China’s Financial Stability Report Flags Stricter Fintech Regulation, Ant Group Expected to Be Heavily Affected

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The People’s Bank of China (PBOC) has signalled far stricter regulation of the Chinese fintech sector in its latest financial stability report, with analysts expecting providers of micro-loan services to be amongst those worst affected.

Risk in relation to fintech is one of the key focal points of the “China Financial Stability Report (2020)” (中国金融稳定报告(2020)) released by PBOC on 6 November.

With regard to recent fintech innovations, the Report said that China’s financial regulators would “comprehensively upgrade regulatory capabilities” and “demarcate a firm baseline.”

According to the Report the next step will be to “further refine the fintech regulatory framework,” as well as strengthen top-level regulatory design and coordination between China’s regulatory authorities.

The publication of the Report arrives just following release of the draft version of the “Online Micro-loan Operations Provisional Administrative Measures” (网络小额贷款业务管理暂行办法(征求意见稿)) by Beijing on 2 November, whose tightening of Internet finance regulation is believed to be a key factor behind the suspension of the USD$36 billion Ant Group IPO in Shanghai and Hong Kong.

Dong Ximiao (董希淼), chief researcher at the Zhongguancun Internet Finance Institute, said to 21st Century Business Herald that he expects Ant Group to be one of the companies worst affected by broad efforts to tighten finance and fintech regulation in China.

“Firstly, Ant Group has the most financial licenses under its banner, and the implementation of financial holding company measures on 1 November has had a very large impact on it,” said Dong.

“In order to satisfy the requirements of financial holding company measures, it needs to perform major adjustments of its organisation structure and operations.

“Secondly, Ant Group’s profits are mainly derived from lending by its micro-loan company, and the online micro-loan measures will have a heavy impact on it.”

Dong previously told the Chinese central bank’s official news outlet that “if the (online micro-loan) measures are officially implemented, then online micro-loan operations will meet with sizeable adjustments, and large-scale Internet companies that are expanding via online micro-loan operations will endure major shock.”

Dong highlighted in particular the impact of a new requirement outlined by the Online Micro-loan Measures for capital contributions made to joint-loans.

For a single joint loan the capital contribution amount of a micro-loan company cannot be less than 30%, in order to restrain rapid expansion by micro-loan companies via joint-loans.

Ant Group’s micro-loan vehicles currently work with small and medium-sized banks to issue loans for which their capital contribution amount is less than 5%, and at times as low as 1%.

According to Dong the restriction will have a “massive impact” on Ant Group’s credit expansion model as a consequence, given that company is using 36 billion yuan in assets to drive 1.7 trillion yuan in joint lending.

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