Tuesday, February 27, 2024
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China’s ICBC clamps down on Alibaba finance arm

Industrial and Commercial Bank of China (ICBC) will restrict trade with Alibaba's online payment arm to one branch, the bank said on Tuesday, in the country's latest crackdown on a nascent online finance industry.

Alibaba Group's payment arm, Alipay, previously had contracts with numerous branches of ICBC for negotiated corporate deposits, and could place deposits with the branch offering the highest yield.

(Read more: Alibaba valued at up to $250 billion in grey market bids)

Tuesday's move means ICBC branches will no longer compete to offer high yields on Alipay's deposits, hitting the online payment business's revenues from interest, and potentially setting a precedent for other banks to follow.

The clash between entrenched interests in China's traditional finance sector and its internet companies has escalated in recent weeks, with banks imposing limits on how much their customers can transfer to online finance services and the authorities looking into potentially heavy regulation.

Alibaba.com's headquarters in Hangzhou, ChinaThomas Lombard | Wikipedia

Though small, online and mobile payment transactions in China have been growing rapidly. The online payment market last year grew 47 percent to 5.37 trillion yuan ($869.20 billion) in transactions, according to Beijing-based consultancy iResearch.

Most of the concern about online finance, according to regulators such as the People's Bank of China (PBOC) and commercial banks, revolves around the security of payments made by virtual credit cards and smartphones and risks relating to money laundering and customer information security, as well as the wider financial system.

Other services have drawn the ire of banks, particularly the internet companies' wealth management products that have taken the Chinese public by storm and analysts say are contributing to interest rate liberalisation in China.

The payment systems of Alibaba and rival Tencent Holdings' could also hit state-owned China UnionPay, the country's monopolistic credit card provider.

(Read more: E-commerce giant Alibaba starts plan for US IPO)

Heavy blow

"The market doesn't fear competition, it fears injustice," Alibaba founder Jack Ma wrote online on Sunday after banks set harsh new limits on how much their customers could transfer from their accounts into Alipay.

"It's not the monopolies and powers that determine success in the market, it's the consumer," wrote Ma.

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