In the face of the escalating U.S.-China tech war, Wall Street’s financial giants, already mired in the maelstrom, are having a hard Time staying out of the way.
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Wall Street giants invest heavily in Chinese Communist Party technology companies
The rapid rise of Alibaba, which relies on international financial capital, is a representative of China’s technology industry.
Putting aside Ma’s business acumen and his climb to the top of the princely party, including Jiang Zhicheng, the grandson of the former Communist Party leader, many Chinese high-tech companies like Ali have soared without the support of foreign capital, including Wall Street giants.
Pictured is Alibaba in its initial public offering (IPO) on the New York Stock Exchange on Sept. 19, 2014.
In 2014, Alibaba went public in New York and raised $25 billion, setting a record for the world’s largest IPO (initial public offering) at the time. The $300 million in commissions generated may not seem like much, but the investment banks (investment banks) that drove its IPO actually made a huge profit. Ali IPO six major investment banks, in addition to Europe’s Credit Suisse (Credit Suisse) and Deutsche Bank (Deutsche Bank), the other four are Wall Street financial giants, including Morgan Stanley (Morgan Stanley), JPMorgan Chase (JPMorgan Chase), Goldman Sachs (Goldman Sachs), Citigroup (Citigroup).
How much money did the financial giants make from Alibaba’s IPO that year?
According to Ali’s 2014 IPO documents, Alibaba issued about 368 million shares at the time, and set the issue price at $68 the night before the IPO; Alibaba shares closed at $93.89 on the day of the debut, with a 38.07% increase in share price. That’s equivalent to the six lead underwriters for Ali and the institutions that subscribed for Ali shares through the underwriters, who could earn an additional $9.2 billion in the Ali IPO that day.
Ma’s Ant Group’s IPO, which was expected to be the world’s highest IPO last year, was abruptly called off by the Chinese Communist Party. Its IPO prospectus (Ant IPO Hong Kong H-share prospectus, domestic science and technology board prospectus) revealed that even in 2020, the year of the most intense economic conflict between the U.S. and the Communist Party, Wall Street giants are still swooning over Chinese companies that enjoy the privileges of the Communist Party and have great “money” prospects.
According to the IPO prospectus filed by Ant Group on Aug. 25 last year, Ant originally planned to issue at least 6.26 billion shares, nearly half of which were H shares issued to holders of Ant’s Class C shares in exchange for shares. about 1.839 billion Class C shares were issued by Ant to 45 foreign investors in June 2018.
The Ant prospectus listed a dazzling, 74 shareholder entities, including 29 domestic shareholders and 45 foreign shareholders. After the equity penetration, the shareholder list narrowed to 54, with domestic shareholders mainly being some of Jack Ma‘s business partners and white gloves controlled by princelings such as Jiang Zhicheng.
The group of foreign investors holding Class C shares, on the other hand, is full of celebrities, including not only Singapore’s Government Investment Corporation (GIC) and Temasek Holdings, Malaysia’s Khazanah Nasional and the world’s most prominent sovereign wealth funds such as the Canada Pension Plan, the Board of Trustees of the University of California as well as pension and Education investment funds; it also includes a large number of leading U.S. investment banks and their executives. foreign capital, including U.S. financial giants, provided approximately $14 billion for Ant’s Class C financing in June 2018.
U.S. financial giants that invested in Ant Group include BlackRock (also known as BlackRock Group), T. Rowe Price, Warburg Pincus, Silver Lake, Carlyle Group, Fidelity The company’s investment in Ali Group is based on a number of hedge funds, private equity funds and other investment entities, including Warburg Pincus, Silver Lake, Carlyle Group, Fidelity, Sequoia, General Atlantic and GGV Capital.
The “win-win” story of Wall Street making a fortune from its investment in Ali Group and Ali leveraging the former to grow in turn into a tech giant capable of influencing the U.S. and the world has become a competitive target for both U.S. capital and Chinese high-tech companies.
A similar example is Tencent and the capital giant behind it, Hillhouse Capital. Although Hillhouse Capital was founded in Beijing, its founder Zhang Lei’s start-up capital and investment knowledge came from the U.S. financial sector. Zhang Lei founded Hillhouse Capital in 2005, and his first investment was in Tencent. Today, High Tide Capital has grown into one of the world’s largest private equity firms with about $60 billion in assets under management, funded primarily by U.S. universities, pension funds, and foundations in the U.S. and elsewhere. Tencent has grown to become China’s largest social media company and a powerful tool for communist surveillance of the Chinese.
The Chinese Communist Party interferes in U.S. policy-making through the entanglement of Chinese companies and Wall Street interests
Between last December and January, the U.S. government was embroiled in debate and disagreement over whether to expand the blacklist of “Chinese Communist military enterprises.
WeChat, the most used social chat application in China today, has been accused of censoring and monitoring personal data.
The Wall Street Journal reported on Dec. 18, 2020, that as of last December the U.S. government had banned U.S. investors from buying the securities of 35 blacklisted Chinese companies, a decision that led to a sell-off in stocks and bonds of those Chinese companies. The question facing the U.S. government, however, is whether the “blacklist” should be expanded.
China Daily quoted sources familiar with the matter as saying that the State Department and the Defense Department believe that excluding subsidiaries or affiliates would leave a loophole because Chinese companies, especially state-owned ones, raise money through subsidiaries and affiliates. The Treasury Department, on the other hand, is concerned that the list is too extensive and could cause panic in the market.
The U.S. government’s “military-related blacklist” has already prompted global index providers such as MSCI Ming Sheng, S&P Dow Jones Indices, FTSE Russell and the New York Stock Exchange to exclude well-known Chinese companies such as China Mobile, China Telecom and semiconductor giant SMIC from their major stock indexes. But as of now, the major index providers have removed only some of the Chinese companies named by the U.S. and “do not exclude any subsidiaries or affiliates.
As we enter 2021, the controversy within the U.S. government extends to Ali and Tencent. China Daily reported on Jan. 11 that the U.S. government is discussing whether to add Alibaba and Tencent to a blacklist of “Chinese Communist Party military companies” that already includes 35 Chinese companies.
China Daily reported that major public shareholders of Alibaba and Tencent include major U.S. asset managers such as Prudential, BlackRock and Vanguard Group, and that these U.S. financial firms are lobbying to prevent companies like Ali from being blacklisted.
A Jan. 15 report by China Daily further disclosed that the U.S. government had reviewed 12 Chinese companies, including Alibaba, Baidu and Tencent, to decide whether to add them to the Communist Party’s blacklist of military companies. Wall Street apparently prevailed in this tug-of-war within the U.S. government, and the U.S. ultimately decided not to add the three companies, which have a combined market value of about $1.4 trillion, to the blacklist.
On Jan. 14, the U.S. Department of Defense officially announced the latest expansion of its “military-related blacklist,” adding nine new Chinese companies, including Xiaomi and Shangfei, but not Ali, Tencent or Baidu.
The consequences of the deep entanglement between U.S. capital and Chinese military companies have been highlighted in the storm over Ali and Tencent’s eventual escape from the blacklist.
However, there is a precedent for the Chinese Communist Party to influence the U.S. government through the interconnectedness of Wall Street and Chinese companies.
According to a December 4, 2020 report in China Daily, Chinese Vice Premier Liu He arrived in Washington three years ago to try to avert a trade war, and met with a group of U.S. business leaders – mostly from Wall Street – before meeting with U.S. negotiators.
Citing sources familiar with the matter, China Daily said Liu He told the U.S. business leaders that “we need your help” and that the Communist authorities offered to give U.S. financial firms new opportunities to expand their business in China.
The China Daily reports that although the U.S.-China talks did not progress at the time, Liu He did not leave empty-handed, and Wall Street not only became one of the biggest supporters of the deal, but also the biggest winner.
After the U.S.-China trade deal was signed in January, JPMorgan Chase was approved to take full ownership of a futures company, in which it previously held only a minority stake. Goldman Sachs and Morgan Stanley were given controlling stakes in their China securities joint venture. Meanwhile, Citigroup was approved for securities investment fund custody business in China.
Analysis: Wall Street Must Make Choices in U.S.-China Tech War
As the U.S.-China conflict intensifies and the two countries gradually decouple in the areas of technology and trade, U.S. financial firms on Wall Street are expanding their investments in China and becoming increasingly tied to Chinese companies under the control of the Chinese Communist Party.
Alibaba and Tencent have a combined market capitalization of $1.3 trillion, and almost every major U.S. investment fund has holdings, Reuters reported on Jan. 12 of this year (original article). Goldman Sachs estimates that U.S. investors hold about $1 trillion worth of shares in Chinese companies. UBS estimates that slightly more than one-third of Alibaba’s equity is in the hands of U.S. investors, while 12% of Tencent’s equity is held by U.S. investors.
Alibaba and Tencent account for 11 percent of the $7 trillion MSCI Ming Sheng Emerging Markets Index, and Chinese companies have increased their share of the index from just 17 percent a decade ago to 40 percent today.
However, current affairs commentator Li Linyi said the encounter of the Ant Group’s IPO being halted by Xi Jinping is another wake-up call to the world that foreign capital is attempting to make big money from Chinese companies while sending its own lifeline and future into the hands of the Communist Party.
On March 12, Tencent’s stock price took a big dive at the end of the trading session, plunging about 225.4 billion RMB in one hour. It is rumored on the Internet that Tencent may become the next target of the CCP’s financial regulation, following the footsteps of Alibaba.
Alibaba and Tencent are among China’s largest IT giants, with products ranging from Taobao and Alipay to qq WeChat, which have penetrated every aspect of Chinese people’s lives and are closely aligned with the Chinese Communist Party, becoming one of the tools of national surveillance. Since this year, Ali and other high-tech Chinese companies have come under stricter scrutiny from the CCP and may be further subject to the authorities.
According to Li Linyi, the fact that IT giants like Ali and Tencent have been purged by the CCP reveals that the CCP is struggling under the pressure of the U.S. trade and technology wars, as well as internal and external problems such as the debt crisis and infighting among the powerful, and has to turn on private enterprises to strengthen its control over economic resources and the Chinese people.
He analyzed that the CCP’s latest 14th Five-Year Plan shows that it has not given up its plan to continue to challenge the US in areas such as 5G, chips and AI, so as to gain the technological advantage of world domination. Only, it turns out that the CCP had received a great boost from Wall Street, and now both have hit an inflection point and crisis.
According to Li Linyi, the U.S. technology and financial wars are not only blocking the Chinese Communist Party’s improper access to technology and capital, but also making Chinese technology companies, from ZTE and huawei to DJI and Xiaomi, increasingly subject to the United States.
At this inflection point in history, where will Wall Street go from here.
He believes that the escalation of the U.S.-China conflict will greatly compress the survival space and development prospects of Chinese technology companies, which in turn will hit Wall Street’s investment interests in China hard; the ability of the Ant IPO to be interrupted at will is a foregone conclusion that U.S. capital and Chinese companies cannot escape.
Li Linyi pointed out that Wall Street must choose whether to be willingly subject to the Chinese Communist Party for the sake of money and be driven by the Chinese Communist Party to interfere with the U.S. government and jeopardize a free society, or to make a moral and responsible choice in the face of profit.
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