Ant Group IPO

CHINA ADVISORY - Report 14 Sep 2020 by Andrew Collier

Ant Group’s proposed IPO, expected soon, raises the profile of China’s largest private online financial company. However, there are macroeconomic and political considerations that will affect the growth trajectory of both Ant and other private online financial firms. There are also competitive threats to Ant from the digitization policies at the PBOC and the online finance programs among the commercial banks. More generally, the company’s growth offers lessons on the role of online financial firms in China’s macroeconomy.

Some of our conclusions:

* Centralized digital currency: The PBOC is unlikely to compete with Ant and similar firms in digital transactions. Despite the introduction of a centralized digital currency, the PBOC's main focus is on monetary policy and systemic risk – not consumer finance.

* Systemic risk: However, as digital finance increases in size, the risks of this sector's impacting the macroeconomy increases. Due to new rules on online money management, Ant has shifted its business model to fees for transactions rather than directly managing assets. If digital payments begin to move bank assets to Ant’s platform, the PBOC is likely to step in once again to reduce Ant’s influence.

* Bank competition. The real risk to Ant comes from its competition with the banking industry. The increase in Ant’s “service costs” suggests that banks are demanding a larger fee for the services they are providing to Ant. This competition could stifle Ant’s growth in the future.

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