beyondbrics

Investors in China have just been given another lesson in what regulatory risk means.

On Monday, the People’s Bank of China sent a sigh of relief through the internet industry as a set of long-awaited rules regulating third-party payment services did not, as many had feared, appear to exclude incumbents such as Alibaba from the industry. They can apply for licences to provide online payment and keep doing what they’ve been doing for years, the rules say.

But wait a minute. After taking a closer look overnight, Chinese internet companies have realised that anyone who has foreigners among its shareholders will be locked out of the relatively simple licensing process and subject to potentially onerous, opaque procedures at the cabinet level with uncertain outcome.

That applies to every company listed outside the mainland’s stock markets – virtually all significant Chinese internet businesses.

Thus, the central bank’s eagerness to protect local banks against competition from foreign payment providers, such as Visa, is ironically dealing a blow to one of China’s rising industries.

Some Chinese players have a back door that protects them against such risks. China Mobile, the world’s largest mobile operator which has just acquired a stake in a domestic bank to help push its aspirations in the mobile payment business, is listed in Hong Kong. However, it has an unlisted fully state-owned parent under which it can easily place the payment business and, problem solved.