China Set to Cap Transfers Using Mobile-Payment Services

China Set to Cap Transfers Using Mobile-Payment Services

Move Comes as State Banks Push Back Against Finance Businesses of E-Commerce Giants Alibaba, Tencent

Updated March 24, 2014 11:34 a.m. ET

BEIJING—China’s largest Internet firms have had startling success elbowing their way onto the turf of the state-run banks, but now the country’s banks and regulators are pushing back.

The central bank said Monday that it would set limits on the amount Chinese can spend using smartphone payment services. In an interview with the official Xinhua News Agency posted to its website, the People’s Bank of China said that the proposed caps were designed to limit business risks, but it didn’t specify the risks.

The central bank said it had not yet determined the size of the limits on mobile spending. It said it had drafted new rules but would weigh input from consumers and Internet firms before finalizing them.

A move to curtail the amounts transferred over mobile-payment services potentially cuts off a multibillion-dollar business for companies such as Alibaba Group Holding, an e-commerce titan, and rival Tencent Holdings Ltd. 0700.HK -3.41% , which have been rushing to release products helping smartphone users shop with their phones. The regulatory blowback comes at a tough time for Alibaba, which is preparing for a listing in the U.S. that could raise as much as $15 billion.

Last week, responding to Chinese media reports that the central bank had proposed a cap on mobile payments of 10,000 yuan a month, Alibaba Chairman Jack Ma said at a Beijing conference, “Sometimes you’re not defeated by technology; sometimes it’s a document.”

The big state banks have already moved to cap the amounts depositors can transfer into online products—actions that drew an exasperated response Sunday from Alibaba’s Mr. Ma.

“What determines success in the market shouldn’t be the monopolies and those with power, but the consumers,” Mr. Ma wrote in a post shared on Alibaba’s mobile-messaging application.

Although China’s central bank has said repeatedly it supports financial innovation, how it tries to regulate the Internet firms is being watched as an indicator of Beijing’s commitment to overhauling state-run enterprises. Economists say subjecting protected state-controlled sectors to more direct competition will be key to spurring consumption and putting China’s economy on a healthier footing.

Over the past year, Alibaba and Tencent have attracted tens of billions of dollars by marketing online investment products that feature higher returns than those on savings accounts offered by state banks. The success has sent ripples through China’s state-dominated and heavily regulated financial industry, as many younger Chinese have transferred their savings from the banks into the online products.

On Saturday, China Construction Bank 601939.SH -0.26% became the latest of the major banks to impose limits on transfers to mobile products. It issued a cap of 5,000 yuan (about $800) per transaction—and a total of 50,000 yuan a month—for deposits to Alibaba’s Yu’E Bao fund, called “Leftover Treasure” in English, according to the bank’s customer-service department. For Tencent’s online product, the limit is 10,000 yuan per transfer and 50,000 yuan a month, the department said.

“No one knows who gave the banks the power to hurt depositors’ rights to distribute their capital,” Alibaba’s Mr. Ma said in his Sunday post, which was viewed by The Wall Street Journal before it was taken down. “No one knows who will regulate the legitimacy of the big state banks to join hands and force out” Yu’E Bao.

In the past two weeks the central bank has also temporarily suspended online payments using QR codes—which enable fast recognition of transactions—and virtual credit cards. It has also suggested that online investment products could be forced to hold reserves on funds they attract—much like banks on their deposits.