The Chinese government is investing Grandma’s pension fund in internet banking

Thumbs up, Granny.
Thumbs up, Granny.
Image: AP Images/Kin Cheung
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When the Chinese government invests in a private internet finance company, is that an endorsement? Or a way for the government to gain control?

In the case of Ant Financial, the internet finance conglomerate that spun out of Alibaba, probably a little bit of both. Ant said today it received an investment from China’s National Social Security Fund, China’s pension reserve that serves the nation’s elderly population.

The investment amount was not disclosed, but it is landmark moment for China’s financial industry, where private internet companies like Alibaba are now competing against traditional state-owned banks such as Industrial and Commercial Bank of China—with the blessing of the central government.

Ant Financial officially spun out of Alibaba in September 2011, when it was known as Alipay, Alibaba’s third-party payment service for the company’s e-commerce websites. Since then, it has developed other finance products that compete directly with state banks for consumer cash. Yu’ebao, a money-market fund that doubles as a savings account, has racked up 200 million users and over $93 billion in assets under management, making it the largest fund of its kind in China. Ant recently launched MYBank, which makes loans to small businesses, primarily e-commerce vendors.

China’s state banks have been slow to serve the country’s consumers and small businesses. And deposit interest rates for state banks have hovered around 3% annually, making Ant’s Yu’ebao, which generates higher returns and grants more liquidity, all the more appealing.

Observers and analysts once expressed skepticism about Alibaba’s financial ambitions. In Alibaba’s Way, author Porter Erisman, one of the company’s first employees, wrote that he valued Alipay “conservatively at zero.” The government and state banks might not take kindly to an intruder from the private sector, and could swat down the company quickly, he said.

The company’s convoluted structure, meanwhile, was seen to reflect internal ambivalence towards Alipay and Ant’s future.

Those fears are quickly subsiding, largely thanks to policies voiced by Li Keqiang, China’s vice premier. An economist by training, Keqiang recently coined the slogan “Internet Plus” to promote internet entrepreneurship in fields including logistics, in banking. He also voiced his support for e-commerce entrepreneurship in rural areas. Given that Alibaba and Ant Financial intertwine e-commerce and finance, it looks like neither company should fear a crackdown anytime soon.