Chinese regulators on Sunday ordered financial technology giant Ant Group to fix what they called the litany of business mistakes. This escalated a print campaign that had been building since the government abruptly halted the company's plans for a record-breaking public listing last month.
The Chinese government has started to take a tougher line on big internet companies, which are having a huge impact on segments of the economy, much like Facebook, Google and other tech giants elsewhere. China's market regulator recently launched an antimonopoly investigation into Ant's sister company, e-commerce giant Alibaba. Alibaba is the other pillar of the business empire built by Jack Ma, China's richest man and most famous tycoon.
Ant's Alipay platform began as a payment service for Alibaba's online shopping websites. Since then, it has grown to help its 730 million monthly users get small loans, invest their savings, and purchase insurance. Alipay's growth had led Ant to conduct the world's largest public offering. It also prompted authorities to investigate whether Ant wrongly benefited from having less oversight than traditional financial institutions.
Officials from four financial watchdogs, including the central bank, met with Ant on Saturday, the agencies said. On Sunday, a deputy central bank governor, Pan Gongsheng, described what had been discussed in a written question-and-answer session that highlighted regulators' strong disapproval of the company.
Mr. Pan listed what he said were Ant's main problems. Corporate governance is "not solid," he said. It was “indifferent” to the law, “looked down” on compliance requirements and dealt with “regulatory arbitrage”. It used its dominance to exclude rivals. And it has harmed consumer interests.
Regulators have ordered Ant "to revert to his payment origins," Pan said, and "strictly correct illegal credit, insurance and asset management financial activities." Such requests could indicate that the agencies will ask Ant to outsource the businesses that have become increasingly important to their revenue.
Mr Pan also said regulators had directed Ant to reorganize to ensure it met capital requirements. If more money is left on the books to support lending, it could hurt Ant's bottom line.
Regulators in China have been playing with Ant for years. When the company set up a money market fund within Alipay that paid higher interest rates than bank deposits, the government forced the fund to lower risk and lower returns. After Ant started managing large amounts of money in Alipay virtual wallets, the central bank had these funds parked in special accounts on which they would earn minimal interest.
In a statement, Ant said a plan would be put in place to meet the new requirements.
"We appreciate the guidance and help from financial regulators," the statement said. "The rectification provides the Ant Group with an opportunity to strengthen the foundation for our business to grow in full compliance."