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Alibaba Group’s Alipay.com:

Hitting the Chinese Government's Rawest Nerve

Hitting the Chinese Government's Rawest Nerve

Source:AFP

Alipay has swiftly become China's most popular online payment platform, but now faces tighter government controls and stiffer competition. What avenues can it pursue to stay on top?

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Hitting the Chinese Government's Rawest Nerve

By Benjamin Chiang
From CommonWealth Magazine (vol. 442 )

Within six and a half years, the Alibaba Group's online payment service Alipay has become China's largest third-party online payment platform.

Alipay's data processing center in Hangzhou stores the personal information of some 270 million users, who generate half of China's overall online shopping payments.

But the bigger the scale of Alipay's business gets, the less inclined Alibaba Group CEO Jack Ma is to talk about his development strategy for the payment service, although he usually does not shy away from boldly setting ambitious targets.

Ma has begun to feel the Chinese government's tightening grip over online businesses, particularly third-party payment platforms, which are intimately linked to consumer activities.

Eager to display a cooperative attitude, Ma insists that Alipay president Xiaofeng Shao submits a monthly report on Alipay's cash flow to the Zhejiang branch of the People's Bank of China, China's central bank.

"If one day the state should need Alipay, I would not even hesitate a second to completely hand over the company to the state for free," Ma once said in public in a rare mention of Alipay's possible future.

The opportunities for developing private third-party payment platforms like Alipay have been excellent in China, since the government's financial oversight measures for online shopping remain patchy.

Alipay controls the personal information and buying behavior data of millions of Chinese consumers, which directly pertain to the highly sensitive issue of China's financial credit system.

"At the moment private third-party payment services like Alipay seem secure, but you never know how policy will shift. The situation could change completely overnight," warns a Taiwanese online services provider who is familiar with Alipay's operations. Ma's decision to keep a low profile might be a wise move to ensure that Alipay can maintain its present advantage.

State-run Enterprises Grab Internet Business

In recent years it has become a trend in China for state-run enterprises to advance at the expense of private companies. Backed by huge assets and utilizing political connections, state-run companies are squeezing the consumer-oriented private companies out of lucrative markets.

The same scenario is playing out in the third-party payment services sector, which is worth 555 billion yuan per year. China's only domestic credit card services company, China UnionPay, is now eying the online payment market, trying to get a slice of Alipay's pie.

For the time being Alipay can only redouble its efforts to go international, through cooperation with online vendors in Taiwan, Hong Kong, Japan and Australia.

Meanwhile, Ma, a much admired role model for small and medium-sized business entrepreneurs, will have to demonstrate wisdom in finding ways for Alipay to thrive despite the advance of state-backed competitors and stricter government control over online businesses.

Translated from the Chinese by Susanne Ganz

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