Tencent Faces Broad China Clampdown on Fintech, Deals

Pony Ma’s Tencent Holdings Ltd. has been put on notice.

Asia’s largest conglomerate was censured by China’s antitrust watchdog on Friday as Beijing expands a crackdown that began with Jack Ma’s online empire.

The token fine is just the beginning. China’s top financial regulators see Tencent as the next target for increased supervision after the clamp down on Jack Ma’s Ant Group Co., according to people with knowledge of their thinking. Like Ant, Tencent will probably be required to establish a financial holding company to include its banking, insurance and payments services, said one of the people, seeking anonymity as the discussions are private.

The two firms will set a precedent for other fintech players on complying with tougher regulations, the people added.

Such a move would mark a significant escalation in China’s campaign to curb the influence of its technology moguls, days after Premier Li Keqiang pledged at the National People’s Congress to expand oversight of financial technology, stamp out monopolies, and prevent the “unregulated” expansion of capital.

“We will continue to adapt to changes in the regulatory environment, which we view as beneficial to the industry, and will seek to ensure full compliance,” Tencent said in an emailed statement following the fine by the antitrust watchdog. The company declined to comment on financial regulatory matters.

The China Banking and Insurance Regulatory Commission didn’t immediately respond to a request seeking comment.

A progression of rules unveiled in the past six months has taken aim at the dominions built by China’s most successful online entrepreneurs. The first blows fell on Jack Ma when Ant’s $35 billion initial public offering was torpedoed at the last minute, followed by an antitrust probe into Alibaba Group Holding Ltd.

Tencent has already seen collateral damage from the new regulations, though investors had shrugged this off, pumping up the stock even as Alibaba was punished. Its 26% advance over six months contrasts with a 15% slump for Jack Ma’s e-commerce behemoth, which owns a third of Ant. Shares of Tencent climbed to a record on Jan. 25, valuing it at roughly $950 billion.

The stock fell 4.4% in Hong Kong Friday. Shares of Tencent investor Naspers and its unit Prosus also declined. Spreads on Tencent’s 2.39% dollar bond due 2030 widened 9 basis points, while notes issued by fellow Chinese tech giants including Meituan and JD.com Inc. also weakened, according to traders.

Along with Ant, proposed rules to break up market concentration in digital payments and rein in consumer lending online will damage prospects for Tencent’s WeChat Pay and its wider fintech business.

A diktat to fold those operations into a holding company that could be regulated more like a bank would potentially further curb its ability to lend more and expand as rapidly as it has done in recent years.

Tencent’s fintech business had revenue of about 84 billion yuan ($13 billion) in 2019, accounting for 22% of the total and making it the largest earnings driver after online entertainment. That’s about 70% of Ant’s revenue for the year.

– Bloomberg

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