What happened
Last week, Chinese regulators hit Alibaba with a record 2.8 billion antitrust fine, and now, are calling for a major overhaul at Ant Financial.
According to Bloomberg, Beijing is forcing Ant Financial to become a financial holding company, allowing it to be regulated more like a bank. The operations overhaul comes after Ant’s largest-ever initial public offering was abruptly suspended last November.
Regulators ordered Ant to rectify unfair competition in its payments business, end a monopoly of information, improve corporate governance, and manage liquidity risks. Moreover, the fintech giant is also obliged to cut the outstanding value of its money-market fund, Yu’ebao.
The Jing Take
Bloomberg highlights how “there’s little clarity over how investors will now judge the firm.” And we anticipate that the latest trends will enhance uncertainty in the market and hurt public confidence in the Alibaba brand, which will force investors to proceed with caution. However, due to these developments, seasoned investors will see an opportunity to acquire Alibaba stock at a relatively cheap valuation. According to Alibaba's 2021 third-quarter fiscal earnings, its adjusted earnings rose to 3.38 a share, while revenue reached 33.9 billion (221.1 billion RMB), which was a jump of 37 percent over the prior-year quarter.
But the restructuring of Ant will also affect luxury. China's mobile wallet industry is now dominated by Alipay and Tencent’s WeChat Pay, with data from iResearch showing that, as of June 20, 2020, Alipay held 57 percent of the mobile payments market.
Ant Financial is also winning abroad. Riding the wave of change in the European tourism industry through a deliberate strategy that focuses on high-spending Chinese tourists, Ant Financial has expanded rapidly across Europe.
In the long run, luxury brands need Alipay to reach Chinese consumers. And now, with retail collapsing and the luxury sector in dire need of capital and revitalization, that need is even greater with the Old Continent becoming “more Chinese than ever.”
The Jing Take reports on a piece of the leading news and presents our editorial team’s analysis of the key implications for the luxury industry. In the recurring column, we analyze everything from product drops and mergers to heated debate sprouting on Chinese social media.