Fool me once, shame on you. Fool me twice…
Over five years ago, I stood at the National Press Club with some of the top Defense experts in America. We shared in no uncertain terms that a pending Initial Public Offering (IPO) of Alibaba could prove to be a potential threat to our National Security.
I went on Fox Business and made the case to investors. Here's a clip….
It was to no avail. Alibaba raised $25 billion in what was the largest Initial Public Offering (IPO) in years. The company took a lot of American money and then went on a buying spree for Hollywood Influence and Silicon Valley technology.
Do you wonder why Disney bowed to Chinese issues with their big-budget Mulan? They even thanked the Chinese Communist Party and the government security agencies known for repressing the local Muslim population and linked to atrocities such as human organ harvesting and forced abortion. And that's just the most recent example of Chinese Communist influence over American filmmaking. They also censored Tom Cruise's flight jacket in the new Top Gun and pretty much dictate a lot of what American movie watchers are allowed to see.
In Silicon Valley, Alibaba bought sizable stakes in Lyft, Zulilly, Fanatics, Jet.com, Groupon, Snap, and Tango. Who knows how many smaller companies with promising technology were "scooped up" before Americans had a chance?
When you add it all together, the total for their purchases and influence buying was something like $25 billion as near as I can tell. What that means is that we gave Alibaba $25 billion that they in turn used to buy up some of our most promising technologies and also to bring Hollywood under Chinese control. What did American investors get? They got shares in a Cayman Islands Variable Interest Entity that could be declared illegal under Chinese law any time the Communist Party wants to do so.
In other words, potentially, "we got nothin."
All of that is sad but in the past and we should have learned from it. But sadly, another Alibaba company is about to pull the same trick, only this time it will be even bigger. Fool me once? Shame on them. But if we let them do it again, the shame will be on us.
"What We See as a Marketplace, our Enemies View as a Battlespace."
That's sort of the tagline for the Economic War Room show. It happens repeatedly. But it has never been truer than it is in the case of the Ant Group IPO. Ant Group expects to raise $30-40 billion soon, eclipsing the $25 billion raised by Jack Ma for Alibaba in 2014 and even beating the $29 billion captured by Saudi Aramco in January. Most investors see this as a simple financial transaction to profit from Chinese growth and Wall Street seems eager to get in on the action. The big firms are standing in line to earn up to $300 million in fees. But there are multiple reasons to believe the deal to be a lot more sinister than Wall Street would admit.
So just what is Ant Group?
It used to be called Ant Financial Services and it's a partially owned subsidiary of Alibaba Group Holdings. Yes, the same Alibaba that took $25 billion from an American IPO just six years ago.
And yes, the same Alibaba founded by Communist Party member Jack Ma. In fact, Communist Jack controls Alibaba through holdings with two other investor groups as shown in a Bloomberg News article.
That's who they are, but what do they do?
Ant Group provides financial technology products and services. It dominates the Chinese market for Mobile Payment services with its Alipay platform. Think of it as Apple Pay, Pay Pal, and Samsung Pay rolled into one. It does more worldwide transactions volume than both MasterCard and Visa combined with nearly $18 trillion dollars moved annually. $18 trillion? Yep. That's how much money flows through Ant's payments platform and 1 billion users.
But it's more than just payments. Alipay also handles transactions for insurance, banking, loans, and investments. That provides data into nearly all aspects of finance, both at the corporate and personal level. Ant's intention is to use the money they get to expand globally. Right now, they are mostly in China. But with an extra $30-40 billion (some say even more) raised, they will be able to take their show on the road, so to speak. The Chinese Communists will be thrilled. They hope to capture dominance in all global financial transactions. That's part of the Unrestricted Warfare plan that states first, "muster large amounts of capital."
As we have shared many times, Unrestricted Warfare is a military strategy designed to use non-military means to defeat an adversary. The strategy was published in a book 20 years ago and the Chinese Communist Party has followed it carefully to defeat America while we barely noticed. In this case, we are talking about financial warfare which includes entering and subverting banking and stock markets to subdue an enemy.
Twenty years ago, the Chinese economy was a fraction of the size of ours today. [In fact, it was only about 10% of oursand smaller than Italy's economy.] But now, their economy rivals ours and they are using their newfound power to repress minorities, control their people, and commit human atrocities.
With Ant Group entering banking and stock markets, the Chinese Communist Party could demand access to all financial transaction data. Just how comfortable are you that a self-admitted Chinese Communist Party member has controlling interest in a company that has access to all those financial transactions? Would you be willing to give them your money or access to your data? Unless something changes, you may not have a choice.
So, What Are The Risks?
To better understand the risks of the Ant Group, I'm going to share research published by RWR Advisory Group. RWR is headed by Roger Robinson, a friend, colleague, and regular guest in the Economic War Room. As you may recall, Roger helped lead the fight for the Thrift Savings Plan, or TSP, to be pro-America rather than pro-China. But the Chinese Communist Party is sneaky. They've found a workaround to get even more American money. If they are successful, many Americans will be unwittingly funding our Adversary. We can't let that happen.
The first thing to know is that the IPO for Ant Group is not going to take place in New York. That means it won't be subjected to the same scrutiny that Alibaba was. Instead, it will debut in Hong Kong and Shanghai. But that does not mean that Wall Street won't be involved. The offering is being managed by China International Capital Corporation. But the joint lead managers are rumored as Citigroup, JP Morgan Chase, Morgan Stanley, and Goldman Sachs. That makes it a VERY American offering. It also opens the door to get lots of American money either directly or indirectly.
According to a September 25, 2020 Supplemental Report from RWR Advisory:
Ant Group's "Risk Factors" section in its draft "Application Proof" submitted to the HKSE – or draft prospectus – exceeds 50 pages in length, but, in our view, air brushes over several material risk factors with the use of legal language that fails to convey a "plain English" description of the real world political, reputational and regulatory challenges the company could face in the period ahead. This approach may well protect the company and lead managers from charges of "material risk omission," but it does not necessarily provide the fulsome brief that retail (individual) American investors require and deserve.
Without detailed knowledge of the overall risk environment related to the evolving bilateral U.S.- China relationship, the track record of risk that exists for Chinese technology companies dealing in sensitive user data is particularly troubling. This concern is exacerbated by the corporate governance system of the Chinese Communist Party (CCP). Prospective investors in the company's stock would be hard pressed to obtain an adequate understanding of the underlying material risk factors associated with Ant Group or its affiliates through a reading of the company's draft prospectus.
RWR listed a number of serious concerns. You can read the Supplemental Report as well as the earlier Full Report. The concerns listed are serious. For example, did you know that Ant tried to buy Dallas-based MoneyGram International in 2018 but was rejected by CFIUS (Committee on Foreign Investment in the United States) over national security concerns? Yet the preliminary prospectus glosses over that fact simply stating, "in 2018, our attempt to acquire MoneyGram International Inc., a remittance company based in the United States, was not successful." If there were serious concerns two years ago, have they been resolved? We have no basis to believe that they have.
Beyond that, there are multiple other issues outlined by RWR including Ant Group's ties with human rights' concerns, ties with the Communist Party, military dual-use technology, connection to China's controversial Social Credit Scoring, data collection/privacy concerns, and vulnerability to escalating geopolitical tensions.
Beyond that, we have another serious concern regarding Ant Group. This one is related to possible future economic warfare. We already know that the Chinese Communist Party intends to "de-Americanize" and "de-dollarize" the world. They have been building global systems to do just that. But what if Ant Group's infrastructure is used to develop the backbone of a digital transaction platform for China's new digital currency? If that were the case, the Ant Group IPO would prove to be a massive Trojan Horse to further infiltrate Wall Street and Main Street. Worse still, American holders of Ant Group will be conflicted. They would, no doubt, prefer policies that benefit their investments even at the risk of America's national security. This creates an unacceptable conflict of interest for Americans. It would be like holding massive amounts of Japanese shares at the time of Pearl Harbor.
And, we must be aware that the Chinese Communists are running short of dollars which are necessary to complete their plan. Much of Chinese debt is denominated in American dollars. Unless they displace the U.S. dollar (which they are trying to do), they will need piles of American cash. Getting up to $30- or $40- (or some suggest $100) billion in a global IPO would be a huge shot in the arm that we cannot afford.
What Can You Do About It?
First, you should educate yourself. Read the RWR reports and watch Episode #107 of Economic War Room (released October 1). You may want to do your own research beyond that as well. The Economic Battle Plan™ for Episode #107 will have pages of links for additional study. You can download a FREE copy of this (and every) Economic Battle Plan here: https://www.economicwarroom.com/battleplans.
If you find that you are uncomfortable with the Ant Group IPO, make your voice heard. Tell your financial advisor if you do not want to participate. [Note: THIS IS NOT FINANCIAL ADVICE. This Blog is information only. CHECK WITH YOUR ADVISOR BEFORE TAKING ANY ACTION.] If you are a customer of one of the American banks reported to be participating in the offering, let them know your concerns. That could mean asking your banker or even bank teller to pass along your thoughts.
Finally, if you have an advisor who doesn't understand why you are concerned (or wish to help educate your advisor), provide his or her name and contact information so we can be in touch. To do so, go to https://www.economicwarroom.com/advisor.
Economic War Room and Liberty University are providing an Advisor Training program. Those who participate may become eligible to join the NSIC (National Security Investment Consultant) Institute. This group is dedicated to helping clients invest patriotically. When you provide your advisor's contact information, you can also nominate him or her to be part of our next training class.
The Ant Group IPO will soon be the talk of Wall Street. It seems almost unimaginable that we are considering giving $30-40 billion (or more) to a company with ties to the Chinese Communist Party especially given the economic war underway as well as the reality of the Covid-19 pandemic. Yet, here we are. The Good News? You are now informed. And, you can make a difference.