Worsening US-China relations can lead to increasing regulatory challenges or “enhanced restrictions against China and other Chinese technology companies, including us and Alibaba”, Ant Group warned investors on Monday, in its IPO prospectus. Such restrictions can come in a wide range of areas such as data security and privacy, emerging technologies, “dual-use” commercial technologies and “applications that could be deployed for surveillance or military purposes”, among other things, the Ant Group said.

In its long-awaited and historic IPO filed on Monday, Ant Group the payments and fintech arm of China’s Alibaba Group cited US-China relations as one of the risk factors to its business. The company runs Alipay, one of China’s most popular payment services, but it now has interests in insurance, wealth management, micro-loans, and also sells enterprise financial products to businessess. Revenues from digital finance technology platform accounted for 56% and 63% of revenue in FY19 and H1FY20 respectively.

Alibaba owns a 33% stake in Ant Financial, and its founder Jack Ma still holds a controlling stake. Ant Group will carry out a concurrent initial public offering (IPO) on the Shanghai Stock Exchange’s STAR board as well as the Hong Kong stock exchange. The STAR market is China’s “answer” to the technology-focused NASDAQ in the US. Which brings us to Ant Group’s warning: Deteriorating US-China relations has led to greater uncertainty in other parts of the world affecting China and Chinese companies.

How US-China relations can impact Ant’s business

Cases in point are the restrictions, starting in 2019, on American companies from using Huawei technology. This directly prevented Megvii Technology in which Ant Group owns a minority stake from obtaining American technology components and software.

The United States’ recent expansion of the Clear Network program and subsequent restrictions on TikTok and its parent company Bytedance are also important fallouts of worsening relations between the two countries. Such restrictions may impact Ant Group’s ability to “acquire or use technologies, systems, devices or components that may be critical to our technology infrastructure, service offerings and business operations; to access U.S. cloud-based systems and other infrastructure; and to operate in the U.S.” Further, such a situtation could discourage Americans from working for Chinese companies.

US-China relations “may intensify” and the US “may adopt even more drastic measures in the future”, Ant Group pointed out. “China has retaliated and may further retaliate in response to new trade policies, treaties and tariffs implemented by the United States. Any further escalation in trade or other tensions between the United States and China or news and rumors of any escalation, could introduce uncertainties to China’s economy and the global economy, which in turn could affect activity level on our platform.”‘

Other countries tend to adopt policies similar to the US: Interestingly, Ant Group specifically pointed out that other countries tend to ape US policy and may adapt similar stances around their “relationships with China or against Chinese companies and restricting their operations”. Although unrelated to Indo-China relations, India has justified its own demand for traceability on WhatsApp – thus demanding breaking end-to-end encryption – after the US and other countries urged Facebook to not implement it on its messaging platforms.

Ant Group owns stake in Paytm parent: Paytm is Ant’s e-wallet partner in India, and Ant Group holds a 30.33% equity stake in its parent company One97 Communications. One97’s other shareholders include Alibaba, SoftBank Vision Fund, and other independent third parties. “Entities over which we have significant influence or joint control are classified associates or joint ventures,” Ant Group said, while listing One97 as an associate.

Ant Group has warned that concerns have been raised about China’s relation with other Asian countries and relations between North Korea and US, that could result in “potential conflicts” around territorial, regional security and trade disputes. These may negatively affect Ant Group’s cross-border business. Geopolitical tensions and pandemics could “significantly reduce” commercial activities in China and globally, which will reduce demand for Ant Groups services. “For example, a lower level of consumption can reduce the TPV [total payment volume] on our platform, thereby resulting in a decrease in revenues from ourdigital payment and digital finance services,” the company said.

Protectionist policy will lead to hurdles, Ant Group’s Zomato investment stalled: In April, the Indian government in April added a bureaucratic layer of control over China’s investments and acquisitions in India. Press Note 2 (2020) changed India’s foreign direct investment policy to require government approval for acquisitions and investments by a entities based in a country that shares a land border with India. This change, was intended to stave off predatory investments into stressed startups. Ant Group disclosed that it led to “further evaluation of the timing of our additional investment” in Zomato, a restaurant aggregator and food delivery.

Separately, the company said that “although global payment companies currently have a limited presence in China, as we expand into other jurisdictions, we face significant competition from them in the area of cross-border payments”. Ant increasingly faces competition from domestic and international players in other markets, but also “geopolitical tensions, regulatory challenges and protectionist policies that may support domestic players in those markets”.

While Ant Group did not specify India, the country does mandate all payment companies operating in India to locally store all payments related data. This mandate from the central bank, the Reserve Bank of India, came amid increasing protectionist sentiment towards data “being a national resource” that ought to be within borders.

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