Chinese Financial Regulators Order Ant Group To 'Overhaul' Its Business

Chinese regulators are increasing their pressure on Jack Ma and his powerhouse companies, Ant Group Co. and Alibaba Group Holding Ltd.

What Happened: Reuters and Bloomberg reported today that officials from the People’s Bank of China, the country's central bank met with executives from Ant over the weekend and instructed them to "rectify" how the company does business.

The central bank along with securities regulators are targeting Ant's lending, wealth management and insurance services, pushing the company to stick to its traditional service of facilitating payments. Ant grew out of Alibaba's huge e-commerce operations and its popular Alipay service. Alibaba, which trades in the U.S. as Alibaba Group Holding Ltd - ADR BABA, owns a third of Ant.

Among other demands, the central bank has ordered Ant to set up a separate financial holding company to ensure it has sufficient capital to support its operations.

Chinese officials are aiming to strengthen antimonopoly efforts and rein in "disorderly capital expansion" in 2021, according to Reuters.

Ant has promised to set up a special team to meet the government's demands, according to Bloomberg.

Authorities have not ordered a breakup of the company but want an "overhaul" that could throttle Ant's most lucrative consumer loans and wealth management lines of business, Bloomberg reported.

Heightened Government Pressure: This follows an antitrust probe by Chinese regulators into Alibaba this past week that led to the biggest ever one-day drop of its U.S.-listed shares, falling 13% on Thursday.

It also follows the cancellation of Ant's planned $37 billion IPO early last month — just two days before the Hong Kong and Shanghai listings — in the name of economic "stability" and amid a broader reining of tech companies that have grown too powerful for the comfort of Chinese Communist Party leaders. The outspoken Jack Ma has long been the most visible figure of China's economic rise and stands out in a culture where getting attention at high levels is perilous.

Trading Action: Alibaba's U.S.-listed shares ended the week down 15.20% at $222. Afterhours trading on Thursday saw a further slight drop to $221.95.

Photo courtesy: World Economic Forum via Wikimedia

The author of this article owns shares of YANG, an inverse ETF that holds Hong Kong-listed stocks, including Alibaba Group.