Shares of Chinese e-commerce giant Alibaba (BABA  ) took a big hit in a pre-market selloff after reports that Beijing officials were seeking to break up the firm's Alipay service.

The proposed plan by Chinese regulators appears to further the ongoing divesting of Ant Group assets that was begun in April when the company was forced to restructure and divest its lending business into two separate entities. Chinese officials' new regulations would further fracture Ant Group by pushing these two new firms to develop their own separate app from Alipay.

According to the report by the Financial Times, the app and the user data to be used in credit approval decisions to a credit-monitoring firm possessing stakes from state-owned firms. The decision could heavily interfere with the efficiency of lending operations, given that the resulting firms would no longer be able to assess a customer's credit independently.

"What does Zhejiang Tourism Investment Group know about credit scoring - nothing," an anonymous source told the Financial Times, referring to the state-owned firm taking a stake in Ant Group.

The heavier state participation in the nascent companies only worsens the increasingly embattled reputation of firms once seen as promising and lucrative by foreign investors. The struggles of giants such as Alibaba to cope with the overwhelming presence of the Chinese government are only made much more daunting when considering growing antipathy towards the CCP abroad. In the United States, for example, cross-listed firms such as Alibaba are now under stricter disclosure requirements, which may make seeking foreign investment in the U.S.' lucrative financial markets all but impossible for firms that possess a heavy degree of state involvement.

The dawning of this reality on many investors is what likely drove Alibaba's early morning selloff, which resulted in a 2.15% drop before markets opened. Shares recovered 1.40% by 1 pm, with momentum appearing to fade somewhat into the afternoon.