China Warns Large Tech Firms as Industry Faces Rising Oversight

Alibaba Group Holding Ltd.

Financial regulators said many Chinese online platforms have been offering financial services without the proper licenses, using inadequate management systems and engaging in unfair competition.

The central bank called on qualified companies to set up financial holding companies and submit them to regulatory oversight—a move that Ant Group made earlier this month following a government probe.

The PBOC said the summoned tech firms pledged to comply with the rectification plan and agreed to implement changes based on regulatory requirements.

Chinese officials’ regulatory campaign, which began late last year, was primarily focused at first on entrepreneur

Jack Ma’s

business empire, which is centered around Alibaba and Ant. In recent weeks, however, investors have grown concerned that the regulatory scrutiny could spread to other Chinese internet companies.

China’s tech giants, whose core businesses range from social media to ride hailing to e-commerce, have in recent years made numerous forays into financial services.

WeChat, Tencent’s ubiquitous messaging platform, has more than one billion users, many of whom use its popular payments service, WeChat Pay. According to S&P Global Market Intelligence, 95{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} of Chinese internet users surveyed last year said they use WeChat Pay, the same as Ant’s equally popular Alipay.

Online retailer JD.com sells some wealth-management products and makes consumer loans, while ride-hailing company Didi and other technology firms have also ventured into unsecured lending and other financial services.

Earlier this month, China’s main antitrust watchdog summoned nearly three dozen Chinese tech companies and demanded that they submit self-examinations and rectification plans for any monopolistic behavior. The regulatory body suggested that other businesses learn from Alibaba’s example, and published statements from each company detailing how they would comply with regulations.

Ant, which has shelved its IPO and has said it would apply to become a financial holding company overseen by China’s central bank, will also have to correct what regulators describe as unfair competition in its payments business.

The Wall Street Journal reported earlier this week that Beijing is now looking into how Ant was able to win speedy approval last year for its IPO, signaling that regulators were looking more broadly for evidence of malfeasance.

Ahead of Ant’s IPO last year, China’s central bank issued new rules for financial holding companies that would require them to hold more capital to back payments and loans, a move aimed at mitigating systemic financial risk.

On Thursday, the central bank acknowledged the role that tech companies have played in helping improve the efficiency and inclusiveness of financial services, but warned against unfair competition and violations of consumer rights.

The rectification measures listed in Thursday’s announcement included securing licenses to operate financial businesses, strengthening financial consumer protections and controlling the expansion of nonbank payment accounts. Any actions that fail to comply with regulation will be strictly investigated and dealt with, the central bank said.

—Grace Zhu in Beijing contributed to this article.