The People's Bank of China (PBC) agreed to change Alipay (China) Network Technology Co., Ltd. to no actual controller according to a permission of changes in major matters related to non-bank payment institutions published on the PBC’s website on December 29, 2023. Prior to the overhaul, among the many shareholders of Ant Group, Alipay's parent company, Ma Yun was confirmed as the actual controller through a concerted action agreement. Now Ant Group is no longer under single or joint control by any direct or indirect shareholders, and Alipay has no actual controller. The reasons why it has attracted widespread attention is that Alipay has in fact become a part of China’s state financial system and the PBC’s move undoubtedly deals a heavy blow to China’s private enterprises, especially challenging people’s perception of the traditional corporate governance model. Alipay's transformation into a company without actual controller indicates that China's party-state regime is on higher alert about the systemic risks posed by Western financial models and the virtual platform economy. This actually reflects China’s official narrative that “finance detached from the real economy is like water without a source and a tree without roots."
Alipay's business covers multiple areas including payment, wealth management, insurance and loans. Its over one billion users demonstrate Alipay’s great influence. Moreover, given that 80 million businesses use Alipay to provide payment services, this overhaul arguably changes credit payment and people’s daily habits to a great extent in the mainland Chinese society. As a result, it not only triggers heated discussions but also may have an impact on Alipay's related business operation and users’ rights and interests. Likewise, it may create a sense of insecurity in the society. It is foreseeable that private enterprises can no long view profits as the only goal amid the overall economic downturn in China. They must also bolster China’s party-state regime. Barriers to private sector development are seemingly recurring. In particular, this overhaul will come in tandem with the impact of the rules for the supervision and management of non-bank payment institutions that were published in December 2023 and will come into force on May 1 this year. The rules stipulate important matters such as licensing requirements and payment regulations for non-bank payment institutions, aiming to regulate the behavior of non-bank payment institutions, protect customers’ legal rights and interests, prevent and resolve risks and facilitate the healthy development of the non-bank payment sector. It clearly shows that China will change the governance model of non-bank payment service entities. China will definitely strengthen the space of regulatory functions. Its intention is to point out the direction of ways to provide small-amount and convenient payment services for non-bank payment business in the future. Meanwhile, China will implement law-based supervision of non-bank payment institutions and their business operations. Disorderly behaviors like irregularities and arbitrage will be severely punished. China will enhance risk management and prevent development risks in the non-bank payment sector.
Ma Yun is a symbol of China’s private economy and private finance, Regarding Alipay’s change to having no actual controller, Li Hengqing, an American economist and political commentator from China, believes that this “in principle indicates that China's private economy is facing a catastrophe." "About ten years ago, Ma Yun said that 'Alipay will be handed over to the state at any time if the state needs it.' His words revealed China’s private entrepreneurs’ resignation about their inability to protect their assets,” said Li. It is worth noting that consumers can protect their legal rights and interests by holding the actual controller accountable in the past. But they are facing changes in the future. Consumers may need to improve their legal awareness to protect their rights and interests. In the meantime, they have to strengthen communication and interaction with enterprises to convey their requests and opinions through various channels. Institutional investors in listed companies without actual controllers also need to be more actively participating in corporate governance, including recruiting experienced professional managers through the board of directors, introducing new management concepts and means and quickly providing advice and recommendations for listed companies to promote steady operation and sustainable development and improve core competitiveness. However, such new approaches will increase the complexity of a company's operation and management. Companies no longer only need to comply with the decisions of the board of directors. Instead, they have to obey the opinions and orders of the party committee. Moreover, in the absence of a clear controller, private enterprises will become slower and less effective in implementing decisions than in the past. It will also undermine entrepreneurs' motivation to start a business. In fact, the Vanke Group, one of the largest real estate developers in the world, serves as a case in point. The group’s changing to a company without actual controller makes its decision-making more democratic and scientific rationality-oriented. However, it is not without drawbacks and risks. It is precisely because of its equity dispersion that Vanke experienced a protracted battle for control of the group, one of the typical risks associated with companies having no actual controller. It may even become the third crisis after the successive defaults of Evergrande and Country Garden.
Changing Alipay to a company that is privately-owned but controlled by the state will make the party state feel more assured about the virtual platform economy. However, it has brought new uncertainties to the governance model of private enterprises. The separation of ownership and control means that the high valuation effect of company stock listing is almost impossible to occur again. Depositing money in Alipay will be as safe as in state-owned banks, but it is difficult to get high returns. Later developments of Ant Group and Alipay will serve as an indicator to observe China’s private economy.
（Chiu-lung Huang, Adjunct Associate Professor of Department of Public Security at the Central Police University）
（Excerpt translated by Cindy Li）
