Fintech development in China has consistently experienced tremendous scale in the last two decades, with the growth of apps like AliPay and WeChat Pay highlighting this growth. However, a new obstacle for growth has recently come to light in 2021, with draft antitrust measures from the People’s Bank of China (PBOC) targeting Ant Group and Tencent. This new emphasis to regulate fintech growth under the realm of antitrust and anti-monopoly regulations will drastically affect China’s fintech ecosystem and set it up for future exclusive government control. Why now? Ant Group’s cautionary tale Baidu, Alibaba, and Tencent, also known by the acronym BAT, have been in China’s digital ecosystem since their respective inceptions. Baidu is China’s biggest search engine with roughly 70% of overall market share, while Alibaba revolutionized how the retail industry conducts business in China. Tencent’s status as one of the world’s biggest gaming companies and parent organization to super-app WeChat marks it as another one of China’s largest technology companies. dominant players As a result of increasing digital preeminence by private companies, the Chinese government has begun a systematic campaign to reduce public reliance on such organizations, with the implied goal of reverting control of the digital economy back to the PRC. This is especially true given the increasing pace of development towards the digital yuan. One way that such initiatives have taken form have been through the crushing of fintech giant Ant Group’s proposed initial public offering (IPO) in November 2020. in implied battles over consumers and regulatory controversies in taking the place of central Chinese banks, Ant Group has been an immense force to be reckoned with by the Chinese government. Ant Group’s status as a premier fintech organization has disrupted previously state-planned financial systems, with Ant Group’s immense appeal resulting in wide adoption by Chinese citizens. These tensions came to a head in , when Jack Ma made comments calling China’s biggest risk the fact that its “lacks a financial ecosystem,” while calling Chinese banks “pawn shops.” Long engaged October 2020 This targeted campaign against Alibaba-affiliate Ant Group continued through an antitrust investigation into Alibaba in , with the Chinese government fining Alibaba $2.8 billion dollars as a result of this investigation in . December 2020 April 2021 The example of Ant Group’s fall from grace highlights the continuing power that the Chinese government continues to have in the 21st century. Despite being at the forefront of innovation for the past several decades, private technology giants are now facing increasing scrutiny, perhaps due to the government’s wish to increasingly maintain control over the Chinese banking and finance industry. Effects on China’s fintech ecosystem On the face of it, antitrust and anti-monopoly regulations are crucial for continued growth and development within any industry, especially by allowing opportunities for market entry by small-medium enterprises (SMEs). However, the reliance on private BAT ecosystems within the Chinese fintech market has much farther-reaching implications than just SME entrance into the fintech industry. By regulating the incumbent players, the Chinese government is attempting to increase strict controls on what happens within the fintech ecosystem, stifling growth in the long-term by suppressing innovation, preventing technology use, and scaring away potential startup founders and investors. By increasing regulatory controls, the Chinese government is effectively suppressing innovation and driving startups away from participating in the Chinese fintech industry. Having the ability to stifle so easily what had been called the “ ” does not bode well for startups attempting to make their mark within China. Therefore, founders and innovators within the fintech space will be more incentivized to grow their organizations abroad, with the potential of opportunity without restrictions being much greater internationally. world’s largest IPO Furthermore, the use of belonging to BAT, to include ecommerce platforms, payments capabilities, and digital advertisements, is also affected by antitrust and anti-monopoly regulations. Preventing the use of specific BAT technologies prevents founders from building upon such systems for growth, affecting supply chain, partnerships, and even consumer banking protocols. nuanced, stable, and widespread systems Lastly, the around the same time sends a threatening message to private fintech founders and investors. The implied threat of being able to whisk away such a high-profile individual is one that is simply not conducive to disruptive fintech growth, driving innovation and adoption elsewhere. disappearance of Jack Ma The digital yuan The growth of the digital yuan also plays a significant role in the recent government campaign against BAT. This centralized currency, also known as China’s digital currency electronic payment (DCEP) system, was originally slated for sole distribution through Alibaba, Tencent, and five other companies in . Cooperation between private companies and the PBOC specifically on the digital yuan extended into , with initial testing being conducted on private digital platforms. 2019 mid-2020 However, as the digital yuan nears completion and full implementation, the need for the PRC to centralize its control over China’s banking and fintech industry is becoming increasingly apparent. Without such control, the PRC will be heavily dependent on private enterprises for controlling and distributing the digital yuan. Therefore, the recent measures taken against BAT are indicative of the digital yuan’s future as the premiere digital payments method within China, further affecting China’s fintech industry. Conclusion The recent crackdown against China’s largest technology companies does not bode well for the domestic fintech ecosystem. With the example of Ant Group’s failed IPO in recent memory, founders and innovators will be hesitant to participate within the Chinese fintech industry considering increasing governmental regulations, disuse of well-established BAT systems, as well as implied harm if full cooperation is not always given to the central government. It will be interesting to see how the digital yuan’s formal introduction to the domestic economy will fare; will China’s largest technology companies face similar scrutiny if the digital yuan becomes the most widely used form of digital payments?

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China's Repeated Takedowns of Its Own Tech Elites Paints A Worrying Forecast For All of FinTech

China's Repeated Takedowns of Its Own Tech Elites Paints A Worrying Forecast For All of FinTech

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