China's Banks Try to Curtail Alibaba's Online Lending Ambitions

Photographer: Andrew Harrer/Bloomberg

Photographer: Andrew Harrer/Bloomberg

Banks in China aren't going to make it easy for Internet upstarts like Alibaba Group Holding to break into financial lending. After fruitless attempts by the e-commerce giant to court China's biggest lenders, the traditional banks say they're now planning to expand their own online banking operations before Alibaba can get a foothold in the market.

China Construction Bank tried to set up a pure Internet bank with Alibaba about five years ago, even finalizing a name and shareholder structure, Zhang Jianguo, CCB's president, said at an analyst conference in Hong Kong on Aug. 26. That venture failed to bear fruit, he said. Beijing-based CCB didn't immediately respond to an e-mailed query about the status of the Internet bank and why it failed to take off.

Now, as Alibaba steps up its finance activities, Zhang said the banks "won't just sit back."

Four days after CCB's meeting, Jiang Jianqing, the chairman of Industrial and Commercial Bank of China, said at an analyst briefing that the banks are consolidating and utilizing data in their competition with Internet companies. Wang Zhenning, a spokesman for Beijing-based ICBC, declined to comment on Jiang's main points and what new developments the bank is pushing.

"Through collecting transaction data on its platforms, some e-commerce companies want to use this as a foundation to extend their businesses to banks' payment and financing services," said Jiang. "Like 18 years ago, banks will arise."

Alibaba founder Jack Ma has pledged to "stir things up" for lenders, a commentary in line with his high profile character.

That the banks are firing back with rhetoric of their own is an unusual tactic for the nation's normally low-profile finance sector, said Jim Antos, a Hong Kong-based analyst at Mizuho Securities Asia. "What they seem to imply is Jack Ma is a mosquito," he said.

Alibaba’s spokeswoman Florence Shih declined to comment about the status quo of the Internet bank with CCB and the comments made by the banks.

Ma is starting to suck some of the lifeblood from China's finance industry. Since Alibaba started its microloans business three years ago, the company said in July that it has extended more than 100 billion yuan ($16.3 billion) of financing to more than 320,000 small online businesses and entrepreneurs. The Chinese Securities Regulatory Commission also approved the sale of as much as 5 billion yuan of notes backed by loans from Alibaba, according to a July 8 filing.

Alibaba's expansion in financial services online has convinced a lot of people there is potential to make money, and traditional banks want some of the action, said Ricky Lai, an analyst at Guotai Junan International Holdings in Hong Kong. Last month Alipay, the finance affiliate of Alibaba, turned off its point-of-sale devices in retail outlets amid tension with China UnionPay, which is backed by the Chinese lenders.

"Alipay and China UnionPay are in direct competition," said Lai. "Alibaba's expansion in financial services online could be very profitable, and the traditional banks would like to join in."

Online lending is taking off even as restrictions on bank credit spurred property developers and entrepreneurs to seek funds from curbside lenders. Chinese regulators have been looking to reduce so-called shadow banking by forcing more products to be publicly traded and by squeezing access to funding with a record cash crunch.

Premier Li Keqiang triggered higher funding costs for banks this year with a crackdown on off-balance-sheet lending. The move was aimed at containing risks from an unprecedented credit boom.

"You have these massive, entrenched entities, which are the state-owned banks; you could see some share rise with some of these smaller players, but right now, the regulatory environment isn't in their favor," said Mike Werner, a Hong Kong-based analyst at Sanford C. Bernstein. "The banks want to make sure they're ahead of the game to deal with any potential reform."

-- With assistance from Jun Luo in Shanghai and Rob Fenner in Melbourne

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