Ant Goes Marching

Ant Group, the company behind China’s online payment revolution, intends to list on both the Hong Kong and Shanghai stock exchanges by the end of this month. At $35-$40 billion, it would be the biggest IPO ever. Significant investment interest in Ant Group has bubbled up in the West, including from American firms like Fidelity and T. Rowe Price. But amid the ongoing Sino-American tensions, some policymakers in the U.S. are considering actions to scupper Ant Group’s rise.

What is Ant Group?

Since it isn’t (yet) a household name in the United States, a significant bit of background information is warranted.

Ant Group, based in Hangzhou, is a fintech unicorn. It is a financial spin-off from Alibaba, the world’s largest e-commerce site, which itself garnered a then-record IPO in 2014 when it was listed on the New York Stock Exchange. Jack Ma is the controlling shareholder of both companies.

In order to build confidence in its online marketplace, Alibaba created Alipay (now the anchor service provided by Ant Group) in 2004 as an escrow service. The project took on a life of its own and grew over the course of a decade to become the preferred digital wallet in China. While in parts of the United States digital payment remains novel, in China it has become the most prevalent form of exchange. Many foreigners have reported that daily life in Beijing and Shanghai has become impossible ­without­ ­using a digital wallet like Alipay or its rival, Tencent’s WeChat Pay. The apps are so widely used that not only cash, but credit cards, too, have become obsolete.

Ant Group, however, is much more than Alipay. Along with digital payments, Ant Group offers customers loans, insurance, and asset management, all through one’s smartphone via cutting-edge financial algorithms.

As described by The Economist, “Ant is the most integrated fintech platform in the world: think of it as a combination of Apple Pay for offline pay, PayPal for online pay, Venmo for transfers, Mastercard for credit cards, JPMorgan Chase for consumer financing and iShares for investing, with an insurance brokerage thrown in for good measure, all in one mobile app.”

Ant Group’s lending options, Huabei for consumer credit and Jiebei for small businesses, epitomize the company’s ethos of providing service to those on the margins of the economy. Its “leftover treasure” option, Yu’ebao, enables users to generate returns from small sums of cash in their Alipay accounts through what is now among the world’s largest money-market funds.

The accessibility that Ant Group offers customers is the essential characteristic that has propelled its ascent. According to The Economist, Ant has reached 1.7 trillion yuan ($253 billion) in outstanding consumer loans and 400bn yuan in loans to small businesses—those figures represent 15 and 5 percent respectively of their markets in China. On the investment side, 170 companies offer more than 6,000 products such as stock and bond funds on Ant and have more than 4 trillion yuan in assets under management through the app. In a representative nod, Ant Group dipped into its own reservoir of users to raise 60 billion yuan through new mutual funds that will invest in Ant.

All told, Ant Group is a one-stop-shop unlike anything existing today in the United States.

Washington Reacts

In what is now becoming a familiar refrain following the Huawei, Tiktok, and WeChat hullabaloos, the Beltway is abuzz with murmurs of an Ant IPO slowdown. The leading voice in this camp is that of Senator Marco Rubio, who told Reuters that, “the administration should take a serious look at the options available to delay Ant Group’s IPO.” Rubio tied his opposition to China’s subversion of Hong Kong’s autonomy and accused Wall Street firms of “rewarding the Chinese Communist Party’s blatant crackdown…by orchestrating Ant Group’s IPO on the Hong Kong and Shanghai stock exchanges.”

In the days following Senator Rubio’s comments, the State Department, according to Reuters, proposed adding Ant Group to the Commerce Department trade blacklist. This move, if finalized by the White House, would not exactly stop the IPO, but it would give a yellow light to U.S. investors. The trade list tactic has become pronounced in recent months. Not only has the Trump administration prohibited WeChat and TikTok, but it has blacklisted dozens of other lesser known companies as well.

The trade blacklist tends to include companies engaged in advancing Beijing’s expansionary ambitions in the South China Sea, evasion of sanctions on countries like North Korea, and human rights abuses. While some will cite possible Ant Group links to surveillance within China, the primary claim against it is that further integration into global financial markets could jeopardize sensitive banking data and introduce the specter of the Communist Party (CCP) into the daily lives of a billion people outside of China. It’s worth noting here that Ant Group services are not available today in the United States, that it does 95 percent of its business in China, and, to reiterate, that the IPO is taking place in Hong Kong and Shanghai, not the U.S. The case for tossing sand in Ant Group’s gears is more nuanced than that against firms engaging in forced labor and sanction-busting, and so requires deeper explanation.

Hawk’s-eye view

There are a number of interlocking issues at play that have brought us to this point. The first is that the authoritarian regime in Beijing is beginning to flex its muscles. With its extension of authority in Hong Kong, its resurgent repression on the Mainland, and its thinly veiled threats against the independent people of Taiwan, the U.S. government—and even U.S. citizens—are right to look askance at the People’s Republic.

The second issue, as discussed in this August blog post, is that China breaks with liberal norms separating public initiatives from private enterprise. Companies based in China can find themselves under irresistible state pressure not only to comply with data demands, but also potentially to undertake active intelligence gathering. This is not an informal expectation; it is codified.

The third issue, unsettling though it may be, is that Chinese companies are turning out some damn good products right now. Ant Group, Tik Tok, and Huawei are relevant to the U.S. and Europe in 2020 because they bring high value to their customers and many people across the globe find them attractive. In 1970 no one was worried about the Zhiguli.

Since Deng Xiaoping afforded the Chinese a measure of breathing room to create wealth 40 years ago, Chinese firms have slowly built institutional and entrepreneurial knowledge. Today many of them are bona fide global players with competitive market offerings. Some of those firms—Huawei as much as any—have benefited from cozy relationships with the party, but party favoritism and lavish subsidies don’t explain the innovation, quality, and appeal of Ant Group’s offerings.

What’s more, while we find ourselves mired in economic doldrums as the coronavirus lingers, China has rebounded. China’s economic output in 2020 will eclipse that of 2019. The economies of North America will be as much as 5 percent smaller than last year; the UK economy might be 10 percent smaller.

Ant Group’s IPO comes in the midst of this disconcerting turn of events and will take place at the locus of the West’s greatest anger at Beijing: Hong Kong. In the wake of the evisceration of its autonomy, Hong Kong’s financial sector has enjoyed a renaissance.

As described by Nikkei Asia’s chief banking and financial correspondent Narayanan Somasundaram:

Hong Kong has shrugged off creeping political curbs by Beijing, tensions between China and U.S., and the coronavirus pandemic to reel off three dozen listings since the end of June. Nor is the flow at an end. Investment banks are sitting on what one described as the “best pipeline in the past decade.”

So Ant’s forthcoming dual listing, which at $35 billion is poised to be the biggest-ever IPO, is a moment to celebrate for Hong Kong, a top global venue for listings this year. Ant’s sheer size means it could have an outsized effect on market spirits — for better or worse.

This leaves China hawks in the U.S., U.K., and elsewhere a bit red in the face, as it grants a sliver of credibility to the Communist Party claim that it will provide the stability Hong Kong needs. It is perhaps this salting of the wound that has spurred in Washington the desire to slow things down for Ant Group, an avatar of nascent China-model global success.

What to do, what to do

The challenge for American China watchers and policymakers is two-fold. First, we must analyze and articulate if and in what ways a company like Ant threatens our preferred state of affairs.

The argument that Ant Group’s emergence onto the global stage does constitute a threat flows in roughly the following way: Ant Group has facilitated an integrated product that illuminates networks of association; given what we know about Chinese state power of Chinese firms, those networks can observed and manipulated by the state; a globalized Ant Group would for all the reasons described earlier in this article be highly attractive to potential users elsewhere in Asia; Ant Group adoption in those places would spread Chinese monitoring and manipulation abroad.

The result of the wider social credit system in China is near universal self-censorship. Dissent is not worth sharing when it will meet with surveillance, suppression, and credit downgrading. Via Ant Group, this phenomenon goes global, typifying Beijing’s use of sharp power. While at first blush, Ant Group would be a boon to any upstart economy, it comes with strings attached.

To conjure a hypothetical, imagine a small business owner in Thailand contemplating the country’s current political strife. Though politics were certainly not on his mind when he waded into the Ant ecosystem to secure a business loan, his creditworthiness in the eyes of Hangzhou and Beijing might keep him from opening his mouth to voice dissent against an autocrat.

Ant Group, whether it intends to or not, could become a weapon in the CCP’s international political project, drawing closer to China in sometimes hidden ways people living in what we might call today’s non-aligned countries.

With that problem articulated, the second aspect of the challenge emerges: what can we do about it?

Through an addition to the trade blacklist, the U.S. government could deter Western capital from aiding Ant Group’s rise. It could also use diplomacy to guide other governments away from allowing Ant Group within their boundaries—a task which the current Secretary of State would undoubtedly relish.

These tactics, however, are not without their own risks. Given how removed the IPO in Hong Kong and Shanghai is from U.S. jurisdiction and the eager appetite for Ant Group across the world, aiming to throw it off course might cause the U.S. a loss of face.

“This is one of the downsides of decoupling,” said Stephen Myrow, a former Treasury official, “you don’t have leverage. In some ways, it shows the limits of our ability.” As Morrow implies, if Ant Group marches on despite Washington’s efforts to stop it, we would look hapless. With Sino-American relations in line for decades of strategic rivalry, this counterargument goes, expending an arrow at each sign of movement across no-man’s land will achieve little while weakening the value of resistance in instances where it is widely understood as justified, such as is the case with Huawei’s incorporation into Western infrastructure. 

Furthermore, supposing it could succeed in turning Ant Group into a pariah, Washington, paradoxically, could diminish its own influence. The growth markets of South and Southeast Asia would be a likely next theater for Ant Group’s advance. These are also the countries that are central to U.S. strategy in the Indo-Pacific region. Given the clear value Ant Group might provide to small businesses in places like India, Indonesia, and the Philippines, making its adoption more difficult in the Indo-Pacific runs the risk of alienating people who are not aligned in this geopolitical standoff. China’s chest-pounding in its near abroad repels those countries, but U.S. strongarm behavior over Ant Group might push them right back. The counter to this counter is that our reliance on this soft power approach is precisely what Beijing seeks to exploit.

While the Chinese state is a relic of 20th century totalitarianism, commerce in China is galloping into a new age. In no uncertain terms, Ant Group redefines how people relate to money. What’s more, Ant Group provides something that can’t as of yet be found outside of China. Unlike our experience outlasting the moribund performance of the Soviet Union, we now encounter a rival worthy of the name. As always, an issue cannot be settled in a vacuum. Any response to Ant Group must be part of a cohesive strategy that calibrates risks and rewards.

Update 11/4/20: 

In a truly bizarre twist, China financial regulators have suspended Ant Group’s IPOjust days out from its scheduled listing. The suspension puts billions of investor dollars into flux. Prior to the announcement on Tuesday, Ant Group was expected to reach an estimated valuation of over $300 billion. Ant Group’s reversal of regulatory fortune will trigger what some are calling the largest refund in history. Details of the suspension are scarce as of this writing, but Beijing’s stop sign is being couched in terms of capital requirements and consumer protection.

More plausibly, this move is retribution for Jack Ma’s insouciance. Less than two weeks ago in Shanghai, Ma derided China’s regulators as operating on outdated models that fail collateral-poor debtors. Ma believes Ant Group fills a void in China’s economy. China’s state banks and its regulators are said to be ill at ease with Ant Group usurping state supremacy in finance.

For the time being, it would appear the interests of U.S. China hawks and Beijing have aligned. Ant Group and potential investors are the worse for it in the near term. In the long term, China itself may pay a cost. “China risk just shot through the roof,” an unnamed chief investment officer for a North American pension fund told the South China Morning Post. This episode, though certainly unresolved, casts further doubt on China’s ability to play a central role in global finance. 


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