As the crackdown comes to an end, Chinese companies Ant Group and Tencent are hit with hefty fines for “illegal acts”

Chinese authorities said on Friday that they had penalized fintech giant Ant Group over $1 billion for “illegal acts” and punished an offshoot of competitor Tencent with a $415 million punishment, adding that a protracted crackdown on internet companies was coming to an end.

The biggest digital payments network in the world, Alipay, is run by Ant and has hundreds of millions of users monthly in China and beyond. It was one of the main targets in a broad campaign against the nation’s IT industry.

The China Securities Regulatory Commission (CSRC) said in a statement that “in light of the illegal and irregular acts by Ant Group and its affiliates in previous years… (the companies) have been fined 7.123 billion yuan (US$984 million)”.

The announcement, which was also published by the nation’s national bank, noted that the punishment “included the confiscation of illegal income.”

According to the CSRC’s statement, “the majority of the outstanding issues in the financial business of platform enterprises have been resolved as of this writing.”

According to the statement, “the work focus of the financial management department has shifted from promoting the centralized correction of the platform companies’ financial business to normalized supervision.”

After news of the penalties broke on Friday, Alibaba shares rose 3.44 percent in Hong Kong. According to experts, investors saw the penalty as an indication that the crackdown was coming to an end.

Ant stated in a statement that it will “continue to further enhance our compliance governance” and “comply with the terms of the penalty in all earnestness and sincerity.”

“Now that the associated work on the correction has been finished by the firm… The Ant Group will continue to fulfill its purpose and initial goal in the future, the business added.

“We will continue to pursue innovation with a firm commitment to integrity, and continue to enhance our R&D capabilities to better serve and create greater value for the physical economy, especially for consumers and small businesses,” the statement said.

According to the CSRC statement, the penalty was connected to “corporate governance, financial consumer protection, participation in banking and insurance institution business activities, payment and settlement business, fulfillment of anti-money laundering obligations, and development of fund sales business.”

The central bank said in a separate filing that it had penalized Tenpay, an online payment company run by Tencent, a competitor of Ant, roughly 3 billion yuan ($415 million).

The punishment includes the seizure of ill-gotten gains totaling more than 550 million yuan, according to the central bank.

Pony Ma, the chairman of Tencent, said in a report to the Hong Kong Stock Exchange on Friday that the decision made on Friday “does not have any material adverse impact on the operations and financial position of the Group as a whole” since Tenpay has previously adopted special advice on “rectification”.

He said, “The Company anticipates that moving ahead, the financial authorities will concentrate on normalized regulation… supporting and encouraging platform firms to continue their efforts in financial inclusion.

Crackdown loosening

Ant now serves hundreds of millions of individuals and small companies by providing loans, credit, investments, and insurance.

The government has worked to control spiraling personal debt and haphazard lending in the private sector, and upstart Ant’s rising reputation was seen as a threat to established interests in the nation’s state-dominated banking industry.

When authorities unexpectedly canceled the double listing, alleging non-compliance with new capital criteria, the Alibaba affiliate’s record-breaking $35 billion Hong Kong-Shanghai IPO was scheduled to start in 2020.

In 2020, Alibaba founder Jack Ma delivered a speech in which he criticized Chinese authorities, which is generally thought to have prompted Beijing to cancel Ant’s IPO.

Beijing fined Alibaba a record $2.75 billion the following year for allegedly improper business practices.

The Financial Times reported in 2021 that authorities had instructed Alipay to separate its lucrative microloan business and provide the consumer information it uses to make lending choices to a new credit-scoring joint venture that is partially controlled by the Chinese government.

Additionally, in June 2022, Chinese officials denied rumors that they had begun talking about possibly resurrecting Ant’s IPO aspirations.

Authorities said in December that Ant had obtained license to fund 10.5 billion yuan for its consumer finance subsidiary, which was a sign that the crackdown was easing.

Analysts theorized that Ant Group’s announcement in January that Jack Ma no longer had controlling interests in the firm may have helped get Ant and Alibaba out of regulatory hot water.