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Trump signs order banning transactions with 8 Chinese apps including Alipay

U.S. President Donald Trump on Tuesday signed an executive order banning transactions with eight Chinese software applications, including Ant Group’s Alipay mobile payment app, the White House said, escalating tensions with Beijing two weeks before President-elect Joe Biden takes office.

The move, first reported by Reuters, is aimed at curbing the threat to Americans posed by Chinese software applications, which have large user bases and access to sensitive data, a senior administration official told Reuters.

The order argues that the United States must take “aggressive action” against developers of Chinese software applications to protect national security.

It tasks the Commerce Department with defining which transactions will be banned under the directive within 45 days and targets Tencent Holdings Ltd’s QQ Wallet and WeChat Pay as well.

The order also names CamScanner, SHAREit, Tencent QQ, VMate which is published by Alibaba Group subsidiary UCWeb, and Beijing Kingsoft Office Software’s WPS Office.

Kingsoft said in a statement published by Chinese state media that it did not expect Trump’s order to substantially impact the company’s business in the short term. Ant and the Biden transition team declined to comment.

Alibaba, Tencent, CamScanner, SHAREit and the Chinese Embassy in Washington did not immediately respond to requests for comment.

“By accessing personal electronic devices such as smartphones, tablets, and computers, Chinese connected software applications can access and capture vast swaths of information from users, including sensitive personally identifiable information and private information,” the executive order states.

Such data collection “would permit China to track the locations of federal employees and contractors, and build dossiers of personal information,” the document adds.

The order aims to cement Trump’s tough-on-China legacy before the Jan. 20 inauguration of Biden, a Democrat, who has said little about how he plans to address specific tech threats from China.

Biden could, however, revoke the order on the first day of his presidency, though his transition team did not immediately respond to a request for comment on the matter.

The order will likely ratchet up tensions further between Washington and Beijing, which have been locked in a bitter dispute over the origins of the coronavirus and a Chinese crackdown on Hong Kong.

Despite the 45-day time line laid out by the order, the Commerce Department plans to act before Jan. 20 to identify prohibited transactions, another U.S. official told Reuters.

The directive mirrors Trump executive orders signed in August directing Commerce to block some U.S. transactions with WeChat and the Chinese-owned video app TikTok.

Had those orders gone into effect, they would have effectively banned the Chinese apps’ use in the United States and barred Apple Inc and Alphabet Inc’s app stores from offering them for download for new users.

The restrictions, however, were blocked by courts mainly on freedom of speech grounds. The White House is confident the new restrictions will stand up to judicial scrutiny, since applications like Alipay would struggle to bring a First Amendment case, the senior administration official told Reuters.

U.S. Secretary of Commerce Wilbur Ross said in a statement that he supports Trump’s “commitment to protecting the privacy and security of Americans from threats posed by the Chinese Communist Party.”

Alipay has been in Washington’s cross hairs for months.

Reuters reported in November that the U.S. State Department had submitted a proposal to add Ant Group to a trade blacklist in order to deter U.S. investors from taking part in its lucrative initial public offering. But the Commerce Department, which oversees the blacklist, shelved the proposal after Alibaba Group Holding Inc President Michael Evans urged Ross to reject the bid.

Ant is China’s dominant mobile payments company, offering loans, payments, insurance and asset management services via mobile apps. It is 33% owned by Alibaba and controlled by Alibaba founder Jack Ma, but is currently unavailable for American users.

Alipay was downloaded from Apple’s U.S. app store and Google Play 207,000 times in 2020, while image scanning app CamScanner and office suite app WPS Office were downloaded 4.4 million and 563,000 times respectively, according to research firm SensorTower.

Tuesday’s move is the latest in a raft of tough new curbs on Chinese companies.

The White House unveiled an executive order in November banning U.S. investment in alleged Chinese military companies including China’s top chipmaker SMIC and oil giant CNOOC. Last month, the Commerce Department added dozens of Chinese companies, including Chinese drone manufacturer SZ DJI Technology Co Ltd, to a trade blacklist.

PayPal becomes first foreign firm in China with full ownership of payments business

PayPal Holding Inc has become the first foreign operator with 100% control of a payment platform in China, according to Chinese government data, as the U.S. fintech giant eyes a bigger foothold in a booming market for online payments.

PayPal acquired the 30% stake it doesn’t already own in China’s GoPay, formally known as Guofubao Information Technology Co., on Dec. 31, 2020, according to shareholder data from the National Enterprise Credit Information Publicity System.

Financial details weren’t disclosed in the data. The stake purchase came a year after PayPal bought a 70% stake in GoPay for an undisclosed amount,then becoming the first foreign company licensed to provide online payment services in China.

PayPal declined to comment.

In taking full control of one of the smaller players in the world’s largest payment market, PayPal will compete with domestic payments giants Alipay, owned by Alibaba-affiliated Ant Group, and WeChat Pay, owned by Tencent Holdings Ltd, as China fully opens up its financial sector.

The stake purchase also comes amid Beijing’s antimonopoly campaign against Alibaba Group Holding Ltd and other Internet companies.

Last August, PayPal appointed Hannah Qiu as head of China business, responsible for formulating long-term strategy in the world’s second-biggest economy. Qiu was a former executive at insurer Ping An Group’s fintech unit OneConnect, according to PayPal’s website.

PayPal said in its 2019 annual report its initial focus in China is to provide cross-border payment solutions to Chinese merchants and consumers, linking the country’s commerce ecosystem to PayPal’s global network. But in that area, PayPal also faces the prospect of competition from Chinese companies.

Bill Deng, Chief Executive and co-founder of XTransfer, a Shanghai-based payment platform start-up that facilitates cross-border money transfers for Chinese merchants, was not shy about his ambitions to emulate PayPal. “We see ourselves as China’s PayPal in cross-border businesses,” Deng told Reuters.

China urges U.S. to end ‘unreasonable suppression’ of Chinese apps

China’s commerce ministry on Wednesday urged the United States to stop its “unreasonable suppression” of Chinese applications after Washington barred transactions with eight of them, including Ant Group‘s Alipay mobile payment app.

The U.S. ban goes against fair competition and damages normal market order, the Ministry of Commerce said in a statement, adding that the move would hurt consumers’ interests and that it reserved the right to take necessary measures to support Chinese enterprises.

China called finance apps the best thing since the invention of compass. But no longer now

When the coronavirus jammed up China’s economy last year, Rao Yong needed cash to tide over his online handicrafts business. But he dreaded the idea of spending long, dull hours at the bank.

The outbreak had snarled delivery services and made customers slow on their payments, so Rao, 33, used an app called Alipay to receive early payment on his invoices. Because his Alipay account was already tied to his digital storefront on Alibaba’s Taobao bazaar, getting the money was quick and painless.

Alipay had helped Rao a few years before as well, when his business was just starting to expand and he needed $50,000 to set up a supply chain.

“If I’d gone to a bank at that point, they would have ignored me,” he said.

China was a trailblazer in figuring out novel ways of getting money to underserved people like Rao. Tech companies like Alipay’s owner, an Alibaba spinoff called Ant Group, turned finance into a kind of digital plumbing: something embedded so thoroughly and invisibly in people’s lives that they barely thought about it. And they did so at colossal scale, turning tech giants into influential lenders and money managers in a country where smartphones became ubiquitous before credit cards.

But for much of the past year, Beijing has been putting up new regulatory walls around so-called fintech, or financial technology, as part of a widening effort to rein in the country’s internet industry.

The campaign has ensnared Alibaba, which was fined $2.8 billion in April for monopolistic behavior. It has tripped up Didi, the ride-hailing giant, which was hit with an official inquiry into its data security practices just days after listing its shares on Wall Street last month.

This time last year, Ant was also preparing to hold the world’s biggest initial public offering. The IPO never happened, and today Ant is overhauling its business so regulators can treat it more like what they believe it is: a financial institution, not a tech company.

In China, “the reason fintech grew that much is because of the lack of regulation,” said Zhiguo He, who studies Chinese finance at the University of Chicago. “That’s just so clear.”

Now the question is: What will regulation do to an industry that has thrived precisely because it offered services that China’s state-dominated banking system could not?

With Ant and other big platforms cornering the market, investment in Chinese fintech has fallen in recent years. So Ant’s chastening could make the sector more competitive for startups. But if running a big fintech company means being regulated like a bank, will the founders of future Ants even bother?

Zhiguo He said he was mostly confident that Chinese fintech entrepreneurs would keep trying. “Whether it’s hugely profitable,” he said, is another question.

For much of the past decade, if you wanted to see where smartphone technology was making China look most different from the rest of the world, you would have peered into people’s wallets. Or rather, the apps that had replaced them.

Rich and poor alike used Alipay and Tencent’s WeChat messaging app to buy snacks from street vendors, pay bills and zap money to their friends. State media hailed Alipay as one of China’s four great modern inventions, putting it and bicycle sharing, e-commerce and high-speed rail up there with the compass, gunpowder, papermaking and printing.

But the tech companies didn’t enter the finance business to make it easier to pay for coffee. They wanted to be where the real money was: extending credit and loans, managing investments, offering insurance. And with all their data on people’s spending, they believed they would be much better than old-fashioned banks at handling the risks.

With the blessing of China’s leaders, finance arms began sprouting out of internet companies of all kinds, including the search engine Baidu, the retailer JD.com and the food-delivery giant Meituan. Between 2014 and 2019, consumer credit from online lenders nearly quadrupled each year on average, by one estimate. Nearly three-quarters of such platforms’ users were under age 35, according to iiMedia Research.

Last year, when Ant filed to go public, the company said more than $260 billion in credit was being extended to consumers on Alipay. That meant Ant alone was responsible for more than 12% of all short-term consumer lending in China, according to the research firm GaveKal Dragonomics.

Then in November, officials torpedoed Ant’s IPO and got to work taking apart the plumbing that had connected Alipay with China’s banks.

They ordered Ant to make it less convenient for users to pay for purchases on credit — credit that was being largely funded by banks. They barred banks from offering deposits through online platforms and restricted how much banks could lend through them. At some banks, deposits offered through digital platforms accounted for 70% of their total deposits, a central bank official said in a speech.

In a news briefing last week, Fan Yifei, deputy governor at the central bank, said regulators would soon be applying the full Ant treatment to other platforms.

“On the one hand, the speed of development has been astonishing,” Fan said. “On the other hand, in the pursuit of growth, there have arisen monopolies, disorderly expansion of capital and other such behaviors.”

Ant declined to comment.

As Ant and Tencent scramble to meet regulators’ demands, they have pared credit services for some users.

One big hit to Ant’s bottom line could come from new requirements that it put up more of its own money for loans. Chinese regulators have for years disliked the idea of Alipay’s competing against banks. So Ant instead played up its role as a partner to banks, using its technology to find and assess borrowers while banks staked the funds.

Now, though, that model looks to Beijing like a handy way for Ant to place bets without being exposed to the downside risks.

“If problems arise, it would be safe, but its partner banks would take a hit,” said Xiaoxi Zhang, an analyst in Beijing with GaveKal Dragonomics.

When Chinese regulators think about such risks, it is people like Zhou Weiquan they have in mind.

Zhou, 21, makes about $600 a month at his desk job and wears his hair in a swooping, reddish-brown mullet. After he turned 18, Alipay and other apps began offering him thousands of dollars a month in credit. He took full advantage, traveling, buying gadgets and generally not thinking about how much he spent.

After Alipay slashed his credit limit in April, his first reaction was to call customer service in a panic. But he says he has since learned how to live within his means.

“For young people who really love spending to excess, this is a good thing,” Zhou said of the clampdown.

China’s brisk recent economic growth has most likely made officials more comfortable with reining in fintech, even at the expense of some innovation and consumer spending and borrowing.

“When you consider that household debt as share of household income is among the highest in the world right now” in China, “then more household debt is probably not a good idea,” said Michael Pettis, a finance professor at Peking University.

Qu Chaoqun, 52, was thrilled a few years ago to find he had access to $30,000 a month across several apps. But he wanted even more. He started buying lottery tickets.

Soon enough, Qu, a takeout-delivery driver in the megacity of Guangzhou, was borrowing on one app to pay his bills on another.

When his credit was cut by almost half in April, he fell into what he calls a “bottomless abyss” as he struggled to pay his outstanding debts.

“People inevitably have psychological fluctuations and impulses that can bring great harm and instability to themselves, to their families and even to society,” Qu said.