One of the most successful companies to come out of China is Alibaba Group run by Jack Ma. Since 1999 only 20 years ago, Mr. Ma has amassed a $59 billion fortune. If you think about Amazon, you can make comparisons to Alibaba. In the last few years, Mr. Ma moved into the financial services with a company called Ant Group.
In an article by Raymond Zhong of the New York Times News Service, Ant is a financial services and technology firm which has grown to help out its 730 million monthly users to take out small loans, invest their savings and buy insurance from their smartphones. With 730 million monthly users, Ant Group was going to do an IPO (initial public offering) and many firms would buy the shares.
Alibaba is headquarter in China and in China the Central Power has the final blessings. The Central Power wanted Ant Group to be regulated similar to a bank as opposed to a tech company. As a tech company the rules are much less than if they were regulated similar to a bank. At first, likely because of its size, Ant told the Central Power they should be regulated similar to a tech company. The regulators disagreed, but in China regulators are backed by the President of China. Regulators win.
The regulators have ordered Ant to “return to its payments origins,” and to strictly rectify illegal credit and wealth management financial activities. This means Ant to spin off those business lines, which have been increasingly important to its revenue.
Mr. Pan also the regulators had ordered Ant to reorganize itself to ensure that it met capital requirements. Keeping more money on its books to back its lending activities could crimp Ant’s bottom line.
Regulators have played give and take with Ant for years. When the company created a money market fund within Alipay that paid higher rates than bank deposits, the government forced the fund to shed risk and lower returns. After Ant began managing huge amounts of money in Alipay virtual wallets, the central bank made it park those funds made it park those funds in special accounts where they would earn minimal interest.
Ant said it would put together a plan for complying with the new requirement.
Linking to dividend paying stocks, all companies want to move into areas where they can make the most money, sometimes the government will step in and place restrictions on the company. The company’s best avenue is to work with the government because it has more levers to pull. Regulation or the threat of full regulation is why companies work with government. Companies love free enterprise but working with government is important to stay in business.
There are more questions than answers, till the next time – to raising questions.