China Eyes Shrinking Jack Ma’s Business Empire – The Wall Street Journal

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Jack Ma, China’s richest person, has helped define China’s new economy with the two companies he founded—Ant and its e-commerce affiliate Alibaba.

Photo: Liu Yang/VCG/Getty Images

Beijing is seeking to shrink Jack Ma’s technology and financial empire and potentially take a larger stake in his businesses, according to Chinese officials and government advisers familiar with the matter, as regulators zero in on the billionaire in a campaign to strengthen oversight of an increasingly influential tech sphere.

Under a restructuring road map that China’s financial regulators laid out this week, financial technology giant Ant Group Co. would return to its roots as an online-payment provider akin to PayPal Holdings Inc., while its more profitable investment and loan businesses would be curtailed.

The regulators, led by the central bank, also ordered Ant to form a separate financial holding company that would be subject to the kind of capital requirements applied to banks. That could open a door for big state banks or other types of government-controlled entities to buy into the firm to help beef up its capital base, the officials and advisers say.

China’s national pension fund, China Development Bank and China International Capital Corp. , the country’s top state-owned investment bank, are already investors in Ant.

Mr. Ma, China’s richest person, has helped define China’s new economy with the two companies he founded—Ant and its e-commerce affiliate Alibaba Group Holding Ltd. Their businesses span payment services, online retail, cloud computing, wealth management and lending. Separately, Alibaba is facing an antitrust probe that could also lead to an overhaul of its business and asset divestitures.

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

Days before Chinese fintech giant Ant Group was scheduled to go public in what would have been the world’s largest listing, regulators put plans on hold. WSJ’s Quentin Webb explains the sudden turn of events and what the IPO suspension means for Ant’s future. Photo: Aly Song/Reuters

But in targeting Mr. Ma, China’s leaders face a tough balancing act, trying to keep entrepreneurs like him in check—without hurting the innovative spirit that has helped power China’s technological and economic rise.

“No question the purpose is to rein in Ma Yun,” said an adviser to the anti-monopoly committee of China’s State Council, the country’s top government body, using Mr. Ma’s Chinese name. “It’s like putting a bridle on a horse.”

It’s hard to overestimate the role Mr. Ma’s companies have played in China’s economy. Ant and Alibaba together have allowed hundreds of millions of Chinese consumers and businesses to make a purchase, deposit money, execute an investment or take out a loan with a swipe of the thumb.

Having benefited until most recently from a relatively light regulatory touch, Mr. Ma’s companies have come to challenge the state sector’s dominance in areas such as banking and money management.

Chinese officials are concerned about how Ant uses data harnessed by its Alipay payment app to encourage banks’ lending decisions.

Photo: alex plavevski/Shutterstock

But the days of laissez-faire are over. Authorities in recent months have pledged to toughen regulation over an internet sector that is growing in size and impact. While some other companies are also under scrutiny, including popular social-media app WeChat operator Tencent Holdings Ltd. and ride-hailing firm Didi Chuxing Technology Co., regulators for now are focusing their attention on Mr. Ma and his companies.

Mr. Ma, flashy and outspoken, has long clashed with regulators, particularly those at the People’s Bank of China, who have become wary of a sprawling empire that they fear is running amok and tried to impose restrictions.

The tension came to a head in late October when Mr. Ma openly criticized leader Xi Jinping’s signature risk-control initiative, while also slamming regulators for stifling innovation—in a speech that took place just days before Ant, in which he is the controlling shareholder, was set to go public.

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

Mr. Ma’s attack on regulators quickly backfired. It led Mr. Xi to personally call off the initial public offering, which was expected to be the biggest ever and would have valued Ant at more than $300 billion, and to instruct regulators to look into risks posed by Mr. Ma’s empire.

Jack Ma’s Beijing Battle

Since then, China’s market and financial regulatory agencies have sprung into action. Officials are particularly concerned about how Ant uses data harnessed by its Alipay payment app to encourage banks to work with the company in making consumer and small-business loans. Ant only funds a fraction of the loans, with the bulk of the funds coming from the banks, leaving them with the credit risks.

But even Mr. Xi, the most powerful leader in recent Chinese history, faces constraints in how far his government can go to clamp down on Mr. Ma’s empire.

Chief among them is avoiding the perception of dealing a significant blow to entrepreneurship at a time when the private sector is seen to be losing ground to state-owned firms. In addition, the leadership is worried about a backlash from international investors at a time when Beijing wants to fend off growing doubts over its commitment to market reforms and to nurture more homegrown companies like Alibaba that can compete with their American counterparts.

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

Pan Gongsheng, the deputy governor who previously oversaw the share sales for two of China’s biggest state-owned banks before moving to the People’s Bank of China, urged Ant to overhaul its business based on market and legal principles.

Still, Mr. Pan emphasized the need for the company to “integrate corporate development into overall national development,” according to remarks released by the central bank on Sunday.

Ant said in a statement Sunday that it would comply with regulatory requirements and develop a plan and timetable for the ordered overhaul. At a November meeting with regulators, Mr. Ma offered to have the government “take any platforms Ant has, as long as the country needs it,” in an apparent effort to salvage his relationship with Beijing. Mr. Ma hasn’t appeared in public since his October speech.

Meanwhile, China’s market regulator last week launched an antitrust investigation into Alibaba, which owns a third of Ant, for allegations that the company has used its dominant market position to pressure merchants to sell only on its platforms.

Officials are also concerned about Alibaba’s threat to traditional bricks-and-mortar retailers. “We’ve received lots of complaints about Alibaba squeezing out smaller rivals and its internet platforms taking away business from others,” a regulatory official with knowledge of the investigation said.

Wang Fuqiang, who owns a laptop store in Beijing, is among those who have felt the pinch. Mr. Wang’s store has seen sales drop steadily as more people shop on Taobao, an online shopping site owned by Alibaba, and JD.com Inc., another large e-commerce player.

“Now, most buyers come to my store to try the laptops and take pictures,” said Mr. Wang, who has been running the store for 17 years. “Then, they would leave and buy it online.”

Write to Lingling Wei at lingling.wei@wsj.com

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