously, the two Chongqing companies required a 2.3 times leverage ratio for small loan companies. Ant Microfinance achieved a leverage of more than 50 times through continuous issuance of ABS.
In 2018, due to compliance pressure, Ant began to issue a large number of joint loans, mainly with banks and financial institutions (funders) to jointly lend to customers.
Data shows that as of the first half of 2020, the credit balance facilitated by the micro-credit technology platform was RMB2.15 trillion yuan. This huge amount of funds did not come from Ant Group’s own funds. 98% of the funds came from financial institutions who partnered with Ant and by issuing ABS.
After the introduction of the new regulations for online microfinance, it requires microfinance companies to contribute to no less than 30% of the joint loan amount. If online microfinance is included in the financial holding company, Ant Group will face a huge gap in financing.
There is also a view that it may be difficult for the central bank to directly incorporate joint loans into the financial control regulatory framework, but it can start from the financial institution side.
First, it is requiring financial institutions to report information on cooperation with Ant including non-performing loan ratio, weighted average interest rate, balance at the end of the month, to figure out the composition of joint loans.
The second is to conduct supervision of asset management products invested or those issued by financial institutions such as banks and trusts.
As Ant Group is stepping up restructuring, there are reports that regulatory preparations have prompted technology giants such as Ant Group, Tencent Holdings and JD.com to share their consumer loan data to prevent excessive borrowing and fraud.
For Internet giants, consumer big data is an extremely important asset. Take Ant’s joint loan as an example. In cooperation with banks and other financial institutions, Ant Group has the advantage of acquiring users and risk control, and usually holds more power in cooperation.
It is reported that Ant usually charges up to 30% of technical service fees, while small banks are usually in a weak position and rely heavily on Ants’ data to approve loans and manage risks.
After the launch of Sesame Credit in 2015, Ant Group officially launched its credit investigation business. As an independent third-party credit agency, Sesame Credit integrates the behavioral data of more than 300 million real-name individuals and more than 37 million companies, and scores individual users and small companies based on their use of ant-related services.
This forms the foundation for other business such as Huabei and Jiebei, two consumer lending services. According to sources, the financial regulator plans to direct loan data from Internet giants into a unified nationwide credit agency.
In addition to the regulatory requirements, whether regulators will require Ant Group to return to its original payment business or how this process can be carried out remains a mystery.
