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China orders break up of Alipay and handover of user data under new rules for loan apps

Ant Group, which owns Alipay, has been engaged in a tussle with Chinese regulators for some time now.

Alipay, an online payment platform by Ant Group, will have to spin off its loans business into a separate app after the Chinese government ordered its restructuring, Financial Times reported. The new diktat also calls for Ant Financial, the parent company of Alipay, to turn over user data to a joint venture created to determine credit scores, the report added.

The new rules will be applicable to all online lenders in China as the country’s central bank directed that lending decisions must be made based on data from an approved credit scoring company rather than proprietary data, FT added. 

Alipay’s lending unit, CreditTech, consists of Huabei (a credit card company) and Jiebei (offers small unsecured loans). 

China has initiated a crackdown on large tech companies over the last few months as it seeks to cut down their monopolies to size. The state believes that the government must limit data collected by tech giants lest they create alternative power centres in the country. The move stands to affect Ant’s lending business which has now overtaken its payment processing business in the first half of 2020, FT stated in its report. Alipay’s lending unit’s size also caused concern among regulators over predatory lending and financial risk.  

Ant Group’s tussle with Chinese regulators

China has had Ant Group in its crosshairs for some time now. The scheduled initial public offering (IPO) of Ant Group was thwarted by authorities in November 2020. The listing was suspended by the Shanghai stock exchange after Chinese regulators summoned Ant Group founder Jack Ma and other top executives of the company, Indian Express said in its report.

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Ant Group’s Alibaba was then ordered to cough up $2.75 billion in fines over antitrust issues back in April this year, as per news reports. Moreover, China’s central bank ordered Ant to overhaul itself to bring Ant Financial under regulatory oversight, and impose capital requirements, while calling for Alipay to prop up its other businesses as independent entities, Reuters revealed in its report. Huabei and Jiebei then split up from Alipay and inducted shareholders from the outside. 

Ant was also asked to set up a separate joint venture which would collect and process credit information of users. The directions led to the creation of the JV in which Ant and Zhejiang Tourism Investment Group Co Ltd own about 35% each while other state-backed partners, Hangzhou Finance and Investment Group and Zhejiang Electronic Port, hold slightly more than 5%, Reuters said in June.

China’s regulatory onslaught against tech giants

China has passed several new laws and measures to strengthen its grip on data, The Wall Street Journal reported. The Chinese government has compelled big tech companies like Tencent, Alibaba, and ByteDance to open up the data they collect from users to help the government make “objective and accurate analyses”, the report added. 

  • Data Security Law, passed in early June, goes into effect on September 1. It requires private-sector data to be classified as per their importance to the interests of the state. The vaguely worded provision will make it easier for authorities to demand data they deem essential to the state and make it harder for businesses to refuse, MediaNama reported then. 
  • Personal Information Protection Law (PIPL), puts in place one of the world’s strictest data privacy laws, Wall Street Journal reported. The law resembles Europe’s robust General Data Protection Regulation (GDPR), and is set to go into effect on November 1, the report added. 
  • The Chinese banking authorities proposed new regulations in 2020 that require fintech firms like Ant and Tencent to transmit credit statistics that they have gathered into either a centralised system run by the central bank or a credit-rating agency controlled by the state.
  • The Cyberspace Administration of China (CAC) ordered app stores to remove ride-hailing app Didi Chuxing citing serious violations on the collection and usage of personal data, On the other hand, WeChat had to suspend user registration for a temporary period in order to comply with the law.

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