China is reportedly looking at new regulations that would impact Alibaba and Ant Financial in an effort to boost oversight of financial holding companies.
According to a report in Reuters late last week citing state news agency Xinhua, the new regulations would be aimed at reducing the debt risks among financial holding companies including Suning.com, the retail conglomerate, and large state-backed companies in China including China Merchants Group, Shanghai International Group, and Beijing Financial Holdings Group. The aim is to have plans made for a supervision plan for financial holding companies by the first half of next year. Zhou Xuedong, director of the PBOC’s Financial Stability Bureau told Reuters that some financial holding companies had grown thanks to “barbaric” expansion. As a result, regulatory oversight is necessary. “They are large in volume with complex businesses and high association risks, and the lack of supervision would increase risks in the financial sector,” Zhou was quoted by Xinhua as saying, according to Reuters.
The report noted the PBOC has vowed to fasten the pace of its efforts to regulate the financial holding companies’ high leverage investments and at the same time strengthen the supervision of their transactions. It is embracing a “combination of macro-prudential management and micro-prudential supervision” in its regulatory approach, reported Reuters, noting that the government agency didn’t provide more details.
In June Reuters reported that Ant Financial was chosen by the PBOC to be the only FinTech to be part of a trial program in which it tested stricter regulations on financial holding companies. Reuters cited two sources at the time. This comes as Ant Financial, the Chinese FinTech giant and an affiliate of Alibaba Group, posted an earnings pre-tax loss of 2.4 billion yuan ($353 million USD) for the quarter ending Sept. 30. The Wall Street Journal, citing Ant, reported that the company had a pre-tax profit of 5.3 billion yuan for the same quarter a year ago. It marked the third time that Ant had a quarterly loss since its unit’s result was disclosed by Alibaba in the early part of 2014. Alibaba blamed the loss on increased investments to capture growth. The WSJ quoted Alibaba, saying it “stepped up its investment to acquire more users and capture growth opportunities of the offline payment market,” which hurt results. The loss was also due in part to spending so as to expand the business internationally.