Chinese Fintech Giant Poses Risks to US Investors, Advocacy Group Warns

Chinese Fintech Giant Poses Risks to US Investors, Advocacy Group Warns
Motorists drive past an Alipay logo next to the Shanghai office building of Ant Group on Aug. 28, 2020. (HECTOR RETAMAL/AFP via Getty Images)
Emel Akan

WASHINGTON—A financial affiliate of Chinese e-commerce giant Alibaba is set to go public, and a sizeable portion of the funds raised are to come from U.S. investors, raising alarms in Washington.

Chinese financial technology firm Ant Group Co. is preparing for an initial public offering in Shanghai and Hong Kong next month. Controlled by billionaire Jack Ma, founder of Alibaba, the fintech company aims for an approximately $225 billion valuation through the public offering.
Ant Group is the parent company of China’s largest digital payment platform, Alipay, which has 1.2 billion users, serving mainly Chinese customers. Its largest competitor, PayPal, by contrast, serves 346 million active users across 190 countries.

The leading U.S. investment banks Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Citigroup are joint sponsors of Ant Group’s IPO.

The Committee on the Present Danger: China (CPDC), a Washington-based advocacy organization, sent letters to the leadership of the Hong Kong stock exchange and four Wall Street banks to warn against a possible new risk to U.S. investors from the “increasingly controversial” public offering. The group also sent a letter to President Donald Trump.

In the letters, the advocacy group warns Hong Kong stock exchange and four U.S. banks that they have fiduciary duties to fully reveal Ant Group’s material risks, including human rights and national security concerns.

Ant Group’s prospectus disclosed potential financial technology and e-commerce sectoral risks. It also cited U.S. sanctions as risks to the company’s business. However, it largely ignored the risks arising from the company’s ties to the Chinese Communist Party (CCP).

The advocacy group identified seven problematic risks, including the roles played by Ant Group and its partial owner Alibaba “in the severe human rights abuses” of Uyghurs by the Chinese regime.

The letters also state that Ant Group is a threat to U.S. national security. In 2018, the Committee on Foreign Investment in the United States (CFIUS) blocked Ant Financial’s acquisition of U.S. money transfer company MoneyGram over national security concerns.

The fintech giant raises concerns as its technologies are used by the CCP and its People’s Liberation Army to oppress the Chinese people. It is also a participant in building China's controversial social credit system, which tracks every move and purchase of Chinese citizens.

“We believe that the IPO should, at a minimum, be delayed to ensure that such disclosures are faithfully done and properly evaluated,” Brian Kennedy, CPDC’s chairman, wrote in a letter to Trump.

Though the company won't be listed in New York, U.S. investors will be exposed to the company through the Hong Kong stock exchange. Kennedy warned that a sizeable portion of the IPO proceeds would end up in the investment portfolios of millions of American investors.

The company should also be blacklisted by the Commerce Department as soon as possible, he said.

He called on Trump to “encourage Americans to invest patriotically” and to deny the CCP “the resources that enable it to oppress its own people.”

More Chinese companies are facing increased scrutiny from the Trump administration over national security concerns. The escalation of tensions between the United States and China and potential U.S. government action against Ant Group may cause declines in share-value, harming U.S. investors.

“For its part, the CCP hopes to translate a huge IPO victory for Ant, largely bankrolled by American investors, into a validation of its bid to continue to have access to hundreds of billions in Western financing, despite its vicious crackdown on Hong Kong,” the letter stated.

The White House and the four U.S. investment banks advising Ant Group didn't immediately respond to requests from The Epoch Times for comment.

Ant Group and many Chinese companies have avoided New York for their listings as Washington has increased its crackdown on foreign companies that fail to comply with U.S. audit standards.

Under the White House plan, U.S. regulators would require currently listed companies to come into compliance with the new standards by Jan. 1, 2022.

The size of the Ant Group’s IPO is subject to market conditions, but the company aims to raise nearly $30 billion from the dual listing in Shanghai and Hong Kong. This could mark the biggest IPO of all time, surpassing the US$29.4 billion public offering last December by Saudi Aramco.

Emel Akan is a senior White House correspondent for The Epoch Times, where she covers the Biden administration. Prior to this role, she covered the economic policies of the Trump administration. Previously, she worked in the financial sector as an investment banker at JPMorgan. She graduated with a master’s degree in business administration from Georgetown University.