Analysis: Why US sanctions on China’s Ant Group may be an empty threat

But there doesn’t appear to be much the US government could do to realistically hurt the digital finance company. Unlike other Chinese tech firms that have drawn the ire of Washington, Ant does little business in the United States.
Ant Group was floated as a potential US target by Bloomberg News, which reported last week that the Trump administration is considering restrictions on Ant, as well as Tencent’s WeChat Pay. Citing people familiar with the matter, the news outlet said the US government fears that their digital payment platforms threaten national security.
WeChat is already facing scrutiny in the United States, but sanctions on Ant and its payments app Alipay would be an escalation in the US-China tech war. Alipay and WeChat Pay are daily necessities for hundreds of millions of Chinese merchants and consumers. Ant’s wealth management products are also used by millions.
US authorities are worried about Ant because it represents “new modes of finance that they can no longer control,” said Cameron Johnson, adjunct faculty instructor at New York University in Shanghai and partner at consulting firm Tidal Wave Solutions.
It’s not clear how close Washington may be to action. Ant said in a statement that it was not aware of any discussions within the administration about restrictions, while Tencent declined to comment. The White House did not respond to a request for comment.
The US government hasn’t been shy about pressuring Chinese firms. In addition to WeChat, US President Donald Trump in August threatened to ban short-form video app TikTok, unless parent company ByteDance sold off the app’s US operations. And Chinese tech firm Huawei, which has long been a mark for US authorities, is also struggling to survive after Washington sanctions cut it off from the computer chips it needs to make smartphones and telecommunications gear.
And while Trump has in the past spoken fondly of Alibaba (BABA) and Ant co-founder Ma — he called him a “friend of mine” earlier this year — that doesn’t mean Ma’s businesses are safe from sanctions. US Secretary of State Mike Pompeo name-checked Alibaba in August when he urged American companies to remove “untrusted” Chinese-owned technology from their digital networks.

The United States is a small part of Ant’s business

Bloomberg’s report suggested that US officials could draft executive orders intended to prevent Ant’s online payments app Alipay from operating in the United States, a move similar to those taken against TikTok and WeChat.
But unlike TikTok, Ant and Alipay don’t have millions of American users to lose.
Ant’s presence in the United States “is minor at best,” said Johnson. He added that the justification that Washington could use — that it needs to protect American data — “is invalid, because basically they don’t have a presence” in the United States.
“Ant Group’s business is primarily in China and we are excited about our growth prospects in the China market,” the company said in a statement.
Less than 5% of Ant’s total revenue comes from outside China, according to the company’s prospectus. A person familiar with the situation said that the United States “accounts for only a tiny piece of that.”
And unlike Chinese banks and financial institutions, Ant doesn’t need to use SWIFT, the messaging service that moves money around the global banking system. When individuals, companies or countries are sanctioned by the United States, they are often cut off from essential financial services because banks rely on SWIFT for clearing US dollar transactions.
But most of Alipay’s payments are in Chinese yuan, according to Johnson. They “aren’t US bound, [and they] don’t use the SWIFT system,” he added.
If anything, a ban on Alipay would instead hurt American companies that rely on the app in China. Similar concerns were raised by US firms in the country after Trump threatened to ban WeChat.
If American firms are barred from using the dominant digital payment platforms in China, that “would crush the entirety of US business in China, you’re talking of billions if not trillions of [yuan] of revenue for US companies,” Johnson said. But he added that he was doubtful that the Trump administration would take such action because of the fallout for American companies.

Taking aim at Ant’s IPO

US Republican Senator Marco Rubio, a long time China hawk, suggested another avenue that the US government could explore: stonewalling Ant’s highly anticipated blockbuster initial public offering.
Rubio told Reuters last week that the US government “should take a serious look at the options available” to delay Ant Group’s IPO.
“It’s outrageous that Wall Street is rewarding the Chinese Communist Party’s blatant crackdown on Hong Kong’s freedom and autonomy by orchestrating Ant Group’s IPO on the Hong Kong and Shanghai stock exchanges,” Rubio said in a statement to Reuters. Citigroup (C), JPMorgan (JPM), Morgan Stanley (MS) and China International Capital Corp are sponsoring the Hong Kong leg of the IPO.
It’s unclear how Washington could delay the company’s IPO, as it is taking place overseas.
And analysts pointed out that even if Washington bans US users from downloading and using the Alipay app, that isn’t likely to dampen enthusiasm for the company’s stock market debut.
“I can’t see it having a tremendous impact either on investment sentiment, valuation or uptake for the IPO,” said Zennon Kapron, founder of financial technology consulting and research firm Kapronasia.

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