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China’s breaking the superapp

I’ve been amazed at the rise of superapps in China. Alibaba and WeChat allow you to socialise, ship and buy anywhere, anytime. It came home to me when I was shopping in a Chinese store and my Chinese friend said: let me just check the price of this on Taobao. She found it was a quarter of the store price, ordered it and delivered it to my hotel room the next morning before our business meetings. I was amazed.

I shouldn’t have been amazed. After all, if I buy from Amazon using Amazon Prime and it’s delivered the next day, is that amazing? But then our expectations of service in China, or other parts of the world, are lower …

… because Europeans and Americans believe they are less developed.

First, you need to change your view. China is just as, if not more developed, than America, Britain or Europe; second, China has a problem.

The problem is that they allowed their superapps to grow and now they have grown out of control. By allowing apps to grow with the integration of social, commercial and financial services, China has created the monsters of Alibaba and Tencent (WeChat) which they now wish to control.

I’ve thought for a long time that Europe and America would never have allowed an Alibaba or Tencent to exist. Regulators and governments worry a lot already about any company that starts to expand across borders, let alone internet borders. The internet giants are already too big and too fearsome. Then, just to make it even more big and fearsome, imagine if Amazon acquired and merged with Facebook and PayPal. OMG, that would be super scary, but that’s just what China allowed to happen.

Source: The Finanser

When companies become governments, something is not the way it should be. Whether this is Facebook or Amazon or Ping An or Tencent, companies are not governments and should not be. The PRC (People’s Republic of China) allowed Tencent and Alibaba to grow into a social, commercial and financial beast. A superapp. But now they’ve changed their mind. They’ve decided to clip the wings of these internet beasts and stop them behaving as if they are more important than China and the PRC.

This is quite surprising, or maybe not. There was a huge issue in the mid 2010s when peer-to-peer (P2P) lending failed in China. At one point around summer 2018, there were five or  more P2P lending firms failing every day. That sounds like nothing but, in reality, it meant that millions of Chinese savers, investors, citizens and pensioners were losing their lifetime’s nest egg. Not good.

In fact, the issue is that Chinese consumers had the equivalent of 8.5 trillion yuan (USD$1.31 trillion) in short-term loans outstanding as of February 2021, and the Chinese government decided this was also not good.

This has led to a big change of attitude of the Chinese government. It began with a pushback on Jack Ma, who spoke out too directly last October, and ended up with a botched IPO of Ant Group. Since then, Ant’s CEO has resigned, the value of the firm has imploded and they are being told that many of their financial products must be redacted. By way of example, at the time of the failed IPO, Ant would source loans and send them to mainstream banks whilst keeping just 2% or less of the loan risk on their books; under the new regulations, they have to keep a third of that risk on their books. Big change.

It goes further than this, however. In fact, President Xi and the PRC (sounds like a good name for a rock band?) have now said that Alibaba must get rid of much of its social assets.

In other words, the PRC is telling Jack Ma and his young (just over twenty years old) company that it must stop behaving as an integrated entity. It is breaking apart the superapp. It is getting rid of the integration of financial, social and commercial. It wants separation that can be regulated more easily and, more importantly, that works within state guidelines and state governance.

And it’s not just Alibaba and Ant Group. Tencent with WeChat and WePay is facing the same government scrutiny.

The issue with this approach is that, end of day, customer will pay. For example:

Ant Group is demanding a larger slice of lucrative commissions from its popular payments platform at the expense of local banks as China’s largest financial technology group tries to offset losses from a government crackdown on its lending business. The move will help Ant’s controlling shareholder, Chinese billionaire Jack Ma, to rebuild the group’s valuation after Beijing in November pulled the company’s planned $37bn initial public offering, which would have been the world’s biggest. Multiple lenders told the Financial Times they had agreed to allow Ant’s Alipay, China’s largest mobile payment service, to increase its share of the processing fee from transactions conducted on its platform by up to 80 per cent since the beginning of [2021].

All in all, I love the way in which libertarians say the Statists can do nothing about internet democratisation. Checkout China’s moves if you believe this or, for that matter, any nation under lockdown . It’s not true.

 

About Chris M Skinner

Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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