Ant will have to make changes that include capital increases at its lucrative micro-lending units, people familiar with the matter said. Ant must also reapply for licenses for the units to operate nationwide, the people added, asking not to be identified discussing a private matter.

It’s unclear how extensively Ant will have to overhaul its business to meet all of China’s new regulations, which took effect on Nov. 1 and were designed to rein in systemic risks posed by companies that straddle at least two financial business lines. Representatives for Ant and China’s securities regulator couldn’t immediately comment on the issue after business hours.

The Shanghai Stock Exchange cited a “significant change” in the regulatory environment when it unexpectedly put a stop to Ant’s $35 billion share sale on Tuesday, upending what would have been the biggest market debut in world history. The move came just two days before Ant was due to start trading and a day after Jack Ma, the company’s billionaire founder, was summoned to a rare joint meeting with the country’s central bank and three other top financial regulators.

Eoin Treacy's view

ANT Financial ignored banking regulations to grow its business at an exponential rate. The government was willing to look the other way for a long time which created the illusion they were willing to allow the company to continue to flourish as an innovation within the broader technology sector. That impression was dispelled today.

Jack Ma submitted to Party demands to put his personal fortune in trust. His statement in 2014 that “When you have $1 billion, that's not your money, that's trust society gives you” could have been written by a Party operative. It leaves open the question of who controls the trust. That measure to avoid becoming a competing source of power to the Party created the impression that his commercial ventures would be allowed to grow in an uninhibited fashion.

The point was clear. If you are willing to play by the Party’s rules you can survive and prosper. It looks like today’s action was in direct response to his uncharacteristic outpouring of contempt for the conventional banking sector in a speech last week. Here is a section from a Bloomberg article with quotes from his speech:
 
China’s biggest risk is that it “lacks a financial ecosystem.” Chinese banks are like “pawn shops”, where collateral and guarantees are the hard currencies. As a result, some decided to go so big they are not allowed to fail. “As the Chinese like to say, if you borrow 100,000 yuan from the bank, you are a bit scared; if you borrow a million yuan, both you and the bank are a little nervous; but if you take a 1 billion yuan loan, you are not scared at all, the bank is,” Ma said. 
 
The slapping down of what was being hailed as the world’s largest IPO is a further example of the risk of investing in China. There is a constant unquantifiable risk that the government will intervene to appropriate the assets you think you own. Sometimes the greatest concern is the return of capital rather than the return on capital.
 
At the very minimum ANT Financial’s business model is going to need to be substantially revised. It has a strong microfinance arm but that is predicated on its ability to attract deposits. Without the ability to pay competitive interest rates that whole business line is in jeopardy. Alibaba’s pullback today could easily represent the beginning of a lengthy medium-term correction.
 
Thanks to a subscriber for this additional article by Ambrose Evans Pritchard which may be of interest. Here is a section:

But the language masks a deeper shift: a revived national quest for self-sufficiency in core technology, energy supply, and food production, the trifecta of critical dependencies that leave China vulnerable to an external blockade.

It is driven by fears that a US-led alliance will step up the pressure and exploit the West’s strategic leverage, as is already happening with advanced semiconductor chips. “Dual circulation is just a fancy term for Chinese decoupling,” said George Magnus from Oxford University’s China Centre.
Party officials deny that China is dialling down the American relationship or turning its back on globalisation. “Complete decoupling is a lose-lose for both countries, and for the world. It is not realistic at all,” said Han Wenxiu from the Central Finance and Economic Commission.

Beijing undoubtedly wants to keep attracting western capital. It hopes to enmesh US banks and funds in the Chinese financial system through the Shanghai Connect pipeline, calculating that this will make it harder for Washington to cut China out of the dollarised global payments system should conflict reach that point.

Yet the deeper thrust of policy under Xi Jinping is a return to Maoist economic management and the asphyxiation of the free market, with commissars lodged inside private companies, and the ideological poisons of the West mostly kept at a safe distance.

The message is clear. Anything that threatens the absolute control of the government will not be tolerated.