Tech

Tim Culpan is a technology columnist for Bloomberg Gadfly. He previously covered technology for Bloomberg News.

Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

It looks like China's central bank chief just rained on Alibaba's banking parade.

The People's Bank of China plans to study shadow-banking activities with a view to putting competition on a more equal footing, Governor Zhou Xiaochuan said in an interview with International Monetary Fund Managing Director Christine Lagarde in Washington last week.

Translation: watch out. Regulations that were on the back burner as Beijing stayed out of the way of the growth of Internet finance companies are looming. 

Zhou observed that the PBOC and many Chinese government officials "emotionally support" high-technology development and, as a result, have refrained from putting too many restrictions on such companies. That's a pretty frank admission from the man tasked not only with managing interest rates in the world's second-largest economy, but also with making sure banks' ballooning bad debt doesn't spiral out of control.

Money Magnet
Alibaba's Yu'e Bao money market fund posted explosive growth in assets under management
Source: Bloomberg

Regulators' benign neglect has allowed Ant Financial, which was split off from Alibaba before the company's record $25 billion New York IPO two years ago, to flourish. 

Its Yu'e Bao money market fund has increased assets under management to 772 billion yuan ($116 billion), even as yields have fallen. Ant's Alipay, meanwhile, is China's biggest payments platform, at a time when the volume of third-party Internet transactions has surpassed 3.5 trillion yuan per quarter. Ant also operates its own peer-to-peer lender, Zhao Cai Bao.

Cash Isn't King
China's third-party online payments business has passed 3.5 trillion yuan per quarter
Source: Bloomberg

Ant, whose name refers to the small vendors that sell goods and services through Alibaba, is targeting an initial public offering this year after raising $4.5 billion in an April funding round.

It's now moving directly into banking, after starting online micro-lender MYbank last year. MYbank is arguably not in the same business as state banks, which tend to ignore the small-business customers it's targeting. Nevertheless, its issuance of 30 billion yuan of loans as of January has been enough to attract the attention of regulators. That growth may now be reeled back.

Asked specifically about Alibaba, and whether he has supervisory control over China's biggest e-commerce company, Zhou answered indirectly by saying that regulators have already given it both a payments license and a banking license. Internet lenders should "follow the existing rules," he said.

The irony of Zhou's comments is that MYbank has yet to engage in a full range of banking operations. The bank still doesn't take deposits because regulators haven't approved its plan to use facial-recognition technology to verify identities of account holders. PBOC rules also forbid it from using money sitting in escrow that flows through Alibaba's hands from e-commerce transactions.

There are two conclusions to be drawn. One, that whatever warm and fuzzy feelings Chinese officials have for technology, internet finance firms can expect free rein only until that freedom becomes unfair competition for established players. Second, that Ant might want to hurry along its IPO before the new rules arrive.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the authors of this story:
Tim Culpan in Taipei at tculpan1@bloomberg.net
Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net

To contact the editor responsible for this story:
Matthew Brooker at mbrooker1@bloomberg.net