China Economy

With Ant's IPO on hold, China calls for fintech regulation

Key Points
  • China's financial authorities emphasized Friday the need to regulate financial technology.
  • But authorities did not discourage entities from working with Ant, which runs one of the two major mobile payments systems in the country.
  • On Tuesday, the Shanghai Stock Exchange suspended Ant's IPO, citing a high-level meeting and a change in the regulatory environment.
People walk past the headquarters of the People's Bank of China (PBOC), the central bank, in Beijing, China September 28, 2018. 
Jason Lee | Reuters

BEIJING — Just days after the abrupt suspension of Ant Group's IPO — which was set to be the world's largest — China's financial authorities emphasized the need to regulate financial technology.

But they did not discourage entities from working with Ant — an affiliate of Alibaba that runs Alipay, one of the two major mobile payments systems in the country. Ant also operates subsidiaries involved in business lending and personal investment. The firm has many partnerships with big banks and financial institutions.

Ant Group's dual listing in Shanghai and Hong Kong was originally planned for Thursday, but it was called off just two days prior.

Liang Tao, vice chairman of the China Banking and Insurance Regulatory Commission, said of Ant Group that "we ... hope everyone, in accordance with the rules and regulations, can together maintain and carry out cooperative business." CNBC translated his remarks, which were delivered in Mandarin.

As mobile payments and online banking emerged in China over the years, Liang said the commission had issued financial industry licenses, while keeping consumers' interests in mind.

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Ant's mega IPO is the 'tipping point' in China's fintech supervision tightening

At the end of October, China's financial stability committee said at a meeting that financial technology is developing quickly, and the relationship between financial development, stability and security must be handled well.

On Monday, the China Securities Regulatory Commission said Ant Group's controller Jack Ma, executive chairman Eric Jing and CEO Simon Hu were summoned and interviewed by the People's Bank of China (PBOC), the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission, and the State Administration of Foreign Exchange.

Also on Monday, regulators issued draft rules that sought to raise standards for online lending and limit the amount available for borrowing.

The next day, the Shanghai Stock Exchange suspended the Ant IPO, citing the meeting and a change in the financial regulatory environment.

PBOC Deputy Governor Liu Guoqiang told reporters on Friday the Shanghai Stock Exchange's decision was made out of consideration for consumers' interests and investors' protection, ensuring healthy and stable development of the financial market in the long-term and in accordance with law.

He also pledged that the central bank will "in accordance with the idea of regulating development and encouraging innovation, continue to carry out financial supervision according to law." Liu said there must be equal financial innovation, protection of the economy and prevention of systemic financial risks.

The two officials were speaking at a press conference on efforts to improve the financial system's support for businesses and economic growth in China. They did not comment specifically on Ma's controversial speech last month, which appeared to criticize regulators.

Fintech's role in a state-dominated system

China's state-dominated banking sector has preferred to lend to state-owned businesses, rather than privately run businesses. The argument is that the private, often smaller companies can't demonstrate their ability to repay loans in an environment that lacks a standard credit score system.

Smaller businesses have turned to other sources, including the off-balance sheet shadow banking sector, which refers to activities performed by financial firms outside the formal banking sector and can be subject to lower levels of regulatory oversight.

More recently, big data analysis run by companies such as Ant and collaboration with banks have helped to better qualify businesses' ability to take on loans.

As of the end of June, the balance of China's commercial banks' consumer loans sourced from tech firms was 1.43 trillion yuan ($216.08 billion), according to the PBOC.

Chinese authorities stepped up efforts to improve lending to privately run, smaller businesses in the wake of the coronavirus pandemic this year. According to the PBOC's Liu, policies such as reducing fees and deferring debt repayment have released 1.25 trillion yuan into the economy as of October, nearing the goal of 1.5 trillion yuan for the year.

Chinese regulation can initially be far looser than in other countries, allowing rampant growth of an industry before cracking down harshly. One example is the peer-to-peer lending industry, in which many companies took money from investors by claiming to use technology to connect consumers with loans or high-yielding investment products before they collapsed and regulators stepped in.

At Friday's press meeting, Liu Fushou, Chief Counsel of China Banking and Insurance Regulatory Commission, said the number of operating peer-to-peer lending companies declined from a peak of around 5,000 companies to currently three lenders, which he did not name. The scale of loans and participating individuals has declined for 28 straight months — or two years and four months, he added.

"On one hand, we support reasonable innovation in the financial industry under the premise of controllable risks," the banking commission's Liu said. "At the same time, (we) maintain that innovation serves the real economy and must contribute to it."