Image source: Alex Lvrs - Unsplash, / @n_plus_s

What's going on?

China announced plans to break up payment app Alipay on Monday, as the country’s tech sector crackdown really starts to leave its mark.

What does this mean?

Alipay – which boasts more than a billion users – is known as the go-to platform for everything from ordering food to processing payments. Now, though, it might be better known as the latest victim of a regulation-happy Chinese government, which has been looking to limit tech companies’ power in the country (tweet this). And Alipay certainly isn’t short of that: its seriously profitable lending business helped issue 10% of all China’s non-mortgage loans in 2020. The government, then, has told the company to spin that segment off into a completely new app, as well as hand over its customers’ data to a new credit-scoring business that’s part-owned by – you guessed it – the government itself.

Why should I care?

For markets: The bigger they are, the harder indexes fall.

Make no mistake: this is bad for Alipay-owner Ant Group, whose lending business was a key reason for trying – and, uh, failing – to list on the stock market last year. That makes a second attempt pretty unlikely, at least for now. But it’s rough for Alibaba too: the ecommerce giant – which owns 33% of Ant Group – saw its shares fall 4% after the announcement on Monday, meaning they’ve now dropped 30% this year. And since no one seems to be safe from China’s iron fist, a key index tracking the biggest tech players in China fell 2% too.

The bigger picture: Don’t say they didn’t warn you.

China’s central bank did warn the online lending industry this summer that government-approved credit companies were eventually going to have to approve every lending decision they make. Now that it’s here, though, industry execs might be nervous: they’ll have extra costs in the form of extra outsourcing, and – if the credit-scoring companies rubber stamp fewer loan applications – they might make less in revenue too.

Originally posted as part of the Finimize daily email.

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