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After Alibaba, Beijing’s efforts to rein in fintech could center on rival Tencent

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Since November, Alibaba has been at the center of a crackdown by Beijing that has included halting the monster IPO of its fintech affiliate Ant Group, and unveiling new antimonopoly rules for tech giants. The developments have seen tens of billions of dollar wiped off its market cap.

But in recent days, fears are deepening that regulatory scrutiny that seemed squarely centered on Jack Ma’s e-commerce and fintech groups could turn to Alibaba’s rival, Tencent. The social media firm on Friday (March 12) was fined under antitrust rules for a past investment into an app, while Bloomberg reported the same day that sources close to China’s financial regulators expect the company to have to restructure its fintech business, just as Ant was required to do.

Tencent’s shares dropped more than 7% in trading from Friday through Monday, leading to roughly $60 billion shaved off its market cap. The company’s losing streak has since tapered off. Tencent declined to comment.

The selloff in Tencent shows uncertainty about just how broad Beijing’s continued crackdown against its powerful tech companies will become, as leader Xi Jinping puts more pressure on private firms to support the Communist Party’s policy agenda. Yesterday, Xi made amply clear that it’s not over yet, ordering regulators to enhance their oversight of tech platforms to prevent disorderly growth.

While other tech firms are unlikely to emerge unscathed from this push, for several reasons it’s possible that they may not face the same degree of reining in as Alibaba.

Once the face of China’s tech rise, Alibaba’s troubles started with a bold speech by Ma in October, in which he blamed old-school financial regulation by global authorities for slowing down innovation. Shortly after that, Ant’s $35 billion IPO in Hong Kong and Shanghai was shelved by regulators, who also asked the fintech firm to restructure its business into a financial holding company. Ant and authorities have reportedly reached an agreement on a restructuring plan, which would require the firm to meet capital requirements similar to that for banks. And last week Ant Group’s chief executive Simon Hu stepped down, to be replaced by chairman Eric Jing, who has promised the company will “look in the mirror to find our shortcomings.”

So far, actions against Tencent, founded by the more low-key Pony Ma, have been relatively incremental. It was fined for its failure to seek prior approval (link in Chinese) for its investment in online education app Yuanfudao in 2018, when Chinese tech champions were relatively free-wheeling in their expansion across sectors. Alongside Tencent, search giant Baidu and TikTok’s owner ByteDance were also fined for taking over or having partnerships with other ventures without prior permission, according to China’s top market regulator. Last year, the government also fined Tencent and Alibaba for similar violations.

But given the actions against Ant were in part to mitigate systemic financial risk from the fintech firm’s foray into insurance and lending, without playing by the same rules as banks, Tencent’s businesses similarly expose it to further regulation. After Ant’s Alipay wallet, Tencent’s WeChat Pay is the country’s biggest mobile payment provider, with an approximately 40% market share. The app also offers loan products and wealth management, though not quite on the scale of Alipay.

Other tech companies that provide financial services, such as JD.com, should also expect to be regulated tightly due to Beijing’s need to contain financial risks, said Shen Meng, a director at boutique investment bank Chanson & Co in Beijing .

Another area that is attracting Beijing’s attention is the media ventures of some tech firms, for their potential to challenge the Party’s ability to shape public opinions. Alibaba reportedly has been asked by authorities to curtail its media holdings, which include Hong Kong newspaper the South China Morning Post and a stake in the microblog Weibo, according to the Wall Street Journal.

“Tech companies will see their previous ‘wild growth’ curtailed under such scrutiny, but they can still continue their normal operations to serve users,” said Shen.

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