China’s technology industry is facing an Ant-sized problem. An abrupt regulatory halt to the fintech company’s $37-billion initial public offering speaks to Beijing's waning tolerance for the clout wielded by online titans. Alibaba, Tencent and others have avoided concerns dogging their Western counterparts so far, but that could be about to change.
The stunning government intervention in what would have been the world's largest ever IPO is alarming for both executives and investors alike. Just days before the shares were set to start trading, Ant founder Jack Ma and senior firm executives were summoned to meet with financial watchdogs. New draft rules unveiled the same day also target Ant's fast-growing online lending business. The share sale probably will proceed at some point, but also could shrink depending on the regulatory impact on its business model.
Ant's heft in online payments, wealth management and credit made it an obvious target for managing risk throughout the financial system. China’s other established internet giants, though, should take note. President Xi Jinping's latest five-year plan, released last week, elevates technological self-reliance to be a “strategic support” for national development. For Alibaba and Tencent, which have thrived largely unchecked in their respective e-commerce and video-games domains, it's a sign that they will garner extra attention.
As with Alphabet's Google and Facebook, the Chinese tech titans are most vulnerable when it comes to competition and data privacy. Over half of the People's Republic shops on Alibaba. Tencent's all-in-one messaging app, WeChat, counts 1.2 billion monthly active users. Its music-streaming arm was investigated by competition authorities last year, following censorship of its games in 2018. Both are now charging into cloud computing and healthcare, which is bound to attract additional scrutiny.
A so-called “techlash” would come at a sensitive time. The pandemic has weakened China’s economic growth and consumption, even as Alibaba and Tencent have thrived. Their Hong Kong-listed shares are up 40 per cent and 64 per cent, respectively, this year. And Alibaba is expected by HSBC analysts to report a blistering 68 per cent rise in quarterly operating profit on Thursday. That sort of performance, and the dominance it reflects, is apt to be a growing concern for consumers and regulators alike.