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Halting Ant IPO & Antitrust Rules: China Targets Tech Giants

After stopping the IPO of Ant Group, the Chinese government is looking to control the country’s tech companies.

China’s market regulator has drawn up draft antitrust rules and this is its first major step towards controlling the monopolistic power of the country’s tech giants. According to Financial Times, the practices that regulators are taking aim at include using exclusivity clauses to hinder competition, treating customers differently based on their spending behaviour and data and forcing customers to buy a bundle of products to access the ones they want.

The draft makes it clear that tech companies like Tencent, Alibaba, Meituan and JD.com would fall under the new regulations. This has never been heard before. We usually hear about the U.S and Europe launching investigations into Amazon, Facebook, Google among other companies but Chinese regulators, until now, haven’t taken any stringent actions against tech companies.

The antitrust guidelines have come just after the suspension of Ant Group IPO, following the publishing of new draft rules for online lending. Ant Group’s IPO was supposed to become the biggest IPO in history but it was halted by regulators.

The IPO was suspended after Jack Ma, the founder of Alibaba, was called in for “supervisory interviews” by related agencies. There was “significant change” in the regulatory environment and “such major issues could lead to your company not longer complying with requirements on listing or information disclosure,” said the statement.

The major reason that Ant’s IPO came under scrutiny was because of certain comments made by Jack Ma. He said that the country’s financial and regulatory system represses innovation and called for a revamp to extend financial services to more small firms and individuals on the basis of technology. He also said that the Chinese banks are still operating with a strong “pawnshop” mentality and demanding collateral and guarantees before lending is a model that will fail to drive future growth.

The Chinese regulators stopped the IPO and this also clearly shows that China itself doesn’t want Ant Group to become bigger. The Ant group was being seen as China’s answer to America’s JP Morgan — A company that could disrupt the financial sector and it seems like the government is not willing to let go of its control on the financial sector just yet.

It has been a difficult time for private tech companies. However, China’s state banks have gotten a big boost from the suspended Ant Group’s listing. Merchants Bank, known as the retail bank king in China, has jumped 19% in Hong Kong this month to a record high, which is its biggest seven-day rally in over five years. Chinese banks that were trading near record-low valuations, rose after financial regulators proposed new rules to restrict the rapid growth and leverage at the nation’s more than 200 micro-loan lenders.

But why? Because this is what they wanted. Chinese state banks have been asking for Beijing to restrict fintech giants for years but they didn’t see much success there. However, the move last week by Chinese regulators is seen as a good thing for state banks.

But why is it a good thing? Because of the battle for market share. Ant and other fintech companies like Tencent Holdings Ltd have taken the market share from commercial banks in the money-making consumer lending space. By using big data and cloud computing as well as offering easier access to credit for younger users online, the fintech giants were successful in grabbing the market share from state banks.

All in all, China is preparing to make big moves against its tech companies and this might emerge as a problem for several companies. This crackdown shows that China is signalling that they are the ones who have the biggest power in the State, not Ant Group and definitely not Jack Ma.

Head to moneyguru’s Insight section to stay updated on all major financial news updates of the day!

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