China's central bank blocked plans by Tencent Holdings Ltd. and an affiliate of Alibaba Group Holding Ltd. to offer virtual credit cards as the government moves to tighten restrictions on online financial products.

The suspension of virtual credit cards and so-called Quick Response (QR) codes is meant to regulate the Internet finance industry and protect consumers, the Xinhua News Agency said, citing Zhou Jinhuang, deputy head of the People's Bank of China's payment and settlement department. The virtual cards would have allowed consumers to buy goods from online retail websites on credit.

Tencent, which sank as much as 6.8 percent in Hong Kong, is competing with Alibaba and Baidu Inc. to sell online financial products to China's 618 million Web users. Alibaba's affiliate and China Citic Bank Corp. planned to offer 1 million cards with a minimum credit of 200 yuan ($33) next week, and the lender was due to offer more cards with Tencent and Zhongan Online Property & Casualty Insurance Co.

“The PBOC could be worried about payment risks involving QR codes,” said Wang Weidong, an analyst with Shanghai-based consultant IResearch. “As for the credit cards, a lot of the credit risk calculation is based on data provided by Tencent and Alibaba, so the central bank might be worried about their models.”

The central bank could allow such virtual credit cards after it reviews and steps up regulations, Wang said. Li Dongrong, deputy governor of People’s Bank of China, said March 3 the central bank is studying ways to regulate online finance.

Shares of China Citic Bank fell as much as 7.1 percent in Hong Kong before being halted from trade. A Beijing-based press officer at the lender said it hadn’t received the central bank notice and that it hasn’t issued any virtual cards yet.

Tencent fell 4.1 percent to HK$564 in Hong Kong.

The PBOC issued a notice to its Shenzhen and Hangzhou branches to halt virtual cards as well as payment operations using QR codes, citing safety risks, a person with knowledge of the matter said, asking not to be identified because the information was private.

Two phone calls to PBOC’s news office weren’t returned. Alibaba is based in Hangzhou and Tencent has its headquarters in Shenzhen, the cities where the PBOC is said to have sent the notices.

Representatives for Alibaba Group and Alipay declined to comment. Jerry Huang, a director of investor relations for Tencent, didn’t respond to an e-mail and a text message.

QR codes are black-and-white squares containing information similar to bar codes. A smartphone user scans the codes with a downloaded application to learn more from an advertiser, to track a shipment or to verify a ticket stub.

Alibaba’s financial arm Small and Micro Financial Services Group began offering users a mutual fund product in June, paying market-based rates of as high as 6.8 percent annualized interest rate.

The fund known as Yu’E Bao attracted 250 billion yuan as of Jan. 15. The number of Yu’E Bao users reached 81 million as of late February, spokeswoman Ada Tsang said March 7 in an e-mail. The business is cooperating with New China Fund Management Co. on Taobao platform, the company said in a March 13 e-mail.

“We suspect that there may have been some behind-the-scenes lobbying done by the major banks in the wake of the National People’s Congress,” said Jim Antos, a Hong Kong-based analyst at Mizuho Securities Asia Ltd. “The banking lobby in every country is a powerful force to be reckoned with, and the same is undoubtedly true in China.”

Tencent, led by billionaire Ma Huateng, announced plans to invest at least 10 billion yuan in the nation’s Qianhai economic zone near Hong Kong that was created as a testing ground for more liberal financial policies.


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