What’s going on?
China announced plans to break up payment app Alipay on Monday, as the country’s tech sector crackdown really starts to leave its mark.
What does this mean?
Alipay – which boasts more than a billion users – is known as the go-to platform for everything from ordering food to processing payments. Now, though, it might be better known as the latest victim of a regulation-happy Chinese government, which has been looking to limit tech companies’ power in the country (tweet this). And Alipay certainly isn’t short of that: its seriously profitable lending business helped issue 10% of all China’s non-mortgage loans in 2020. The government, then, has told the company to spin that segment off into a completely new app, as well as hand over its customers’ data to a new credit-scoring business that’s part-owned by – you guessed it – the government itself.
Why should I care?
For markets: The bigger they are, the harder indexes fall.
Make no mistake: this is bad for Alipay-owner Ant Group, whose lending business was a key reason for trying – and, uh, failing – to list on the stock market last year. That makes a second attempt pretty unlikely, at least for now. But it’s rough for Alibaba too: the ecommerce giant – which owns 33% of Ant Group – saw its shares fall 4% after the announcement on Monday, meaning they’ve now dropped 30% this year. And since no one seems to be safe from China’s iron fist, a key index tracking the biggest tech players in China fell 2% too.
The bigger picture: Don’t say they didn’t warn you.
China’s central bank did warn the online lending industry this summer that government-approved credit companies were eventually going to have to approve every lending decision they make. Now that it’s here, though, industry execs might be nervous: they’ll have extra costs in the form of extra outsourcing, and – if the credit-scoring companies rubber stamp fewer loan applications – they might make less in revenue too.