Chinese eyes shrink Jack Ma’s business empire

The regulators, under the leadership of the central bank, also instructed Ant to create a separate financial holding company that would be subject to the kind of capital requirements that apply to banks. That could open a door for large state-owned banks or other types of government-controlled entities to buy into the business to strengthen its capital base, the officials and advisers say.

China’s National Pension Fund, China Development Bank and China International Capital Corp.

, the country’s leading investment bank, is already investing in Ant.

Mr. Ma, China’s richest person, helped define China’s new economy with the two companies he founded: Ant and its e-commerce affiliate Alibaba Group Holding Ltd. Their activities include payment services, online retail, cloud computing, wealth management and credit. Separately, Alibaba is facing an antitrust investigation that could also lead to a review of its operations and asset divestments.

The People’s Bank of China and the State Administration for Market Regulation, which regulate Ant and Alibaba, did not respond to requests for comment. Ant declined to comment. Mr. Ma and Alibaba did not immediately respond.

But targeting Mr. Ma, China’s leaders face a difficult balancing act, trying to rein in entrepreneurs like him – without harming the innovative spirit that contributed to China’s technological and economic rise.

“The goal is undoubtedly to keep Ma Yun in check,” said an adviser to the Anti-Monopoly Commission of the China State Council, the country’s highest government agency, which used Mr Ma’s Chinese name. “It’s like putting a bridle on a horse.”

The role that Mr. Ma’s companies have played in the Chinese economy is hard to overestimate. Together, Ant and Alibaba have enabled hundreds of millions of Chinese consumers and businesses to make a purchase, deposit, make an investment or take out a loan with the swipe of a thumb.

After benefiting from a relatively light regulatory scrutiny until recently, Mr. Ma are going to challenge the dominance of the state sector in areas such as banking and money management.

But the days of laissez-faire are over. Authorities have pledged in recent months to tighten regulations for an internet sector growing in size and impact. While some other companies are also under scrutiny, including the popular WeChat operator Tencent Holdings Ltd. for social media and Didi Chuxing Technology Co., a rides company, regulators are turning their attention to Mr. Ma and his companies for now.

Showy and outspoken, Mr. Ma has long clashed with regulators, particularly those from the People’s Bank of China, who have become wary of a vast empire they fear is running amok and have sought to impose restrictions .

Tensions came to a head in late October when Mr. Ma openly criticized leader Xi Jinping’s signature risk management initiative, while also criticizing regulators for stifling innovation – in a speech that took place days before Ant, in which he was the controlling shareholder. is. , would become public.

Before the speech, Mr. Xi paid little attention to Ant’s planned IPO, according to a person with knowledge of the regulatory process. “Thanks to Ma herself, the IPO got on Xi’s radar,” the person said.

Mr. Ma’s attack on regulators quickly failed. It brought Mr. Xi to personally call off the IPO, which was expected to be the largest ever and would have valued Ant at over $ 300 billion, and instruct regulators to consider the risks posed by Mr. Ma to investigate.

Since then, the Chinese market and financial regulators have come into action. Officials are particularly concerned about how Ant is using data used by its Alipay payments app to encourage banks to partner with the company in lending to consumers and small businesses. Ant only finances a fraction of the loans, with most of the money coming from the banks, making them bear the credit risks.

But even Mr. Xi, the most powerful leader in recent Chinese history, is facing limitations on how far his government can go to curb Mr. Ma’s empire.

Chief among these is avoiding the perception that entrepreneurship takes a major hit at a time when the private sector appears to be losing ground to state-owned companies. In addition, the leadership is concerned about a backlash from international investors at a time when Beijing is looking to avert growing doubts about its commitment to market reform and nurture more domestic companies like Alibaba that can compete with their US counterparts.

To allay fears of an over-state, the officials said, authorities chose a deputy central bank governor with a pro-market reputation to outline the actions against Ant in a published question-and-answer statement this week.

Pan Gongsheng, the deputy governor who previously oversaw the sale of shares for two of China’s largest state-owned banks before moving to the People’s Bank of China, urged Ant to review its operations based on market and legal principles.

Still, Mr. Pan the need for the company to “integrate business development into the overall national development,” said comments released by the central bank on Sunday.

Ant said in a statement on Sunday that it would meet regulatory requirements and develop a plan and timetable for the ordered overhaul. At a meeting with regulators in November, Mr. Ma urged the government to “take whatever platforms Ant has as long as the country needs it,” in an apparent effort to save his relationship with Beijing. Mr. Ma has not appeared in public since his speech in October.

Meanwhile, the Chinese market regulator last week launched an antitrust investigation into Alibaba, which owns one-third of Ant, over allegations that the company has used its dominant market position to pressure traders to sell only on its platforms.

Officials are also concerned about Alibaba’s threat to traditional brick-and-mortar retailers. “We have received many complaints that Alibaba is taking out smaller rivals and that its internet platforms are taking things away from others,” said a regulatory official aware of the investigation.

Wang Fuqiang, owner of a Beijing laptop store, is one of those who have felt trapped. At Mr. Wang’s store, sales have steadily declined as more people shop on Taobao, an Alibaba online shopping site, and JD.com Inc.,

another major e-commerce player.

“Now most of the buyers come to my shop to try out the laptops and take pictures,” said Mr. Wang, who has run the shop for 17 years. “Then they left and bought it online.”

—Bingyan Wang contributed to this article.

Write to Lingling Wei at [email protected]