Detailed breakdown of PBoC deputy governor's Q&A on Ant Group - too technical to be persecution

This may turn out to temper uncertainties surrounding Jack Ma's financial empire

By now, everyone knows Jack Ma’s Ant Group is in big trouble with the Chinese authorities. But the question on everyone’s mind, especially those on China watchers’ minds is: what exact trouble is Ant Group in?

Put more bluntly: is Ant Group facing a technical matter, albeit on a vast scale, that can be remedied, or is Beijing trying to break it? More broadly, is the regulatory storm over Ant Group a harbinger of what’s about to come for China’s private companies?

On Saturday, Dec. 26, the authorities conducted a formal interview with Ant Group. On Sunday, China’s central bank published a Q&A (CHN) attributed to its deputy governor Pan Gongsheng, shedding light on the interview and, in effect, sending signals from Beijing.

Also on Sunday, it was widely reported, through a proper Zhejiang proinvincial official media outlet, that China’s national anti-trust regulator concluded the on-site part of its anti-monopoly investigation into Ant Group in one single day, according to an unnamed official with Zhejiang provincial anti-trust regulator which aided the national team (CHN).

The take: Ant Group will undergo painful, complicated and structrual changes to meet the requirements, but Beijing’s first detailed presentation of its scrutiny so far smells too detailed and regulatory to be a doomsday scenario for Ant Group. Pan’s words do not mention breaking up Ant Group or imply putting violators in prison, but point to rectification and restructuring. There are both explicit and coded messages seemingly to assure private companies.

This very lengthy newsletter will provide a full translation of Pan’s Q&A with A LOT OF background and notes from your Pekingnologist, all based on open-source information, not only to show the reasoning behind the take, but also to present the big picture - the detailed, technical violations that regulators accuse Ant Group guilty of.

Your Pekingnologist is glad to note his judgment appears confirmed by the tone of Sunday’s reporting from Caixin, China’s leading financial news outlet which he holds in high regard:


Judging from the two events - the central bank's Q&A, and that the State Administration of Market Regulation's investigation (into Ant) has concluded - the uncertainty from the regulatory storm surrounding Alibaba and Ant Group has been largely (been) eliminated. Related rectification measures in financial regulation are in line with the more rational expectations and analysis of the market.

It’s also noteworthy that state media’s commentary emphasizes the market-oriented nature of the anti-trust investigation by the State Administration of Market Regulation, as a widely-circulated commentary published by the People’s Daily online read:


The filing of this investigation does not mean that the state's attitude of encouraging and supporting the platform economy has changed, but precisely to better regulate and develop the platform economy, guide and promote its healthy development, with a view to making a greater contribution to the high-quality development of China's economy. It is believed that by strengthening anti-monopoly regulation, obstacles affecting the healthy development of the platform economy can be eliminated, and the platform economy will also usher in a better development environment.


The Q&A begins



On December 26, 2020, four financial regulators - the People's Bank of China, the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission, the State Administration of Foreign Exchange - jointly interviewed Ant Group. Pan Gongsheng, vice governor of the People's Bank of China, answered reporters' questions on behalf of the four regulators about the interview.


1) Despite Ant Group’s self-identification as open financial technology platform or innovative tech company, the “tech” side regulators are not here. Also, there are no other public reports of “tech” side regulators’ involvement so far.

2) The govt authorities here are solely Chinese financial regulators, widely regarded as the more competent, professional and international parts of China’s state apparatus. The central bank is likely the leading regulator in this case, and Pan is likely the point person.

3) There are usually big differences in market valuations for financials and techs. And fintechs always want to present themselves as techs rather than financials. Ant Group of course has enormous, highly lucrative tech, but the regulatory emphasis suggests its bankers would have to rewrie the narrative of the world’s biggest fintech giant (Tim Culpan, Bloomberg Opinion).


Question & Answer No. 1



Q: What is the background of this interview?

A: The Communist Party of China Central Committee attaches great importance to the compliant and healthy development of financial technology and platform companies. The recent Politburo meeting and the Central Economic Work Conference made a series of important arrangements on strengthening anti-monopoly and preventing the disorderly expansion of capital, putting forward clear requirements for related proper financial regulation. The financial regulators will take that as the fundamental guideline, supervise financial market entities in accordance with the law, seriously investigate and deal with business conducts that break laws and regulations, beef up restraints on the disorderly expansion of capital, and safeguard fair competition and the order of the financial market.


1) This is exactly the sort of “lede” that sits at the beginning of an official speech or document, making clear where a particular course of action originated and why it is totally legitimate and necessary.

2) Financial market entities traditionally refers to banks, insurance companies, securities firms, etc. But here we are - with Ant Group across the table with financial regulators.

3) The recent Politburo meeting and the Central Economic Work Conference are cited, and this newsletter was among the first and loudest to spot and highlight the message. See Politburo meeting calls for "reinforcing anti-monopoly and prevent capital from expanding in a disorderly fashion" on Dec. 11 and Comprehensive review of the Central Economic Work Conference readout on Dec. 18.

A: 蚂蚁集团成立以来,在发展金融科技、提高金融服务效率和普惠性方面发挥了创新作用。作为金融科技和平台经济领域具有重大影响力的企业,蚂蚁集团必须自觉遵守国家法律法规,必须将企业发展融入到国家发展大局中,必须切实承担企业社会责任。

A: Since its establishment, Ant Group has played an innovative role in developing financial technology and improving the efficiency and accessibility of financial services. As a company with significant influence in the field of financial technology and platform economy, Ant Group must consciously comply with national laws and regulations, integrate its corporate development into the overall national development, and solidly assume corporate social responsibility.


1) The first sentence gives a nod to the good that Ant Group has done.

2) The second sentence positions Ant Group as with significant influence, short of the “systematically important” tag that’s used on major financial institutions, but may still carry implications: with significant influence, Ant Group must lead - or be made to lead, as the case now - an example in compliance with regulations.

3) Calling on persons and companies to integrate themselves into some big picture may sound peculiar or even aggressive to foreign ears, but it’s a cliche in China - don’t read too much into it. Children are taught from elementary school to integrate - or combine - their personal objectives with the nation’s development. It should not be read as a call for nationalizaton.

4) The last sentence, solidly assume corporate social responsibility, likely is a reiteration of compliance with rules. Your Pekingnologist has long observed that the meaning of corporate social responsibility in the Chinese mainland context is a bit narrower than in the English-language context, where a philanthropic, activist, or charitable role is emphasized. But in China, such a phrase usually means along the lines of abiding by laws and regulations, treating employees fairly and not firing them en masse, not polluting the environment, etc. - the sort of basic code of conduct.

A: 此次金融管理部门约谈蚂蚁集团,主要目的是督促指导蚂蚁集团深入贯彻党中央、国务院有关精神,按照市场化、法治化原则,落实金融监管、公平竞争和保护消费者合法权益等要求,进一步规范金融业务经营与发展。

A: The main purpose of the financial regulators’ interview with Ant Group is to urge and guide Ant Group to thoroughly implement the relevant spirits of the Party Central Committee and the State Council, implement the requirements of financial regulation, fair competition, and protection of the legitimate rights and interests of consumers in accordance with the principles of the market economy and rule of law, and operate and develop its financial business in an orderly fashion.


1) The stated aim of the interview is to call Ant Group to comply with regulations: here is where you’ve broken the rules and what you have to do to get it right. It did NOT mention anything like punishing it.

2) The last sentence operate and develop its financial business in an orderly fashion sounds quite neutral and even constructive.

3) The words the principles of the market economy and rule of law, likely mean everything will be within that kind of framework, NOT unilateral or judicial measures.


Question & Answer No. 2 (the most technical and lenghty part)



Q: What is the main content of the interview?

A: According to financial laws and regulations and regulatory requirements, the regulators pointed out the main problems in Ant Group's current operation: unsound corporate governance mechanism; scant awareness of the law, defiance of regulatory compliance requirements, and arbitrage via rule-breaking of regulations; abuse of dominant market position to exclude peer operators; and damage to the legitimate rights and interests of consumers, triggering consumer complaints.


1) Unsound corporate governance mechanism may refer to the highly complex business lines and their links and interactions with one another within Ant Group’s current structure.

2) scant awareness of the law, scornful defiance of regulatory compliance requirements, and engaging in regulatory arbitrage via rule-breaking are very strong words - accusing a company which was on the verge of securing the world’s largest IPO of scant awareness of the law. Scornful defiance is also very strong, suggesting the regulators believe Ant was not only in defiance, but also in contempt of regulations - and regulators.

On regulatory arbitrage, here is a commentary published in November under a pen name by an official or expert apparently associated with the central bank and with its approval:


Under the traditional framework, financial products and services tend to have clear boundaries, "firewalls" between them and relatively clear regulatory requirements, but the intervention of large Internet enterprises and the use of technology have considerably changed the structure, function and nature of some financial products and services, blurring the boundaries and the nature of these products and services and providing the possibility for regulatory arbitrage. For example, large Internet enterprises provide financial services such as maturity conversion and credit conversion, but are not required to meet the regulatory requirements faced by banks such as capital adequacy, asset-liability ratio, and information disclosure.

This may be a result of reading the tea leaves too much: there is one catch in Pan’s answer: 违规 rule-breaking.

There are different words to describe laws, regulations, and rules in the Chinese language. Generally speaking, behavior that is described as 违法/violate laws is more serious than described as 违规/violate rules (规 is a more general, vague and softer term, and its translations may vary in different contexts, your Pekingnologist decides to go with “rules” here).

More serious than 违法/violate laws is 犯罪/commit crimes, as Chinese laws divide law-breaking to two categories - only those very serious law-breakings are considered 罪/crimes, while lighter violations, e.g. prostitution, is not a crime.

So, out of all the terms, the official choice of word so far isn’t even 违法/violate laws, let alone 犯罪/commit crimes. The term here is the more general, vague and softer term: 违规/violate rules.

The choice of the word may suggest it’s unlikely that some people at Ant Group would end up in prision.

3) abuse of dominant market position to exclude peer operators and damage to the legitimate rights and interests of consumers, triggering consumer complaints

This has been well-documented (though Ant Group probably had some disputes) and easy to understand, so nothing to add.

A: 金融管理部门对蚂蚁集团提出了重点业务领域的整改要求:一是回归支付本源,提升交易透明度,严禁不正当竞争。

A: The financial regulators put forward rectification requirements for Ant Group in key business areas: First, return to its origin of payment business, enhance the transparency of transactions, and strictly prohibit unfair competition.

NOTES: How does regulator view Ant Group’s origin? Here is another commentary published under a pen name by an official or expert apparently associated with the central bank and with its approval in early November:


For the Ant Group, which is currently the most "innovative", its basic business model is still payments (Alipay), deposit taking (customers funds deposited by MYBank and Alipay in history), loan issuing (MYBank, two microlending companies, credit card-like business such as Huabei and Jiebei), money market fund (Tianhong Fund's Yu’ebao), distribution of financial products (money market fund and other asset management products, distributed through Alipay's connection to Yu’ebao), and the insurance business (Mutual Trust Life, Ant Insurance Agency, and Xiang Hu Bao which is highly similar to insurance), and so on. The only thing is that Alipay, a non-bank payment institution, has deviated from its main business of payment and expanded into a comprehensive financial services platform, making the Ant Group essentially cross-border in non-financial, financial, financial-like and financial infrastructure businesses, making it the most mixed (financial) institution in the world.

However, taken together with other parts of Pan’s answer, this probably does NOT mean Ant Group’s businesses other than payment will be broken up, given Ant Group is repeatedly prodded to mend - not shed - its businesses.

Enhance the transparency of transactions may refer to the exccedingly complex and integrated nature of Ant Group’s business, where the regulators find difficulties to see through.

Strictly prohibit unfair competition may be an umbrella reference to Ant Group’s various tactics, like leveraging its huge size to sideline competitors or bully partners.

A: 二是依法持牌、合法合规经营个人征信业务,保护个人数据隐私。

A: Second, operate personal credit rating business with a legal license and compliant with laws and regulations, and protect the privacy of personal data.


1) Perhaps unknown to many, Zhima/Sesame Credit, Ant’s flagship credit rating business, does NOT have a personal credit rating license, but only a license for corporate credit rating. And the company has since insisted that it has withdrawn from the personal credit rating business (CHN), as early as 2018.

But the reality is the public profile of Zhima/Sesame Credit has steadily grown so high that many people take it as a dominant entity in conferring credit ratings to individual citizens. Its service is so ubiquitous that foreign press routinely conflates a Zhima/Sesame Credit score with a (non-existent) Chinese govt-mandated social credit score of its citizens.

2) On the privacy of personal data, Chinese regulators aworry Ant Group could unfairly exploit its vast treasure of personal data, with an official or expert apparently associated with the central bank and with its approval writing on Oct. 31:


Fintech companies over-collect customer data, may violate customer privacy ...... If Google, Microsoft and Amazon could use personal information at will for financial business, these institutions would also have become the largest lenders in the financial market long ago. The reality is that developed countries have strict controls on the use of users' personal information for commercial banking.

Another official or expert apparently associated with the central bank and with its approval also wrote around the same time:


The risk of data leakage and infringement of rights. Large Internet companies engaging in financial business translates to the centralized collection and exposure of various financial and non-financial information of consumers. Large Internet companies not only have consumers' social, shopping, and web browsing information, but also their accounts, payments, history of depositing and withdrawing money, financial asset holdings, and transaction information, and can even closely associate all those information with consumers’ biological information through facial recognition, health monitoring, and other means. Once the data is leaked due to improper storage or cyberattacks, a little analysis can lead to accurate customer “portraits,” resulting in a large number of customer privacy leaks, which in turn can cause significant property losses and personal safety risks. At the same time, big data, artificial intelligence and other technologies can easily lead to "algorithmic discrimination", seriously damaging the interests of special groups.

A: 三是依法设立金融控股公司,严格落实监管要求,确保资本充足、关联交易合规。

A: Third, establish a financial holding company in accordance with the law, strictly implement regulatory requirements, and ensure compliance in capital adequacy and affiliated transactions.


1) China’s State Council in September requires (ENG, Xinhua) non-financial companies or other eligible entities, which control at least two financial institutions doing business across financial sectors, to apply to and get approval from the central bank to establish financial holding companies. Those meeting the conditions before the decision takes effect should submit the application to the central bank within 12 months, starting from its implementation on Nov. 1, 2020. Now publicly called out, Ant Group will have to do it.

2) On capital adequacy, here is again the view from an official/expert apparently associated with the central bank and with its nod:


For Big Tech companies, if they are involved in deposit and loan businesses similar to banks, regulatory requirements such as reserves, capital, leverage, and liquidity must be in place for similar businesses, to maintain regulatory consistency.

3) On Affiliated transactions, it possibly refers to one of the securities regulators’ concerns in Ant Group’s now-suspended listing on Shanghai’s STAR Board. Questions were raised on Ant Group’s regular transactions with Alibaba and MYBank, two affiliated entities. (CHN, Shanghai Securities Newspaper)

A: 四是完善公司治理,按审慎监管要求严格整改违规信贷、保险、理财等金融活动。

A: Fourth, improve corporate governance, and strictly rectify rule-breakings in loans, insurance, wealth management, and other financial activities in accordance with prudential supervision requirements.


1) Rule-breakings in loans may refer to inadequate capital - Ant Group’s online micro-lending is undercapitalized under China’s new rules, and the financial giant has too little skin in the game (Bloomberg), which creates moral hazard. Or it has been too generous in lending to consumers - lately, Ant Group’s consumer credit service of Huabei, which means “just spend,” slashes credit limits for some younger borrowers. (WSJ)

2) In insurance, the rule breaking may refer to Ant Group’s Xiang Hu Bao (meaning mutual protection) business, which is judged by regulators as highly similar to insurance but does not have a license. In fact, just in September, a research article published by China Banking and Insurance Regulatory Commission (CHN, CBIRC) named Xiang Hu Bao as an illegal insurance business.

3) 理财 Wealth management in the Chinese context is a very broad term. Buying money market fund is regarded as a way to manage wealth, buying mutual funds to invest in the stock market counts, and buying a bond fund also counts. All of them - and some others - can be done on Ant Group’s hugely-popular Alipay app. So the wealth management may be an umbrella term referring to all the activities enabled by Ant Group.


A: Fifth, carry out securities investment fund business in compliance with the law, strengthen the governance of securities-type institutions, and carry out ABS (Asset-Backed Securities) business in compliance.


1) Securities investment funds largely refers to what is called mutual funds in the U.S. Prior to Ant Group’s scuttled IPO, questions were raised with the mutual funds that raised money on Ant Group’s platform, from its clients, to underwrite its shares (FT).

2) Your Pekingnologist fails to figure out what governance of securities-type institutions mean here. The best he could do is: these institutions usually refer to mutual funds and other entities that are vehicles of investment to securities.

3) Ant Group has been aggressively packaging existing micro loans into ABS (Asset-Backed Securities) to sell to institutional investors — often banks, creating leverages, while its own capital in the mico lenders is extremely limited.

If the leverage is high enough, and when underlying quality of the securitized products - the micro loans - go bad, it could cause big shocks - like playing a role in collapsing Lehman Brothers.

A: 蚂蚁集团要充分认识到整改的严肃性和必要性,对标监管要求,尽快制定整改方案和实施时间表。同时,要加强风险管控,保持业务连续性和企业正常经营,确保对公众的金融服务质量。
A: Ant Group should fully understand the seriousness and necessity of the rectification and correction, refer to the regulatory requirements, and formulate a rectification plan with a timetable as soon as possible. At the same time, it should strengthen risk control, maintain business continuity and normal business operation, and ensure the quality of financial services to the public.


1) Ant Group is asked to draw a timetable ASAP so this is unlikely to drag on. But an IPO may not be possible before meaningful rectification approved by regulators, who now have drawn a line in the sand.

2) The demand of business continuity and normal business operation likely suggests regulators aren’t interested in disrupting its business continuity and normal business operation.

A: 金融管理部门将与蚂蚁集团保持密切沟通,充分听取其意见建议。

A: The financial regulators will maintain close communication with Ant Group and fully listen to its opinions and suggestions.

NOTE: So communications between them is not a one-way street, and note the word fully, which signals some open-mindness and soft touch from financial regulators.


Question and Answer No. 3


Q: What is the policy orientation of the financial regulation on fintech?

A: 金融管理部门将一如既往鼓励、支持金融科技企业在服务实体经济和遵从审慎监管的前提下守正创新,推动金融科技成为助推国内国际双循环的重要力量。金融科技企业要坚守服务实体经济和人民群众的本源,树立严格遵守金融监管要求的合规意识、坚决维护公平竞争环境的市场意识、以消费者权益保护为核心的服务意识。

A: The financial regulators will, as always, encourage and support fintech companies to innovate on the right path while abiding by the premise of serving the real economy and complying with prudential regulation, and promote fintech as an important force to boost the domestic and international dual cirulation. Fintech companies should adhere to the origin of serving the real economy and the people, and establish the sense of full compliance with financial regulatory requirements, the sense of resolutely maintaining a level playing field in the market, and the sense of protecting consumer rights at its (business) service core.

NOTE: If an economy can be largely divided into two parts - the “real economy” and finance, Chinese leadership’s - and thus financial regulators’ - view has consistently been that the role of finance is to serve the real economy, which is the more imporant part. Here, Ant Group is being made as an example for all others - what is expected of them from Beijing.

A: 未来监管的政策取向将遵循以下原则:一是坚决打破垄断,纠正、查处不正当竞争行为,维护公平竞争市场秩序。二是坚持所有金融活动必须依法依规纳入监管,坚持金融业务必须持牌经营,坚持对各类违法违规行为“零容忍”。

A: The policy orientation of future regulation will follow the following principles: First, we will resolutely break monopolies, correct, investigate and deal with unfair competition, and maintain a market order of fair competition. Second, financial activities must be regulated in accordance with laws and regulations, financial business must operate based on licenses, there will be “zero tolerance” towards all kinds of violations of the law.


1) The first sentence is for Ant Group and its large competitors out there. Leveraging its/their significance in the market to compel business partners and customers to choose “my way or the highway” will draw more intense scrutiny.

2) Ant Group and other late-comers will have to get the necessary license to do financial business. More importantly, in the future, there may be no room for another fintech company that may wish to mimick Ant Group’s approach in treading the gray area to success. It will be either legal or illegal, but little in between.

A: 三是坚持“两个毫不动摇”,依法保护产权,弘扬企业家精神,激发市场主体活力和社会创造力,增强我国金融科技企业在全球的核心竞争力。

A: Third, adhere to the "two unwaverings", protect property rights in accordance with the law, promote the spirit of entrepreneurship, stimulate the vitality of market entities and social creativity, and enhance the core competitiveness of China's financial technology companies in the world.


1) The key to unpack this is to understand what"two unwaverings” refers to and its implications.

"Two unwaverings,” in its whole, was first promulgated in Xi Jinping’s work report (CHN) on behalf of the Communist Party of China Central Commitee to the 19th Party Congress, in October 2017:


Unwaveringly consolidate and develop the public-sector economy, and unwaveringly encourage, support and guide the development of the non-public-sector economy

Xi highlighted the set phrase in a speech to private entreprenurs (CHN) on November 1, 2018, where he said

The non-public sector's status and functions in the country's economic and social development have not changed. The principle and policies to unswervingly encourage, support and guide the development of the non-public sector have not changed, and the principle and policies to provide a sound environment and more opportunities to the sector have not changed either.

Despite it’s two unwaverings, for anyone immersed in Pekingnology, the emphasis was squarely in boosting private enterprises’ confidence, as the title of Xinhua’s English-language report at the time shows: Xi stresses unswerving support for development of private enterprises.

Now, Pan, the central bank governor, cited the "two unwaverings” seemingly out of nowhere. What he meant to say is China’s financial regulators are NOT targeting private companies.

2) The remaining part of the paragraph, including protect property rights in accordance with the law, promote the spirit of entrepreneurship, stimulate the vitality of market entities and social creativity are all typical Party-speak on supporting private enterprises.

3) enhance the core competitiveness of China's financial technology companies in the world suggests Beijing supports the likes of Ant Group to build competitive advantages globally.


Fintech and Internet platform companies are new, and they are evolving rapidly with many new features. The financial regulators will continue to strengthen international regulatory exchanges and cooperation to jointly promote fintech innovation and the healthy development of the financial system.


The Q&A ends


To sum it up:

1) The problems publicly identified by regulators are highly technical, targeted and rooted in Ant Group’s business practice, not trumped-up charges;

2) The regulators’ identification of problems and presentations of a way out is not punitive in nature; for example, it’s always like correct your wrong doing in this, carry out the business in that compliance requirement, but NEVER withdraw from some business.

3) The regulators’ use of words is in general is serious but mild, aided by deliberatively assuring signals.

Thank you for reading.

Penned by Zichen Wang, founder of Pekingnology, a personal newsletter that does NOT represent the views of anybody else. Errors may well exist, and suggestions for corrections and feedback are welcome. Pekingnology’s email is .