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Rubio is wrong to want to block Ant IPO

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By Jonathan Breen, Matthew Thomas
13 Oct 2020

US senator Marco Rubio wants his government to find a way to delay the listing of Ant Group, even though it is happening outside of the US. The move would undoubtedly be bad news for US banks but it also appears to offer little upside to politicians.

Rubio, a former presidential hopeful, has form when it comes to recognising the importance and power of the capital markets. He has become one of the strongest advocates for barring Chinese companies from US bourses, something other congressman in the US have also backed.

He now wants to go one step further, finding ways to put pressure on the Hong Kong and Shanghai exchanges, where Ant Group — an affiliate of e-commerce company Alibaba Group Holding — plans to raise around $30bn, in what will be the largest ever IPO.

Rubio’s previous criticisms of Chinese listings on US exchanges at least tied with aims that many in the market share: improving transparency, raising disclosure standards and reducing occurrences of financial fraud. His latest move appears to be little more than an attempt to bully foreign exchanges.

His ire has no doubt been raised by the Hong Kong portion of Ant’s listing. Three of the four IPO sponsors are US banks — Citi, JP Morgan and Morgan Stanley are running the show, along with Chinese investment bank CICC. Rubio thinks it’s a travesty that Wall Street is helping to deliver a huge listing to a Chinese company.

His frustration is understandable. China’s biggest banks, all state-owned, would certainly not work on a landmark listing that their own government frowned upon. But the US is not China and its biggest banks are not organs of the state.

The US became the world’s biggest economy not by trying to make private enterprises all march in lockstep. The exact opposite is true: it has thrived because it has embraced the messy, sometimes destructive, but ultimately liberating mechanism of free markets. Rubio might not always like the decisions of private actors but that’s just the point of free markets: they’re meant to be free from his interference.

But let’s consider what would happen if government pressure meant all three US banks did decide to drop out of the deal. Would it be cancelled? Or delayed indefinitely? That seems far-fetched.

It is much more likely that other global rivals — particularly European and Asian banks – would step into the breach. They might not be able to ensure the depth and width of distribution that Citi, JP Morgan and Morgan Stanley can offer. But for the fees available, they would certainly have a go.

There is no reason to think they wouldn’t be able to bring US investors along for the ride. If Rubio’s plan is to rely on informal means of political pressure, there’s no way he can stop US investors buying into these deals through their relationships with other foreign banks. US banks would certainly lose — but it’s not clear anyone would win.

Rubio should consider a more positive way of looking at the situation. US banks being chosen to lead this deal is a reminder of how important the country’s financial institutions are on the world stage.

Ant’s decision to list in Hong Kong and China, rather than the US, can also be seen as a victory — although a Pyrrhic one. It shows that efforts to deter Chinese companies from floating in the US, still regarded as the best market in the world for technology listings, is having an impact.

It is understandable that US politicians want to use all their country's financial clout in the rising economic confrontation with China. But that would mean copying China to punish China. The US should, instead, embrace what makes it unique.

International banks need to be international. Private enterprises are not arms of the state. Free markets require free choice. These are the most basic staples of a system of free enterprise that has served the US so well. Rubio would do well not to abandon them.

By Jonathan Breen, Matthew Thomas
13 Oct 2020