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China Warns Large Tech Firms as Industry Faces Rising Oversight – The Wall Street Journal

China is reining in the ability of the country’s internet giants to use big data for lending, money-management and similar businesses, ending an era of rapid growth that authorities said posed dangers for the financial system.

On Thursday, China’s central bank and other regulators ordered 13 firms, including many of the biggest names in the technology sector, to adhere to much tighter regulation of their data and lending practices.

Their aim, say analysts, is to curb a revolutionary business model that let China’s Big Tech develop and use powerful payment apps and other information about hundreds of millions of users.

Among the firms required to conduct the restructuring are technology conglomerate Tencent Holdings Ltd. , which owns the popular social-media app WeChat; ByteDance Ltd., owner of the short-video app TikTok; and the financial arms of food-delivery giant Meituan, ride-sharing provider Didi Chuxing Technology Co. and e-commerce firm JD.com Inc.

Spokespeople for Tencent, Meituan, Didi and JD.com didn’t immediately respond to requests for comment. ByteDance declined to comment. An article published by the official Xinhua News Agency late Thursday said all 13 of the firms had agreed to rectify their business practices as required.

The move is the latest in a wider effort by China’s ruling Communist Party to shake up the so-called platform economy, or internet-based businesses that over the past decade have grown into colossuses with relatively light regulatory oversight.

In less than six months, Chinese entrepreneur Jack Ma’s Ant IPO, which could have been the world’s largest, was scuttled and his companies brought in line by regulators. The U.S. is also taking aim at big tech, but here’s how China moves faster. Photo illustration: Sharon Shi

Last year, President Xi Jinping personally stepped in to block an attempt by the founder of online marketplace Alibaba, billionaire Jack Ma, to do an initial public offering of his financial-technology company, Ant Group.

Some Chinese officials said Mr. Ma’s plans exposed what they said were deep-rooted problems that could jeopardize the country’s financial security.

The crackdown comes as China’s leaders make greater demands for its tech entrepreneurs to be aligned with the state’s goals and priorities.

These internet giants—armed with troves of data, deep coffers and an influence that spans all aspects of Chinese life—have increasingly made them a national-security concern for Beijing.

A statement released by the People’s Bank of China Thursday listed a number of “widespread problems” among the tech firms, including offering banking and other financial services without license, inadequate corporate governance and engaging in unfair competition. All 13 of the firms must “conduct comprehensive self-examination and rectification” of their businesses based on laws and regulations, it says.

Until the action Thursday, Beijing had focused their fintech scrutiny on Mr. Ma’s Ant. About two weeks ago, financial regulators ordered Ant to revamp its business as a financial holding firm subject to the same kind of regulations as banks, hoping that its required restructuring could serve as a warning for other tech firms.

More on China’s Scrutiny of Tech Firms

In the regulators’ opinion, the kind of business model championed by Ant both endangers data security and adds significant risks to a financial system already struggling with rising debt levels. That is in part because much of the risk of borrowers defaulting has been transferred to commercial banks that partner up with these tech firms, which provide little of their own money to fund loans but pocket handsome profits as the middlemen between the banks and borrowers.

Even after the Ant restructuring order, an article published by the official Xinhua News Agency said, “Some internet financial platform firms with similar problems hold a wait-and-see attitude and lack of consciousness to carry out rectification.”

The regulators, spearheaded by Vice Premier Liu He, Mr. Xi’s economic captain, also want to subject all the big tech firms involved in financing to greater capital and reserve requirements as well as data regulations.

At the core of the fintech clampdown is their payment businesses, which have powered Chinese Big Tech’s forays into finance and have emerged as stiff competitors to state banks, which traditionally processed payments.

WeChat, Tencent’s ubiquitous messaging platform, has more than 1 billion users, many of whom use its popular payments service, WeChat Pay. According to S&P Global Market Intelligence, 95% of Chinese internet users surveyed last year said they use WeChat Pay, the same as Ant’s equally popular Alipay.

Online retailer JD.com sells some wealth-management products and makes consumer loans, while ride-hailing company Didi and other technology firms have ventured into unsecured lending and other financial services.

Under the guidelines regulators released Thursday, the tech firms must “disconnect the improper connection between payment tools and other financial products.” The vague language indicates that the ability for the firms to channel funds from their payment apps into lending and money-management activities would be severely curtailed.

Regulators also want to limit the use of the payment apps by the corporate sector, which could significantly hurt the growth of the tech firms’ payment business. In addition, by trying to break what the central-bank statement calls control over data, the People’s Bank of China signaled its intention to get the tech giants to share their troves of consumer-credit data.

The regulators believe that the firms’ control over such data give them an unfair competitive advantage over small lenders or even big banks through swaths of personal information harnessed from their payment apps. Alipay, for instance, is used by more than 1 billion people and has voluminous data on consumers’ spending habits, borrowing behaviors and bill- and loan-payment histories.

“We’re seeing the beginning of what could be a fundamental shift in the model for fintech in China,” said Martin Chorzempa, a research fellow at the Peterson Institute for International Economics who specializes in China’s economy. “This seems to be an attempt to reverse course entirely from the China super app model that has proven so revolutionary.”

Write to Lingling Wei at [email protected] and Stephanie Yang at [email protected]

Corrections & Amplifications
An earlier version of this article misspelled reporter Stephanie Yang’s last name as Wang.

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