Following in the footsteps of ZTE and Huawei, it is possible that Ant Group, the parent company of Chinese fintech giant and Alipay, will be added to the U.S. list of entities. Some U.S. financial and technology analysts are concerned that the banking, biological, behavioral, and cognitive data of U.S. citizens could be turned over to the Chinese government by Ant Group, given its ownership, potential military background, and the absence of U.S. data privacy regulations.
Reuters reported on Oct. 14, citing sources with knowledge of the matter, that the U.S. State Department has submitted a proposal asking the Trump administration to place Ant Group on a trade blacklist.
However, the End User Review Committee, which has the authority to decide which companies to add to the list, includes the U.S. Departments of State, Defense, Energy, and Commerce. None of those agencies responded to Reuters’ inquiries.
Chinese Foreign Ministry spokesman Zhao Lijian said on Thursday that China opposes the U.S. abuse of national security concepts to suppress foreign companies and called on the U.S. to abide by international economic and trade rules.
Ant Group is planning to go public in Shanghai and Hong Kong, while a group of hawkish U.S. officials are trying to prevent U.S. investors from participating in the group’s initial public offering (IPO). The group’s IPO size is expected to reach $35 billion, which is expected to be the world’s largest IPO.
The U.S. intends to set limits on Tencent, Ant to worry about China’s payment system threatening national security.
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How does Ant Group threaten U.S. national security?
U.S. Senator Marco Rubio wrote in a statement, “By coordinating Ant Group’s IPO on the Hong Kong and Shanghai stock exchanges, Wall Street has rewarded the Chinese Communist Party’s outright repression of Hong Kong’s freedom and autonomy, which is shameful.”
U.S. officials are also concerned that Ant Group may give the Chinese government access to sensitive banking data of U.S. users, Reuters said.
Claire Chu, a senior analyst at RWR Advisory Group in Washington, told the station that Alibaba, which owns a 30 percent stake in Ant Group, has a full view of the biochemical and behavioral information of U.S. citizens, in addition to financial data, which could be handed over to China if necessary.
“Ant Group collects biochemical information about faces, fingerprints, voices, tattoos, etc., and includes behavioral data such as handwriting, typing, location, and Wi-Fi usage, as well as personal knowledge and target data. The company’s policy is that the personal data collected is stored in the country it serves, and if necessary, data can be transferred across borders for security and other reasons.”
In September, the U.S. Current Crisis Committee (CPDC) sent a letter to President Trump, the Hong Kong Stock Exchange and several international investment banks, citing seven security risks posed by Ant Group to the U.S.: including the company’s investment in Megvii Technology, which is involved in monitoring Uyghurs in Xinjiang, Alibaba’s own military background, Sesame Credit’s service to the social credit system, and the fear of major fluctuations in Hong Kong’s stock market after the decoupling of China and the U.S., among others.
The open letter notes that Ant Group’s record of protecting the privacy of its citizens is so poor that not only is the U.S. government untrustworthy, but the China Internet Information Office (CAC) also publicly criticized it in 2018 for arbitrarily collecting user information in violation of national standards under the Personal Information Security Code.
In early 2018, the U.S. Foreign Investment Review Board (CFIUS) rejected Ant Group’s proposed $1.2 billion merger with MoneyGram on national security grounds, setting back its pace and ambitions for overseas expansion.
However, not every overseas acquisition by Ant Group has been blocked by the U.S. In 2016, Ant Group successfully acquired EyeVerify, a U.S.-based company, and incubated Zoloz, a company dedicated to building financial-grade facial recognition to replace PINs, passwords and offline identity verification.
Zhu suggested that the U.S. government needs to reconsider the export license of Ant Zoloz, “Zoloz is 100 percent owned by Ant Group and led by Ni Xingjun, CTO of Ant Group and president of Alipay Business Group. It is still headquartered in Kansas, Missouri, and retains local customers such as Wells Fargo.”
Data privacy needs to be strengthened as U.S. vigorously protects emerging technologies
On October 15, the U.S. White House released its National Strategy for Critical and Emerging Technologies, naming China for its years of stealing U.S. intellectual property and undermining the free market. The Critical and Emerging Technologies (C&ET) list includes artificial intelligence, semiconductors, and quantum information science.
Earlier this month, the U.S. Department of Commerce’s Bureau of Industry and Security will expand the control list of emerging technologies to 37, including the computer (or communication device) to circumvent the authentication or authorization control and extract the raw data of digital forensics tools, suborbital aircraft, hybrid manufacturing (AM) / computer numerical control (CNC) tools and other six new technologies.
Zhu Huaian said that in addition to increasing technical control, from the recent security controversies of Shakespeare, WeChat and Ant Group, the U.S. urgently needs to develop a systematic data management strategy, currently related regulations are mostly limited to the state level, difficult to macro-control at the federal level, such as the EU’s General Data Protection Regulation (GDPR), China’s Data Security Law, and so on.
Ants become elephants, obstacles to overseas entry
Ant Group emphasized in a recent statement to Reuters that only five percent of the company’s business is outside of China.
He Jiangbing, a Chinese economist, told Taiwan that Ant Group’s blacklisting in the U.S. won’t hurt its Hong Kong IPO fundraising: “Goldman Sachs and Citibank in the U.S. can’t underwrite, nor can they buy Ant Group’s shares. But Swiss financial institutions and CICC, they can. It does not affect its Hong Kong listing, but the stock price may have some impact.”
Ant Group, a spin-off from Alibaba Group, is the parent company of Chinese mobile payment giant Alipay, which was formally established in 2014. The company’s net profit reached 21.923 billion yuan in the first half of the year, up 1,158.7 percent year-on-year, despite China’s economic malaise in 2020.
In addition to its flagship product Alipay, Ant Group has developed a diversified financial business empire that includes wealth management products such as Balance Bao, consumer credit products such as Flower Chant and Debit Chant, and an insurance technology platform that includes life and health insurance.
“This kind of hyper-application approach – creating an ecosystem enabled by payments and then overlaying other financial or non-financial products and services on top of that – is something that no other company in the world has been able to do successfully,” Zennon Kapron, director of Kapronasia, a research firm that focuses on the fintech industry, told the New York Times.
Ant Group’s current global expansion is mostly limited to Southeast Asia, including a joint venture with Indonesian live chat platform BBM and the launch of digital wallet DANA in 2017, and the creation of a Bangladeshi version of Alipay with Bangladeshi mobile payment company bKash in 2018.
The Economist magazine wrote in its September cover story that China-led monetary innovation could create a better world if only fintech were more secure, open and respectful of individual rights.
Zhu Huaian admires China’s leading innovations in digital finance, “but the US is concerned about how China collects and uses personal data and whether it is weaponizing it. This raises concerns for the U.S. about national security and human rights protection.”
He Jiangbing believes that as long as China does not carry out fundamental reform of its political and economic system, China has not yet joined the international monetary settlement system, and the RMB is still not freely settled, Ant Group’s dream of building a global digital payment empire will only come to naught.
“Whether you are in the U.S., Africa, or around the world, and you pay with WeChat or Alipay, it’s actually still Bank of China and Bank of China, Bank of China to Farmers Bank, you’re not joining the international settlement system. The efforts now are all technical, internal loops, it’s OK to play with yourself, it’s simply impossible to join the international loop.”
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