US may add Ant Group to list identifying national security threat

Business | 15 Oct 2020 11:16 am

The U.S. State Department has submitted a proposal for the Trump administration to add China’s Ant Group to a trade entity list, according to two people familiar with the matter, before the financial technology firm is slated to go public, Reuters reports in an exclusive.

Shares in Tencent Holdings (0700) are down by 2.44 percent at HK$559.50.

It was not immediately clear when the U.S. government agencies that decide whether to add a company to the so-called Entity List would review the matter.

The move comes as China hardliners in the Trump administration are seeking to send a message to deter U.S. investors from taking part in the initial public offering for Ant Group. The dual listing in Shanghai and Hong Kong could be worth up to a record US$35 billion.

While the Alipay payment app is currently unavailable for American users in the United States, according to a spokesperson for Ant, Trump administration officials fear the Chinese government could access sensitive banking data belonging to future U.S. users.

A powerful security panel known as the Committee on Foreign Investment in the United States (CFIUS) stopped its US$1.2 billion bid to buy the money transfer company Moneygram in 2018 over national security risks.

The State Department did not respond to a request for comment. Ant, an affiliate of Alibaba Group Holding, declined to comment but in a recent statement to Reuters emphasized that only 5 percent of the company's business is outside China.

The entity list, which makes it more difficult for U.S. firms to sell high-tech items to sanctioned companies, has become the tool of choice for the Trump administration to punish Chinese companies, though its real-world impact is sometimes questionable.

While curbing access to U.S. technology deals a blow to companies like Chinese telecoms company Huawei Technologies, which was added in May 2019, its impact on a fintech giant like Ant Group is likely to be more symbolic and does not prevent U.S. investors from taking stakes in the firm.

The administration has been largely loathe to use tougher tools against China, such as freezing assets in the United States, which many attribute to Treasury Secretary Steve Mnuchin’s dovish stance on Beijing.

Ant is China's dominant mobile payments company, offering loans, payments, insurance and asset management services via mobile apps. Based in the eastern Chinese city of Hangzhou, Ant is 33 percent owned by Alibaba Group Holding and controlled by Alibaba founder Jack Ma Yun.

Ant’s Alipay payment platform, like Tencent’s WeChat platform, is used primarily by Chinese citizens with accounts in renminbi. Most of its U.S. interactions are with merchants accepting payment from Chinese travelers and businesses in the country.

Republican Senator Marco Rubio, who has successfully urged the Trump administration to pursue investigations of Chinese companies, called last week for the U.S. government to consider options to delay Ant Group’s initial public offering.

The End User Review Committee, which decides which companies to add to the list, includes the departments of State, Defense, Energy and Commerce. Defense and Commerce declined to comment while Energy did not respond to a request for comment.

The Hong Kong leg of the IPO is being sponsored by China International Capital Corp, Citigroup, JPMorgan and Morgan Stanley. Credit Suisse is working as a joint global coordinator. Goldman Sachs is also involved.

However, approval for the IPO has been delayed.

On Tuesday, Reuters reported that China’s securities regulator is probing a potential conflict of interest in Ant Group’s planned stock listing.

The Entity List identifies persons or organizations reasonably believed to be involved, or to pose a significant risk of being or becoming involved, in activities contrary to the national security or foreign policy interests of the United States, the US Commerce Department Explains. The Export Administration Regulations impose additional license requirements on, and limits the availability of, most license exceptions for, exports, re-exports, and transfers (in-country) to listed entities.-additional reporting The Standard. Photo: China Daily.




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