Chinese government seeks to split Alipay in new antitrust play

It is no secret to anyone that China has for some time had its sights set on the Alibaba Group and its owner, the billionaire Jack Ma. In a recent move, Beijing is attacking the Alipay application, the Group's payment platform.

In a new control measure brought by the Chinese government against Ant Group, a subsidiary of the Alibaba Group and who manages Alipay, Beijing has ordered that the application must be divided. This in order to separate the payment processor with the segment that offers consumer loans.

In other words, Beijing wants the loan business run by the company to have an independent application and not be included within Alipay. As has been known, this is a new antitrust measure by the government.

What is Alipay?

Alipay is an application that works as a payment processor, this is one of the most important in all of China. But Alipay is much more than an application to save money and make payments, since it includes a series of financial tools.

This application was born in 2004 and it is the most important financial application in China. It was born as an alternative to traditional payment methods such as Google Pay or Apple Pay. Millions of transactions are made by it every day, it is so important that it has been classified as the Chinese PayPal.

Loans: the bone of contention

As we have already mentioned, the Chinese government wants to get rid of Alipay or at least divide the company. This is mainly because you want to get into the juicy loan business. And it is that the application in addition to serving as a means of payment, also offers loans to its users.

And this is quite a lucrative business, which is why China, based on its antitrust laws, wants to get a slice of the pie. In short, what the Chinese government wants is for Alipay to be divided into two applications, one for loans and one for processing payments.

For many people this does not seem such a serious thing, however, the demands of Beijing do not end there. In addition to this, they will require Ant, the Alibaba subsidiary that runs Alipay, to provide data on users. The goal is to create a credit rating joint venture that is, in part, state-owned.

Information is power and the Chinese government believes that this can end the monopoly of large technology companies. However, this represents a major violation of user privacy.

The stock market crash

All this war between Beijing and the Alibaba Group has caused Alipay shares to fall. This is a hard blow for the company, however, it is still unknown what the company's position will be on this issue.

What implications can separation have?

The first thing to understand is that Alipay offers non-mortgage consumer loans for its users. In fact, last year it was estimated that the company made about one-tenth of all loans in China.

This was something that alerted regulators who called this service a predatory lending practice. And we see that this is a very lucrative business when Ant Group's revenue accounted for about 39% of Alibaba Group's revenue.

The separation of both companies can lead to several scenarios, but it is quite likely that the company will end up losing a large number of users. Especially due to the regulations that force to deliver the data of its users.

In any case, we will have to wait for the company's response to know how it will handle the situation. And the coming months will determine the future that awaits Ant Group and its application, Alipay.

The precedents

This is not the first time that the Alibaba Group has had problems with the Chinese government. At the end of 2020, the company that runs Alipay, Ant Grup, tried to go public. But this action was stopped by Beijing and later fined the parent company 18.2 billion yuan. This fine was imposed under the excuse that it was abusing its dominant position in the market.