On the evening of July 7, China’s three major financial regulatory bodies — the China Banking and Insurance Regulatory Commission, the People’s Bank of China, and the China Securities Regulatory Commission — announced that most significant issues in the financial operations of platform-based enterprises, such as Ant Group, have been rectified. Future regulation will now enter a normalized stage.
Since November 2020, these regulatory bodies have guided and urged these platforms to rectify “illegal and irregular activities.” Specifically, Ant Group and its subsidiaries were found to have engaged in irregular behavior in areas such as corporate governance, financial consumer protection, banking and insurance business activities, payment settlement services, anti-money laundering obligations, and fund sales. Consequently, the regulators imposed a fine of $993 million (7.123 billion RMB) on Ant Group and its subsidiaries. The group was also required to shut down its non-compliant “Xianghubao” business and compensate consumers in accordance with the law.
Recent administrative penalties have also been imposed on the Postal Savings Bank of China, Ping An Bank, PICC Property and Casualty Company, and Tenpay Company due to issues identified in previous enforcement inspections. The regulators stated that their focus will now shift from promoting concentrated rectification to normalized supervision. In response, Ant Group stated that it has actively carried out various efforts under the guidance of financial regulatory bodies and has completed the relevant tasks.
The group “sincerely accepts and strictly abides by the administrative penalty decision issued by the financial regulatory bodies and will further strengthen its compliance governance.” The day after the announcement, Ant Group revealed plans to repurchase up to 7.6% of its total shares using its own funds to supplement employee incentives and meet shareholders’ liquidity demands. Based on the repurchase pricing, the group’s current valuation is approximately $79.07 billion (567.1 billion RMB), a 40% decrease from its valuation after its Series C financing in 2018.
Interestingly, this announcement, which initially seemed to be “bad news,” may actually serve as a positive signal. On the evening of the announcement, Alibaba’s (BABA.N) stock surged more than 3% before the opening bell in the U.S. market, although it ended the day with a decline of 1.71%. This regulatory move comes three years after the Chinese government initiated centralized governance of internet platform companies to better control and manage market development.
In addition to Ant Group, other internet platform companies such as Meituan and DiDi were also fined and entered into rectification. This announcement signifies that China’s regulation and governance of internet platforms have entered a new phase of stability and government support.
However, two points are worth noting: First, the group can no longer conduct business considered illegal; Second, as a result of this rectification, Jack Ma has lost actual control of Ant Group. After the group was publicly criticized and punished by the government, Ma withdrew from the group and has kept a low profile since then. The current situation might be more favorable for Ant Group to maintain suitable long-term development.
