24 May 2019
Chinese companies Huawei and Ant Financial have seen their overseas expansion plans frustrated by regulators who raise national security concerns. Photo: Bloomberg/Reuters
Chinese companies Huawei and Ant Financial have seen their overseas expansion plans frustrated by regulators who raise national security concerns. Photo: Bloomberg/Reuters

Why Alibaba and Huawei face hurdles in global expansion plans

It may not have come as a surprise that the US government blocked the proposed merger between China’s Ant Financial and money transfer firm MoneyGram in a US$1.2 billion deal. And last week it was reported that the Australian government would not allow Huawei Technologies to participate in a submarine cable project that would connect Sydney to the Solomon Islands.

The two cases show the huge obstacles that Chinese technology firms are facing as they pursue their global expansion plans. Nations appear to harbor security concerns when Chinese enterprises are involved because they believe that these companies are ultimately controlled by the Chinese government.

These nations are afraid that the Chinese government – meaning, the Communist Party – has the power to interfere in the operations of these companies, whether they are private or state-owned. And being under its control, these companies could be used to serve the interests of the state. As such, fears of surveillance and espionage, theft of corporate secrets, and even sabotage are not far from the minds of the authorities when vetting business deals involving Chinese companies.

These concerns become more pronounced after Chinese leader Xi Jinping made known to the world that his nation intends to become a global power, and as US President Donald Trump pursued his “America First” policy that is seen as America’s retreat from its leadership of the “Free World”.

Alibaba’s Ant Financial may be simply a Chinese financial institution that operates the Alipay mobile payment platform. But the fund it manages has already exceeded the value of China Merchants Bank.

Ant Financial has been planning for a long time to pursue a global expansion strategy to maintain its strong growth momentum. And it is quite clear that the Chinese company is aiming to change the way of doing business in overseas markets through its Taobao, TMall and Alipay ecosystem.

The acquisition of MoneyGram would have helped Ant Financial to establish a presence in the US financial market, allowing it to build relationships with American businesses and people.

In a joint statement issued after the deal was rejected by the US government, Ant Financial and MoneyGram said the geopolitical environment had “changed considerably” since the merger was announced last year.

While the statement did not reveal the reason for the rejection, it is quite clear that Ant Financial sees it as a political decision.

In fact, many critics in the US financial industry have warned against the acquisition of MoneyGram by a Chinese company. They noted that the US-based company provides money transfer services to suppliers and families of the US military service.

If the deal is allowed, sensitive personal information related to the US military service would be available to the Chinese company, and by extension, to the Chinese government. That would present a security loophole, the critics said.

In the case involving Huawei, Australia, a staunch ally of the United States, would not allow a state-controlled Chinese company to get involved in its infrastructure investment, especially in an undersea cable project that is the backbone of the internet and used in the transmission of data around the world.

Australia would not give Beijing the opportunity to have access to its sensitive information network, which it believes could happen if Huawei is allowed to participate in the project.

Alibaba and Huawei have the resources to pursue their expansion plans, but it is possible that their aggressive approach may be raising feelings of discomfort and suspicion in the markets they intend to reach.

On the other hand, Alibaba was able to acquire an e-commerce firm in the US to support its B2B platform growth, and it was regarded as a purely business deal and did not draw massive opposition from rivals and the regulators as the business does not involve sensitive government information.

Tencent Holdings also expanded its footprint in overseas market with the acquisition of Supercell, an online game developer, for HK$67 billion in 2016. The deal also secured the green light from local authorities without significant hitches.

Indeed, Chinese technology firms can pursue their international expansion plans but they must be sensitive to local sentiments in the markets they wish to enter. They must also be able to assure everyone that they are not in any way under the control of Beijing authorities.

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EJ Insight writer

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