When Ant Group, the Chinese fintech giant, goes public later this year, it’s expected to raise $30 billion to become the largest initial public offering in history. That means its stakeholders stand to make a whole lot of money. 

One of those stakeholders, indirectly at least, is the Chinese government.

The state owns about eight percent of the Ant Group, spread across several government firms and a fund operated by the central government, according to WireScreen, the data arm of The Wire that maps China’s business landscape. For an IPO that will likely exceed Saudi Aramco’s record-breaking turn of $29.4 billion last year, the Chinese government is sure to profit handsomely. 

But while owning a little slice of the Ant pie is good for the Chinese government, it’s a little more complicated for the Ant Group, which spun out of e-commerce giant Alibaba in 2011 to become its own company. ¹The company, formerly known as Alipay, was renamed Ant in 2014.

Chinese state ownership of a big private company, even if it’s a small stake, can affect its ability to expand internationally, especially in European and U.S. markets, where government tensions remain high over issues ranging from trade to privacy to defense, according to analysts. Even if there is no government stake, Chinese companies — especially tech companies — can be met with suspicion that they are proxies, perhaps unwillingly, for the Chinese state. Just ask TikTok or Huawei. Or look to India, where the government just banned Ant’s flagship service Alipay, the world’s biggest mobile payments platform, over national security and privacy concerns. In 2018, Ant and the American company MoneyGram called off a merger after U.S. regulators signalled they would block the deal.²China’s government is authoritarian and its data privacy laws are fluid, which means any Chinese firm is potentially vulnerable to government whims, whether partly owned by the state or not.

But experts say that for large companies that plan to operate primarily inside China, allowing for some government ownership could be helpful because it means the government is quite literally invested in the company’s future success. It can also serve as a signal for investors that the company will survive, or more easily secure a government lifeline, in the event of trouble. In a recent scandal, in fact, some privately owned Chinese companies faked state ownership to help them bring in hundreds of millions more in funding. 

“Any successful company in China has to have a good relationship with the government and the Party, and especially in a heavily regulated space like financial services,” says Martin Chorzempa, a fellow at the Peterson Institute for International Economics, the Washington think tank, and a columnist for The Wire. “It’s less the shareholding and more just the understanding of the general power that the Party has over companies.” 

Any successful company in China has to have a good relationship with the government and the Party, and especially in a heavily regulated space like financial services.

Martin Chorzempa, fellow at the Peterson Institute for International Economics

The government’s stake in Ant might be better understood by considering the large role the government plays in the market. While China moved aggressively to privatize large parts of the economy in the 1990s and 2000s, the government continues to play a major role in key sectors like energy, finance and telecommunications. Big state-owned companies, such as the oil giants Sinopec and PetroChina, have even had IPOs, much like airlines in Europe and the Middle East. In fact, perhaps no other nation has such a large number of state-owned enterprises. China, after all, is home to 28 of the 50 largest state-owned companies in the world, according to the Sovereign Wealth Fund Institute.

It’s less common, however, for China’s state-owned firms to back startups or technology firms. That has happened in China only in the past five to ten years, as government funds and state-owned financial services firms have ventured into the world of technology startups.³ The situation is now far different from the late 1990s and early 2000s, when most tech startups in China were backed by foreign capital. The central government has even set up big funds — the National Social Security Fund and the China Investment Corporation — to invest state money in the domestic and global markets.

Since the country’s financial sector is heavily state regulated and crowded with state-owned insurance firms, banks, brokerages and investment houses, it’s only natural that some of those firms would invest in Ant, which has built itself into a powerful payment system, initially to support Alibaba’s e-commerce platform, when its Alipay platform operated in much the same way that PayPal once aided eBay.⁴PayPal was originally an independent company. Unlike Alipay, which was begun as part of Alibaba, eBay acquired PayPal. In other words, experts say, the Chinese government likely just recognized Ant Group early on for what it is: a moneymaker.

For its part, Ant says it’s not the Chinese government that is an investor but affiliates of the government, and they do not have any special rights or influence over Ant Group.

“The Chinese government is not an equity holder⁵Ant does not appear to be disputing that these investments were made by Chinese government entities but emphasizing that they were market oriented transactions and not central government mandates. in Ant Group,” the statement reads. “Ant has a highly diversified investor base of some of the leading institutional investors from all parts of the world, none of whom own more than three percent of our total equity. Current investors include funds backed by government pension and retirement funds in Canada, China, the United States and other countries, as well as sovereign wealth funds from China, Singapore and other countries and other highly respected international private equity and mutual funds. None of these investors hold any rights or influence over Ant Group’s strategic direction, management or operations.”

Government affiliated investors have been with Ant since its first fundraising round in 2015, when the country’s social security fund and China Life Insurance, a huge state-owned enterprise, bought small stakes. In 2016, after a second fundraising round, there were even more state-owned firms holding stakes, including China Post, which runs the nation’s postal services and its own bank, the China Development Bank, one of the country’s major policy banks, and China Investment Corporation, the country’s sovereign wealth fund. (Foreign investors were allowed to invest beginning in 2018, and now include the Canadian Pension Plan Investment Board, Singapore’s Temasek, and American firms such as Silver Lake Partners, Fidelity Investments and the Carlyle Group.)

Why did the Ant Group allow so many state firms to invest? Partly, people familiar with the deals say, because many of the state-owned enterprises were major players in the financial services market and had already begun to cooperate with Ant to sell financial products to consumers.

Ant’s predecessor, Alibaba, was not christened by the state quite so early. Jack Ma founded Alibaba in 1999 but it did not draw government attention until 2012, when the company was valued at more than $35 billion, according to data from Pitchbook. At the time, Yahoo owned 40 percent of Alibaba. For about $7 billion, Alibaba bought back half of those shares and then resold some of them to a large group of investors, including several state-owned enterprises.

Despite arriving early in its existence, the state investments in Ant were not speculative, says University of Florida professor of law Wentong Zheng, an expert on China’s economy. “Alipay was highly successful a long time before Ant Group was formed.” 

Alipay, which accounts for much of Ant’s success, was already the world’s largest mobile payment platform — beating out competitor PayPal — by the time Alipay changed its name to Ant in 2014. At that time it had nearly 200 million active users. It has since jumped to more than 1.2 billion users. At the time of the initial government investments in 2015, the company was already valued at more than $45 billion. 

While the Chinese government has a big stake in Ant group, estimated to be valued at $20 billion at the last fundraising round, the company is largely controlled by Jack Ma, the former English teacher who set up both Alibaba and the Ant Group, according to a recent regulatory filing. Ma (who owns about 8.8 percent of Ant) controls the company through an investment vehicle called Hangzhou Yunbo.⁶Ma took control of Alipay in 2011, after China’s regulators prepared to license third party payment platforms and later, in 2014, restructured Alipay/Ant economic relationship with Alibaba. See more on this in the Alibaba 2014 global offering prospectus. The Wire recently explored major and minor stakeholders in Ant, examining funds, offshore investors, and individuals who helped it become the fintech giant it is today.⁷The Chinese government does not have a seat on the Ant board or any special rights, according to people familiar with Ant’s operations.

Ant plans to sell about 11 percent of its shares in the upcoming IPO, with expectations it could raise as much as $30 billion, which would outstrip Alibaba’s $25 billion launch in 2014 (before Saudi Aramco, the largest IPO in history). Ant’s public offering will be split between the Hong Kong Stock Exchange and the Shanghai Stock Exchange’s new STAR Market, in what is known as a dual listing. Ant filed on Aug. 25 and is expected to go public before the end of the year.

And while the Chinese government is expected to make out well, it’s not the only government that is likely to benefit: Singapore, Malaysia and even the U.S. government are indirect beneficiaries through sovereign wealth funds and state or national pension funds managed by firms like Singapore’s GIC, Silver Lake and the Carlyle Group.⁸Firms like these often raised money from state government pension funds.

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