over 2 years ago • 3 mins
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. 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.
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Data out over the weekend showed companies are spending more than they have done in years, as they equip themselves for this surreal post-pandemic future.
What does this mean?
You’ve got to spend money to make money, and everyone from food giants to chipmaking heavyweights has certainly been doing that: Morgan Stanley is predicting global investment by businesses to be 15% higher this year than it was before the pandemic. That makes sense, as supply delays, chip shortages, and the green revolution are all forcing them to invest in their production capabilities and in-house technology. Throw in pent-up consumer spending, super-cheap borrowing, a bona fide economic recovery, and it’s no surprise CEOs are suddenly much more forthcoming with the company credit card.
Why should I care?
The bigger picture: Compare to the alternative, not the almighty.
A surge in business spending could be just what the global economy ordered, offering a ray of hope that supply chain issues, inflation fears, and the withdrawal of economic support won’t ruin 2022 like some are anticipating. And if nothing else, be thankful we’re worlds apart from where we were after the 2008 financial crisis, when companies’ unwillingness to spend money saw employment numbers and wages stagnate.
Zooming out: The must-have toy of the year.
At the top of firms’ wishlists as they looked to boost production were metals – specifically aluminum, which hit a 13-year high on Monday after rising 15% over the last three weeks. And with China continuing to limit production as part of its drive to reduce carbon emissions – a supply gap that could take as long as five years to fill – that rally doesn’t look like it’ll be over anytime soon.
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