Regulation of the shadow banking sector: the case of the Chinese BigTech Ant Group as a blueprint?

Abstract

Cancelling the Ant Group Initial Public Offering on short notice in November 2020 attracted attention on the international financial markets. Ant Group is the subsidiary of a large Chinese technology corporation that specialises in financial services. A regulation change that classifies Ant Group as a financial holding company and which aims to curb the systemic risk of its business activities shows how the Chinese authorities limit the large technology corporations’ market power and thereby introduce a stricter regulation of the shadow banking sector. Can this approach to regulate the Chinese shadow banking sector serve as a model for the European Union? This paper first discusses the development of the shadow banking sector, its relevance for global financial stability, and current challenges for its regulation. Then, based on a case study of Ant Group, this paper discusses opportunities and challenges of the Chinese authorities’ regulatory approach and derives implications for the regulation in Europe. In summary, a regulation of large technology corporations that offer a large range of financial services comparable to traditional banks seems necessary with reference to financial stability, as these companies (potentially) have extensive market power.