Early last January, Jack Ma, the founder of China’s largest e-commerce enterprise, made a beeline to Trump Tower in New York (photo above) to build goodwill with a man whose public remarks overwhelmingly painted China as an untrustworthy stealer of jobs. Two weeks later, Ma’s Ant Financial Services—a firm that is 16 times bigger than PayPal $PYPL by one measure—announced a deal to acquire Texas-based remitter MoneyGram.
On Jan. 2, the two companies said Ant’s efforts to buy MoneyGram had come to an end, after failing to get approval from US officials. The charm offensive that Ma began soon after Donald Trump’s election, and continued through 2017, clearly didn’t help dispel the distrust of China that’s taken hold in Washington—and looks set to deepen this year.
Ma’s efforts involved both increased lobbying and promises that spoke directly to Trump’s concerns. After Ma pledged last January to create tons of jobs in the US, in May, the Alibaba Group, which comprises businesses like e-commerce platforms TMall and Taobao, hosted a major conference in Detroit aimed at helping small businesses sell online to China. In 2017, according to the website OpenSecrets.org, which tracks lobbying spending from public disclosures, Alibaba’s lobbying in the US reached $1.4 million, up from a million dollars in 2016, and around $400,000 a year between 2012 and 2015. Last year’s lobbying went toward discussing “proposed acquisition and foreign direct investment,” as well as counterfeiting and copyright-holder protection, according to the disclosures.
But, as MoneyGram CEO Alex Holmes put it in the Jan. 2 statement, “The geopolitical environment has changed considerably since we first announced the proposed transaction with Ant Financial nearly a year ago. Despite our best efforts to work cooperatively with the U.S. government, it has now become clear that CFIUS will not approve this merger.”
CFIUS refers to the Committee on Foreign Investment in the United States, an inter-agency committee that is chaired by the Treasury Department, and that examines proposed deals from the standpoint of national security. The failure of the Ant deal comes after Trump last September blocked the acquisition of US chipmaker Lattice Semiconductor over national security concerns. For key reasons, this block sends a stronger “freeze” signal than the Lattice decision.
In the case of Lattice, the funds going toward the acquisition could be traced back to a Chinese state firm that publicly stated one of its goals was to further Chinese national security. In addition, the technology was seen to have potential military applications. Alibaba and its affiliates, like the privately held Ant, are generally seen as private companies. In China, though, the lines between state-backed and private can often be blurred—Ant’s $4.5 billion funding round in 2016 was led by state-controlled firms. Last year also saw Alibaba, like other large Chinese firms, put funds toward initiatives that further government goals, such as turning China into a global leader in artificial intelligence.
Republican representatives Robert Pittenger and Chris Smith alluded to those blurred lines in expressing fears over the MoneyGram deal in an op-ed written for the Wall Street Journal (paywall) last year: “Ant Financial is reportedly seeking access to MoneyGram’s 2.4 billion bank and mobile user accounts. The Chinese government is a significant shareholder of Ant Financial, with an approximate 15% stake. Should this transaction be approved, the Chinese government would gain significant access to, and information on, financial markets and specific international consumer money flows.”
Ant Financial disputes this. “Ant Financial is a private company, neither owned nor controlled by the Chinese government. Similar to U.S. government pension funds investing in American companies, a small number of Chinese government investment funds have minority stakes in Ant Financial,” said a statement from a company representative. “None of these investors participate in management or have board representation.”
Both MoneyGram and Ant insist that the failed deal, which the latter paid $30 million for abandoning, doesn’t mean an end to their efforts to worth together. They now plan a “strategic cooperation,” with a focus on China, India, and the Philippines, destinations that many workers send money back to.
Such firms that want to work more closely together better get used to developing workarounds. A bipartisan effort is underway to pass a law to further strengthen CFIUS in order to address security concerns from Chinese and other acquisitions. Between 2013 and 2015, China accounted for a fifth of transactions covered by CFIUS review, the highest of any country—a stronger law would likely mean a greater number of reviews.
Update, Jan. 4: This story was updated with comment from Ant Financial.
