Superapps Under Scrutiny: How China’s Tech Titans Sparked a Data Revolution and a Government Crackdown
The Rise and Reckoning of Ant Group and China’s Financial Superapps
by Dianne See Morrison for University of Oxford Executive Education
Forty-eight hours before Ant Group, the financial arm of China's tech giant Alibaba, was set to debut on the Hong Kong and Shanghai stock exchanges in October 2020, the Chinese government abruptly canceled the initial public offering.
It was a dramatic end to what was expected to be a record-breaking $30 billion IPO, eclipsing Saudi Aramco’s $25.6 billion and heralding a symbolic shift in the global economy, where data — not oil — was now the world’s most valuable resource.
Instead, the quashed IPO has been seen as a reckoning for China’s tech sector—one that may force sweeping changes to the lucrative business models of its leading platforms, which have amassed even greater concentrations of wealth, power, and consumer data than their Western counterparts. Just as the US and European governments are moving to regulate Google, Amazon, Facebook, and Apple (GAFA), the Chinese government has signaled that its “hands-off” approach is over, bringing an end to the stupendous profits of its tech giants.
Supersize Me
China’s big tech platforms have long been the envy of entrepreneurs worldwide for their superhuman ability to rapidly identify, scale, and dominate markets. While Baidu (search engine), Alibaba (e-commerce), and Tencent (messaging)—collectively known as BAT—have powered much of this growth, Ant Group’s Alipay and Tencent’s WeChat Pay have surged ahead as the undisputed leaders. Their dominance is rooted in payments, with the two forming a duopoly that processes 90% of all Chinese mobile transactions, generating valuable consumer data to fuel their expansion into countless other, seemingly unrelated services.
Often referred to as “superapps,” these platforms bundle all numbers of services into a single interface. Without leaving the app, WeChat users, for example, can do everything from messaging friends to paying for offline goods, ordering food, booking taxis, and even taking out loans. Their rapid, seemingly effortless supremacy, has been fueled by AI and machine learning, which have allowed them to systematically harness payment data to expand into even more offerings. The success of Alipay and WeChat Pay has inspired smaller rivals—including JD.com (e-commerce), Meituan (food delivery), and Lufax (wealth management)—to launch their own payment platforms in hopes of replicating this model.
How quickly can super apps scale? Alipay began in 2004 as Alibaba’s online payment service and rapidly grew to include mobile payments, loans, money market savings, and wealth management. In 2014, Ant introduced Huabei, a microcredit service functioning as a virtual credit card that used existing payment data to determine consumers’ creditworthiness. It later rolled out Jiabei for larger loans, as well as financing aimed at small businesses.
Ironically, Ant’s most significant growth followed a regulatory move meant to prevent a securitization crisis reminiscent of the one preceding the 2008 Global Financial Crisis. Fearing unchecked risk, the Chinese government required loan originators to hold capital reserves, much like banks—a step that threatened Ant’s margins. Ant quickly responded by allowing third-party companies to sell on its platform, taking a small cut of each transaction, creating an even broader, more integrated network of services. In 2013, for example, it launched a wealth management platform within the app, encouraging users to deposit as little as 1 renminbi (about $0.15 or £0.11). According to Li Li, co-CEO of Invesco Great Wall Fund Management, Ant’s platform delivered the fastest growth in the industry. Its two money market funds soared from 665 million yuan ($103 million) in early 2018 to 114 billion yuan ($18.5 billion) by June 2019.
Superpowers Sapped?
But this growing dominance hadn’t gone unnoticed. For years, the Chinese government celebrated the success of its tech giants, maintaining a largely “hands-off” approach as they flourished. Not only were they symbols of China’s modern economic ascent, they were outpacing their Western rivals, who lauded their stunning growth. But as these platforms grew, and with them their staggering influence, tensions between the government and tech giants began to mount, with their runaway success sitting uneasily alongside China’s philosophy of common prosperity.
Just a month before Ant Group's planned listing, Jack Ma, Alibaba’s CEO, delivered a speech at a banking conference in Shanghai that many viewed as audacious, even reckless. In a country where public criticism of regulators is rare—if not taboo—Ma accused them of being obsessed with avoiding risk, warning that such “risk-free” policies stifled innovation and put the entire economy at risk of stagnation. He went further, denouncing the country’s banks as operating with a “pawnshop mentality.”
In retrospect, Ma’s remarks—likened to a “punch in their faces”—appeared to provoke a decisive response. The government’s dramatic, last-minute grounding of Ant Group’s IPO was widely seen as punishment for his criticism and the start of a pivotal shift in the government’s control over China’s tech giants. Regulators, however, maintained that the move was an effort to bring the country’s large tech platforms in line with existing rules. The People’s Bank of China stated, “... some financial services were running without licenses, and there are serious rule violations in areas such as regulatory arbitrage, unfair competition and damaging consumers’ interests.”
The crackdown extended beyond Ant Group. Regulators launched an investigation into its parent company, Alibaba, over “suspected monopolistic practices” and imposed a $2.8 billion fine for “abuse of market dominance.” Thirteen other major platforms, including Tencent, Bytedance, Baidu’s Du Xioaman, and JD.com, were also put on watch. They were ordered to draft “business rectification” plans that, according to CNBC, would need to address “improper links” between their payment tools and other financial products, “break monopolies” in holding data, and prevent risks in internet mutual aid businesses.
Data as a “Factor of Production”
While a $2.8 billion fine will barely dent a firm that earned $24 billion in net profit in 2020, what could pose a greater threat to Alibaba and the country’s other superapps is the Chinese government’s growing interest in the vast troves of user data these platforms collect. In Beijing’s case, the challenge resembles “open banking” debates in Europe and the United States, but instead of banks controlling this valuable data, it is China’s tech giants.
The People’s Bank of China has long sought to create a centralized pool of credit data that state-run banks could use to assess consumers’ creditworthiness—a move tech platforms have resisted. In the ever-expanding digital economy, Beijing views data as a key resource for extending its influence beyond its borders. In 2020, the government officially recognised data as a new “production factor” intended to “boost the development of the digital economy.”
Bloomberg reports that China has poured resources into digital infrastructure, including new data centers and stricter data usage laws, aiming to transform not only its domestic economy but also its global footprint. The government has even floated the idea of a state-backed joint venture to oversee data collected from hundreds of millions of users. Despite these ambitions, the Chinese government has struggled to wrest control of this data. Ant Group, for example, has reportedly handed over only a sliver of what Beijing demands. Some critics have called for “nationalizing” or outright seizing the platforms’ data. Xiamen University professor Zhao Yanqing argued that because China had originally blocked Google and Facebook from entering the country’s market, companies like Alibaba and Tencent received benefits that should now be shared with society. However, for now, Beijing has opted against such drastic measures.
What will happen to the data going forward? Increasingly in China, data privacy matters. In 2020, the Chinese government published a draft version of its Personal Information Protection Law (PIPL), a set of rules designed to govern data collection and protection. These rules could help Beijing rein in the power of big platforms, but questions remain: will they also apply to state-backed ventures?
(Originally written for a university executive education course.)