China says more fintech regulation needed after blocking Ant Group’s $34B IPO

November 6, 2020.
In this Friday, Oct. 23, 2020, photo, an employee sits at the Ant Group office in Hong Kong. (AP Photo/Kin Cheung)

In this Friday, Oct. 23, 2020, photo, an employee sits at the Ant Group office in Hong Kong. (AP Photo/Kin Cheung)

China’s senior financial regulators said the country will take a more “uniform” approach to supervising fintechs, just days after the government blocked ’s record $34 billion initial public offering.

The country has cracked down on fintechs in the past, including a large number of online shadow banks and peer-to-peer lending platforms, but it currently lacks a singular law through which all such companies are supervised.

In a briefing with local reporters on Friday, officials said they would not deter Chinese firms from partnering with the Alibaba-backed fintech to build out new technologies and products, and said such firms need to be regulated in a way that mitigates financial risk.

These remarks follow a new regulatory proposal that would impose more stringent rules and underwriting standards on online microlenders like Ant Group.

“We support the financial industry to make reasonable innovations under the premise of controlled risks,” said Liu Fushou, chief counsel of the , according to a translation of his remarks in Mandarin.

“At the same time, we insist that innovation is to serve the real economy and to contribute to the real economy ... We will regulate fintech in accordance with its nature of finance, and include all financial activities into the regulatory framework,” he added.

The state-backed Shanghai Stock Exchange on Tuesday abruptly suspended Ant Group’s blockbuster IPO, which was slated to take place Thursday, citing undisclosed problems and a new proposed regulation to raise standards for microlenders like Ant.

The dual listing in Shanghai and Hong Kong was expected to be the world’s largest IPO on record, beating the previous record of $29.4 billion raised by Saudi Aramco this year, and valued Ant Group at over $313 billion.

In late October, the company revealed that retail investors were about 872 times oversubscribed for the Shanghai portion of the offering, highlighting the voracious appetite for a slice of the fast-growing startup.

“The decision was made in accordance with laws and regulations” and to ensure a “stable, healthy market development in the long term,” Liu Guoqiang, deputy governor of the People’s Bank of China, told reporters. 

Prior to the suspension, Ant Group officials, including controlling investor Jack Ma, had met with officials from the PBOC, CBIRC, Regulatory Commission and the State Administration of Foreign Exchange to discuss the problems.

By Monday, the PBOC and CBIRC revealed new draft rules that would require small online lenders to provide at least 30% of any loan they fund jointly with traditional banks and set a threshold for lenders that offer loans from different parts of the country. 

Online lending is a growing part of Ant Group’s business that makes up about 10% of all non-mortgage consumer loans in the country, according to the Financial Times.

The company is reportedly in the process of reapplying for its microlending license and faces higher capital levels for its businesses, which could further stymie the firm’s hopes to resume its IPO as soon as possible. 

According to Jeffrey Halley, senior market analyst for Asia Pacific at foreign exchange firm Oanda, it’s possible that officials suspended the IPO to penalize Ma, whose e-commerce giant Alibaba owns a third of Ant Group, for his comments criticizing regulations as a barrier to innovation.

“There’s only one big boss in China, and it’s not Jack Ma,” Halley wrote in a note Wednesday, adding that Ma’s comments “clearly didn’t resonate in the halls of power in Beijing.”

The officials renewed their commitment to “dismantle” high-risk shadow banks that offer loans outside the banking system at exorbitant rates. Fushou said the country has successfully removed about CNY 20 trillion ($3.02 trillion) in assets from shadow banking books since 2017.

--Additional reporting by Tom Auchterlonie, Patrick Hoff