There’s been a lot of hype about China’s banking sector opening up to private capital but Tencent Holdings Ltd. (00700.HK) took some fuel from that fire this week. The country’s biggest internet company denied rumors that it had applied for a banking license on its own, saying it is only a minority stakeholder of a consortium seeking a permit.
In terms of market size, Tencent has already outstripped most of the mainland’s mid-sized state-owned lenders, so it should have the financial strength to test the waters solo. But just like Alibaba Group, the country’s e-commerce behemoth, Tencent is much more cautious and equivocal about entering the banking sector compared with Suning Commerce Group (002024.CN) and Midea Group Co. Ltd. (000333.CN).
Domestic tech firms are not so much bearish about banking’s prospects but keenly aware of their difficulties in making the shift. Unlike white goods retail chains, Alibaba and Tencent do not have readily available brick-and-mortar outlets across the country so if they do go into banking, they’ll need to make huge initial investments to make up for their offline weakness. That may explain why Tencent is opting for a minority interest at the start.
The shareholding structure of Tencent and Alibaba also suggests they have only a slim chance of wholly owning a domestic bank, which generally requires local majority ownership. Although they are managed by their Chinese founders, their majority interests have already fallen into the hands of foreign investors, leaving the counters with an insurmountable regulatory hurdle to having a controlling stake in a mainland lender.
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