Daily Brief: China Comes Down Hard On Big Tech, And The Cracks Are Starting To Show

Daily Brief: China Comes Down Hard On Big Tech, And The Cracks Are Starting To Show

about 3 years ago3 mins

The Chinese central bank proposed new regulations earlier this week that could break up the biggest players in the online payments industry, and… well, investors have done the math.

What does this mean?

The new rules would mean China’s central bank could advise regulators to break up a “non-bank payment company” if it controls more than half the market, or any two that hold two-thirds of the market between them. That’s not ideal news for Ant Group and Tencent, whose respective payment platforms – Alipay and WeChat Pay – control an estimated 55% and 40% of China’s mobile payments sector.

Ant, Tencent dominate mobile payments market in China
Source: Bloomberg

It’s not the first time that China – worried that a slip-up from one dominant company could hurt the country’s entire financial system – has cracked down on fintech. The country’s central bank urged regulators to investigate Alipay and WeChat Pay last year, while Ant Group’s initial public offering – which would’ve been the world's biggest – was put on hold in November.

Why should I care?

For markets: Do not pass Go.

Alibaba mightn’t be too happy about the regulatory overdrive either: the Chinese ecommerce giant owns a substantial stake in Ant Group, and is itself the target of a separate anti-monopoly investigation launched in December. This new regulatory push, then, is making its investors even more nervous, which might be why the company’s shares are 10% below where they were before Ant Group’s IPO was suspended.

Alibaba stock
Source: Bloomberg

The bigger picture: Bide ‘n’ seek.

China isn’t the only one taking a hard line on tech companies: European and American regulators have also launched new rules for and investigations into Big Tech in recent months. And considering the new US president is likely to come down harder on those companies than the previous one was – and considering Europe has said it’ll help – things are probably going to get worse for them before they get better.

Keep reading for our next story...

United Airlines Reported Worse-Than-Expected Results

United image

United Airlines reported its fourth-straight quarter of losses late on Wednesday, and it’s carrying something very suspicious into the next few months too.

What does this mean?

United burned through $33 million a day last quarter – even more than the quarter before as staff layoff costs and interest on its mounting debt continued to spiral. The company did raise billions from investors and in US government support last year, mind you, so it’s hopeful it’ll have enough cash on hand to keep going until air travel starts to recover in earnest. And hey, at least it’s making money somewhere: United’s cargo business – which admittedly only represents 16% of its total revenue – jumped 77% last quarter compared to the same time the year before.

United fared worst in last year’s dismal performance by big US airlines

Why should I care?

The bigger picture: Out-of-business class.

United isn’t expecting a meaningful recovery until toward the end of the year, but rival Delta Air Lines – which reported its worst-ever performance last week after hemorrhaging $12 billion last year – thinks it’ll kick off in spring. They both agree on one thing though: vacations will be first to come back, while the more lucrative but Zoom-disrupted world of business travel will take a while to bounce back.

Delta's annual net profit/loss
Source: S&P Capital IQ, The Wall Street Journal

Zooming out: Must be nice.

Hold on to your monocles: fresh data out this week showed private flights from the UK are only down 42% since the start of the pandemic, compared to the 75% drop in the country’s commercial flights. Some private jet operators are reporting so many first-time clients hoping to avoid crowded terminals, in fact, that they sold more flights last year than in 2019. And while aircraft manufacturer Honeywell Aerospace predicts that private jet flights will have fully recovered by the middle of this year, commercial flights are, at best, expected to be back up to 70% of their pre-pandemic levels by the same point.

The UK private flight sector has proven more resilient than commercial airlines
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