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Beneath a restructuring highway map that China’s monetary regulators laid out this week, monetary expertise big Ant Group Co. would return to its roots as an online-payment supplier akin to PayPal Holdings Inc., whereas its extra worthwhile funding and mortgage companies can be curtailed.

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The regulators, led by the central financial institution, additionally ordered Ant to type a separate monetary holding firm that may be topic to the form of capital necessities utilized to banks. That would open a door for large state banks or different varieties of government-controlled entities to purchase into the agency to assist beef up its capital base, the officers and advisers say.

China’s nationwide pension fund, China Improvement Financial institution and China Worldwide Capital Corp., the nation’s prime state-owned funding financial institution, are already buyers in Ant.

Mr. Ma, China’s richest individual, has helped outline China’s new financial system with the 2 firms he based—Ant and its e-commerce affiliate Alibaba Group Holding Ltd. Their companies span cost companies, on-line retail, cloud computing, wealth administration and lending. Individually, Alibaba is dealing with an antitrust probe that might additionally result in an overhaul of its enterprise and asset divestitures.

The Individuals’s Financial institution of China and the State Administration for Market Regulation, which regulate Ant and Alibaba, didn’t reply to requests for remark. Ant declined to remark. Mr. Ma and Alibaba didn’t instantly reply.

However in concentrating on Mr. Ma, China’s leaders face a tricky balancing act, making an attempt to maintain entrepreneurs like him in examine—with out hurting the revolutionary spirit that has helped energy China’s technological and financial rise.

“No query the aim is to rein in Ma Yun,” mentioned an adviser to the anti-monopoly committee of China’s State Council, the nation’s prime authorities physique, utilizing Mr. Ma’s Chinese language title. “It’s like placing a bridle on a horse.”

It’s laborious to overestimate the position Mr. Ma’s firms have performed in China’s financial system. Ant and Alibaba collectively have allowed a whole lot of tens of millions of Chinese language shoppers and companies to make a purchase order, deposit cash, execute an funding or take out a mortgage with a swipe of the thumb.

Having benefited till most not too long ago from a comparatively gentle regulatory contact, Mr. Ma’s firms have come to problem the state sector’s dominance in areas corresponding to banking and cash administration.

However the days of laissez-faire are over. Authorities in latest months have pledged to toughen regulation over an web sector that’s rising in measurement and influence. Whereas another firms are additionally beneath scrutiny, together with in style social-media app WeChat operator Tencent Holdings Ltd. and ride-hailing agency Didi Chuxing Know-how Co., regulators for now are focusing their consideration on Mr. Ma and his firms.

Mr. Ma, flashy and outspoken, has lengthy clashed with regulators, notably these on the Individuals’s Financial institution of China, who’ve develop into cautious of a sprawling empire that they concern is working amok and tried to impose restrictions.

The stress got here to a head in late October when Mr. Ma overtly criticized chief Xi Jinping’s signature risk-control initiative, whereas additionally slamming regulators for stifling innovation—in a speech that occurred simply days earlier than Ant, wherein he’s the controlling shareholder, was set to go public.

Earlier than the speech, Mr. Xi had paid little consideration to Ant’s deliberate IPO, in response to an individual with data of the regulatory course of. “Due to Ma himself, the IPO acquired on Xi’s radar,” the individual mentioned.

Mr. Ma’s assault on regulators shortly backfired. It led Mr. Xi to personally name off the preliminary public providing, which was anticipated to be the most important ever and would have valued Ant at greater than $300 billion, and to instruct regulators to look into dangers posed by Mr. Ma’s empire.

Since then, China’s market and monetary regulatory companies have sprung into motion. Officers are notably involved about how Ant makes use of knowledge harnessed by its Alipay cost app to encourage banks to work with the corporate in making client and small-business loans. Ant solely funds a fraction of the loans, with the majority of the funds coming from the banks, leaving them with the credit score dangers.

However even Mr. Xi, probably the most highly effective chief in latest Chinese language historical past, faces constraints in how far his authorities can go to clamp down on Mr. Ma’s empire.

Chief amongst them is avoiding the notion of dealing a big blow to entrepreneurship at a time when the personal sector is seen to be dropping floor to state-owned corporations. As well as, the management is frightened a few backlash from worldwide buyers at a time when Beijing desires to fend off rising doubts over its dedication to market reforms and to nurture extra homegrown firms like Alibaba that may compete with their American counterparts.

To allay fears of the state overreaching, the officers mentioned, authorities selected a deputy central-bank governor with a pro-market fame to element the actions towards Ant this week in a publicized question-and-answer assertion.

Pan Gongsheng, the deputy governor who beforehand oversaw the share gross sales for 2 of China’s largest state-owned banks earlier than transferring to the Individuals’s Financial institution of China, urged Ant to overtake its enterprise primarily based on market and authorized ideas.

Nonetheless, Mr. Pan emphasised the necessity for the corporate to “combine company improvement into total nationwide improvement,” in response to remarks launched by the central financial institution on Sunday.

Ant mentioned in a press release Sunday that it might adjust to regulatory necessities and develop a plan and timetable for the ordered overhaul. At a November assembly with regulators, Mr. Ma provided to have the federal government “take any platforms Ant has, so long as the nation wants it,” in an obvious effort to salvage his relationship with Beijing. Mr. Ma hasn’t appeared in public since his October speech.

In the meantime, China’s market regulator final week launched an antitrust investigation into Alibaba, which owns a 3rd of Ant, for allegations that the corporate has used its dominant market place to strain retailers to promote solely on its platforms.

Officers are additionally involved about Alibaba’s risk to conventional bricks-and-mortar retailers. “We’ve obtained plenty of complaints about Alibaba squeezing out smaller rivals and its web platforms taking away enterprise from others,” a regulatory official with data of the investigation mentioned.

Wang Fuqiang, who owns a laptop computer retailer in Beijing, is amongst those that have felt the pinch. Mr. Wang’s retailer has seen gross sales drop steadily as extra folks store on Taobao, an internet buying web site owned by Alibaba, and Inc., one other giant e-commerce participant.

“Now, most patrons come to my retailer to strive the laptops and take footage,” mentioned Mr. Wang, who has been working the shop for 17 years. “Then, they would go away and purchase it on-line.”

This story has been revealed from a wire company feed with out modifications to the textual content.

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