China clamps down on finance arms of Ant, other giants

Ant has emerged as a consumer loan leader in recent years with the help of an array of banks. The firm also operates payments systems, owns a stake in an online bank, and runs insurance and wealth management units.

In anticipation of tighter rules, Ant plans to apply for a financial holding license through its Zhejiang Finance Credit Network Technology Co. unit, according to the prospectus for its initial public offering released last month. Ant is considering putting certain financial entities into the arm to help reduce the potential capital needed under the proposed rules, people familiar with the matter said last year.

In its 2018 financial stability report, the central bank warned that the work of regulating was becoming increasingly complex, with firms rapidly expanding in the financial sector through cross border alliances and intricate corporate structures, tied together by connected transactions and investments in existing financial institutions.

At the end of 2016, about 70 central government-owned enterprises had a total of over 150 financial subsidiaries. Another 28 private firms each had stakes in at least five financial units.

HNA, the indebted airline-turned-global takeover hunter, has sold off tens of billions of dollars in assets since 2018, including stakes in Hilton Worldwide Holdings and Deutsche Bank. Earlier this year, Chinese authorities announced the government would take control of the group, likely paving the way for speedy asset disposals to help repay about $75 billion of debt.

Evergrande, a real estate developer controlled by billionaire Hui Ka Yan, spent heavily on other financial assets before slowing down in 2018. It owns Shengjing Bank Co., a lender in China’s northeast province of Liaoning, as well as a mid-sized insurance company.

Another conglomerate that could be subject to the new regulations is Fosun, controlled by billionaire Guo Guangchang. Its operations span insurance, banking, retail, tourism and pharmaceuticals. Fosun has also spent billions acquiring assets including French fashion brands, Portugal’s largest insurer and European soccer clubs.

The new rules will blacklist certain individuals from becoming major or controlling shareholders in financial holding firms, such as people who falsified capital injections or undertook illegal activities at financial entities. Such firms must have simplified and transparent ownership structure compatible with its scale and risk management capabilities, according to the PBOC.

Beijing in July seized control of nine financial firms that are linked to Tomorrow Group, the investment conglomerate owned by financier Xiao Jianhua. Mr. Xiao was taken from a hotel in Hong Kong by Chinese authorities in 2017 and hasn’t been seen in public since.

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