China tech groups Alibaba and Tencent have been caught up in Beijing’s war on capital flight, with both being handed fines for breaches of cross-border foreign exchange payments at their financial services units.
The clampdown on overseas payments by affiliates of Alibaba and Tencent follows similar tightening of controls at China UnionPay, the state-owned bank-card network that increasingly competes with Visa and MasterCard overseas. Since 2016, UnionPay has sought to limit the use of its cards to pay for investments in foreign property and insurance.
“In the long term, the government supports these payment groups to expand overseas, but at the operational level, they need to strengthen compliance and monitoring,” said Wang Hanyang, fintech analyst at 86Research in Shanghai.
Ant Financial, the financial affiliate of Alibaba, and Tencent’s WeChat Pay dominate China’s $16tn third-party mobile payments market, and are increasingly moving overseas — enabling Chinese tourists to pay for everything from shopping to hotels to boat trips down the Seine with a swipe of their phones.
But that expansion has also piqued the attention of the State Administration of Foreign Exchange, which manages foreign currency reserves and has been cracking down on capital flight and illicit transfers in the past two years. Safe has issued a steady stream of notices over the past year about its crackdown on illegal money changers, improper forex transactions by banks and fake trade invoices.
Alipay’s breach is understood to involve payments for Uber rides. While the transactions took place in China — this occurred before Didi Chuxing acquired Uber in 2016 — regulators fretted about money going overseas to the ride-hailing app’s US headquarters.
According to China Forex, the official magazine of Safe, Alipay was fined Rmb600,000 ($95,000) for “foreign exchange payment business-scope problems [and] cross-border foreign exchange payment balance of payments statistical reporting problems”.
Tencent’s payments arm was fined the same amount for “failing to transmit unusual risk report materials to the related departments according to regulation” and “processing cross-border foreign exchange payments for non-residents without making a filing”.
Ant Financial said the fine related to foreign-exchange payments made in 2014 that were in breach of its payment services at the time. “Alipay corrected the irregularities as soon as they were identified,” the company said. Tencent did not respond to a request for comment.
Chinese banks and other financial institutions handled 636,000 cross-border payments worth Rmb4.36tn in 2016, according to central bank data, mostly for trade settlement. While third-party platforms such as Alipay account for only a small fraction of this total, their increasing popularity creates challenges for regulators trying to ensure that Chinese individuals make cross-border payments only for approved purposes.
China allows free convertibility of the renminbi for trade, while cross-border investment requires government approval.
China’s third-party mobile payments market continues to dwarf those in the developed world, with the latest research from iResearch showing it trebled to an estimated $15.8tn last year.
Forrester, the consultancy, estimates the US market at just $112.2bn in 2016 and predicts it will reach only $282.9bn by 2021. It expects payments in western Europe to increase from €52bn ($64bn) at end-2016 to €148bn by 2021.
Additional reporting by Yizhen Jia in Shanghai
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