Big technology companies have been among the few winners from the coronavirus pandemic. A collective reliance on their services has helped entrench their dominance, and competition regulators around the world are beginning to increase their scrutiny. Financial watchdogs too are taking note, fearful that Big Tech could surreptitiously enter their domain and pose a new type of threat to financial stability. Recent actions by Beijing to bring the operations of Ant Group, the country’s technology services giant, more closely under its control appear to spring from similar concerns.
Chinese authorities have long been alert to the increasing role in the country’s state-led financial system of Ant and its counterparts, such as Tencent’s WeChat. It is easy to see why. From its beginnings as a mobile payments service, Ant has evolved rapidly into a digital supermarket powerhouse, enabling millions of users to invest, purchase insurance and secure loans. Ant’s lending business has been a key driver of recent growth, with some 500m customers taking out loans through Alipay, its payments app, in the 12 months to August last year. Regulators are right to be concerned about the risks to the wider economy of rising household debt.
But Beijing’s crackdown on Ant, not least the recent disappearance from public view of Jack Ma, its limelight-seeking founder, is also a stark reminder that in China, no one individual or company is more important than the Communist party. Mr Ma has not been seen in public since he criticised China’s regulators and its state-owned banks in a speech in October, triggering the suspension of Ant’s $37bn initial public offering. Though he may yet re-emerge, the episode evokes memories of Vladimir Putin’s assault on Russia’s oligarchs in the 2000s, notably the dismemberment of Mikhail Khodorkovsky’s Yukos oil company. That assault destroyed not just a political opponent in Mr Khodorkovsky but also enabled the state to seize control of his business, then Russia’s largest oil company, as part of a wider move to bring private businesses to heel. Similarly, Mr Ma and his empire posed a threat to Beijing’s desire for centralised control in a critical sector.
Beijing’s approach is not without risk. By being too heavy-handed towards Ant, regulators risk being seen to be targeting the private sector as a whole, as well as the sanctity of private property rights — both of which have played a central role in the transformation of China’s economy. The abrupt pulling of Ant’s IPO last year has already hurt the reputation of its capital markets. These latest moves — including a demand that Ant focus on its core payments business and improve the compliance of its securities activities, issued as part of a rare public rebuke by China’s central bank — could undermine business confidence more generally. Many wealthy Chinese are already concerned about the increasing encroachment of the state on the private sector. More than any other recent successful Chinese businessman, Jack Ma personified private enterprise.
Authorities should also bear in mind that Ant, and its sister company Alibaba, as well as Tencent, are big investors not just in China but in the wider region. There is potentially more at stake than their domestic operations. There are good reasons for regulators in China and elsewhere to beware of the growing fintech sector and the need for tighter regulation. But it would be a setback for China’s economic development in the longer-term if the private sector were to fall victim to a political drive to entrench the state.