Chinese Regulators Aren't Done Yet: Authorities Reportedly Seek Overhaul Of Tencent's Payment Platform

U.S.-listed China stocks launched into a rally earlier this week, encouraged in part by indications from Beijing that the witch-hunt against these companies will soon end. A Bloomberg report, however, suggested that it may be too early to call a truce.

What Happened: Media and entertainment conglomerate Tencent Holdings ADR TCEHY, could soon find itself in the crosshairs of regulators yet again. Chinese authorities are mulling over plans to get Tencent to organize its WeChat Pay as a financial holding company, Bloomberg reported.

This is similar to what was asked of Alibaba Group Holding Ltd - ADR BABA founder Jack Ma's Ant Financial after regulators poured cold water on the fintech company's mammoth initial public offering plans.

If regulators do decide to go ahead with their proposed plan for Tencent's payment platform, the latter may have to apply for a new license, Bloomberg said. The Chinese conglomerate has to group all its fintech businesses, including banking, securities, insurance and credit rating services under a financial holding company, it added.

The pushback is that the unit has to comply with strict disclosure and capital adequacy norms that are applicable to traditional banks, the report said.

Separating WeChat Pay from the WeChat social media platform will introduce uncertainty and reduce the convenience of Tencent's mobile service offerings, Bloomberg said. It also poses risk to Tencent's "one-stop" appeal that has helped it to evolve as one of the world's most valuable companies, the report added.

Related Link: Alibaba Opens Up Walled Garden To Allow Rival Tencent's Payment System In Some Apps

Why It's Important: China's regulatory clampdown, apparently driven by the quest to bridge the widening chasm between the rich and poor, has weakened most of the high-profile domestic tech companies. The regulations served as speed bumps to check their unhindered growth that, according to the communist regime, was giving them an air of invincibility.

The tech giants were also taken to task for misusing their dominant position in the market to stifle competition and misuse user data.

The result of the regulatory crackdown has been apparent and in particular for Alibaba, which has seen its shares plummet from a high of around $319 in October 2020 to under $100 last week.

Renewed clampdowns could only hurt these companies further, which in turn can impact the domestic economy that has taken baby steps toward recovery following the COVID-19 pandemic impact.

TCEHY Price Action: Tencent shares trading over the counter in the U.S. were up 6.72% to $51.85 Friday afternoon at publication.

Related Link: How to Buy Tencent Stock

Photo: Courtesy Tencent