Ant: Digital yuan poses significant risks to payments business

National economic activity can easily crowd out the private. Alibaba investors should therefore be wary of China’s enthusiasm for the digital yuan. This central bank digital currency poses a threat to Alipay, the payments business of Alibaba affiliate Ant Group.

That should ease some of the heat in Alibaba’s rally. Shares rose about 9% after regulators approved his 10.5 billion yuan ($1.5 billion) funding for Ant’s separate consumer arm.

The recapitalization will allow the business to pursue lucrative online lending growth. ant Investments were forced to postpone after the government quashed plans for a 2020 initial public offering.

More broadly, investors hope the government crackdown on the tech sector is over. Other big tech stocks have also rallied. China’s battered economy desperately needs a boost. Authorities have approved a large batch of previously restricted blockbuster games for companies such as Tencent.

But there are reasons to be cautious. The plan will make Hangzhou the second largest shareholder of the main Ant division. Consumer financial data, which gives Ant an edge, could more easily reach governments. Consumer businesses may be heavily regulated as state-owned traditional lenders, as opposed to tech groups.

Investors should remember the original reason for the Ant crackdown. Beijing wanted to curb the power of technology platforms, especially in digital payments. Alipay, his wholly owned payment service of Ant Group, operates the largest payment network in China.

After authorities crushed Ant’s listing, the central bank of China took advantage of the technology disruption to test digital renminbi payments via digital wallet apps, most notably Alipay. Those pilot studies were successful. As deployments grow, private payment groups may be reduced to providers of the plumbing of the financial system, where payments are closely monitored and controlled by governments.

Alibaba’s stock has risen multiple times over the past year, each time there were signs of a settlement with Beijing in favor of Alibaba. The rally was short-lived. Ant’s government participation in consumer finance signals that the authorities will continue to crack down on fintech in China, not the other way around.

The Lex team would love to hear more from our readers. Let us know what you think about the digital yuan in the comments section below. Ant: Digital yuan poses significant risks to payments business

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