China’s Largest Bank Declares War on Alibaba

Mar 26, 2014

China’s Largest Bank Declares War on Alibaba

As Alibaba prepares for a listing in the U.S. that could raise as much as $15 billion, it’s also in a full-blown, potentially dangerous conflict with some of China’s most powerful government-backed companies.

In recent years, Internet firms such as Alibaba and Tencent have begun to muscle in on territory traditionally occupied by state banks—both through offering mobile payment services as well as online investment products featuring returns superior to those offered by state banks. State banks, meanwhile, are striking back.

The latest salvo in the standoff came this week after users of Alibaba’s online investment fund – Yu’E Bao, or “leftover treasure” – reported they were having trouble transferring money into the fund from accounts held with the Industrial & Commercial Bank of China Ltd.601398.SH -0.59%, China’s largest bank by assets. Following these reports, ICBC informed customers that it was cutting back resources needed to process such transfers.

In the same statement, the bank appeared to fault Alibaba, saying that it had already had prolonged communications with Alipay, the company’s online payment unit.

“If Alipay coordinates properly, there will be no impact on customers,” the bank said.

For its part, Alipay said the restrictions were imposed by ICBC and referred customers to the bank’s service hotline. It also suggested customers try using a different bank account for Alipay.

The move follows on the heels of similar moves in recent months, with all four state-run banks imposing new monthly limits on the amount of money customers can transfer to mobile payment products like Alipay.

In response to such moves, Alibaba founder Jack Ma has come out swinging. “What determines success in the market shouldn’t be the monopolies and those with power, but the consumers,” he said Sunday.

Such comments might seem like throwing stones at a wasp’s nest. But Mr. Ma himself is a ferocious competitor: Alibaba is one of the few Chinese Internet companies that have managed to fight off a Western competitor—eBay—entirely on its own.

Meanwhile, the company is continuing to up the ante. On Wednesday, Alibaba introduced an unusual new fund allowing Internet users to invest directly in a product that will help finance four different film projects. Though the company says it can’t guarantee returns, investors should expect a 7% return from the year-long investment—and the ability to help cast the movies, it says.

Li Yanli, an investor in Beijing, said she liked the fund because it was a “cool” idea, but would be cautious. “Since the new product won’t guarantee either principal or return, I am not very sure how risky it could be,” said Ms. Li, adding that she planned to invest just a few hundred yuan “for fun.”

While high-profile battles such as this week’s aren’t unusual for China’s Internet companies—public feuds between Internet executives and noisy accusations of copyright theft are common—for the most part in the past, regulators have been content to let China’s Internet giants slug it out among themselves.

That soon could change, though, as the feisty spirit and belligerence of the country’s Internet industry runs up against a Chinese banking industry known mostly for its entrenched state-backed monopolies. After all, while Alibaba’s Mr. Ma has friends in high places, the heads of China’s largest banks are equally powerful.