Shortly after news broke in early April that Uber was retreating from Southeast Asia and taking a stake in Grab, a Singapore-based ride-hailing rival, rumors began circulating that Grab's co-founder Anthony Tan would move to Indonesia, the region's biggest market, where both companies have been expanding fast. For the moment, Tan appears to be staying put, but the deal poses difficult questions about globalization, local identity and competition in an increasingly protectionist global environment.
Many press accounts of the Grab transaction focused on the apparent victory of a local company over a mighty icon of Silicon Valley, just as they did when Uber withdrew from China several years ago. Uber, which is still privately owned, is valued at about $68 billion -- 10 times Grab's valuation. But several governments promptly announced that they were examining the anti-competitive dimensions of the transaction.
Fears of monopolistic behavior are reasonable. Yet, the challenges facing regulators of digital service businesses are different from those of the past, and from those applying to transactions involving physical goods. It is hard to argue that combinations hurt consumers when the businesses involved subsidize services and do not make profits. What, for example, should Beijing do about the fact that units of the Chinese financial groups Alibaba Group Holding and Tencent Holdings controlled 93.1% of mobile payments in China in the third quarter of 2017, compared with 88.5% in the comparable period a year earlier, yet generally do not charge for their services?
Traditional arguments against business concentration have become less relevant. Yet it is not only concentration that regulators fear. As new economy companies expand beyond their local borders, especially in financial technology, they may give rise to new forms of regulatory responses in their wake, such as financial protectionist measures. These will pose further multifaceted challenges.
For example, customers in the U.S. generally use Mastercard and Visa payment cards to pay for services such as rides provided by Uber and rivals such as Lyft. But in Asia, ride sharing is as much about nontraditional forms of payments as it is about transport. And many regulators are uneasy about payments and other sensitive data residing in the hands of foreign companies.
In 2011, Beijing changed corporate governance rules in a way that allowed Jack Ma, founder of Alibaba, to transfer ownership of the group's Alipay subsidiary to Ant Financial, a company he controlled, shutting out minority shareholders Yahoo of the U.S. and SoftBank Group of Japan without prior agreement.
Such measures are likely to become more commonplace -- and not only in China. In early January, U.S. regulators vetoed Ma's proposed acquisition of MoneyGram International, a remittance company, stretching the mandate of the government's Committee on Foreign Investment in the U.S., which was set up to vet proposed transactions raising issues of national security.
Consider, for example, Ant Financial's joint venture with First Data, a U.S. payments infrastructure firm. In May 2017, Ant Financial announced a plan to make its Alipay payments platform available on point of sale devices to 4 million merchants in the U.S., in cooperation with First Data, a U.S. provider of payments services. This is roughly the same as the number of U.S. merchants accepting payments via Apple's Apple Pay system, according to Barclays.
Ant Financial's principal target is the millions of Chinese tourists who travel to the U.S. each year. What percentage of these dollar sales will be converted to yuan and returned to China? Alipay is not a state-owned company, but it is a Chinese national champion. Ma has repeatedly expressed his loyalty to the ruling Communist Party, but is his agenda aligned with Beijing's policy priorities? And how long will it be before companies such as Amazon decide to follow the Chinese template and substitute their own payments systems for those of Visa and Mastercard?
U.S. regulators have generally discouraged nonfinancial companies from operating financial arms, but that approach is changing, regulators say. "The natural buyer of First Data is actually Amazon," said a senior executive at Kohlberg Kravis Roberts, a U.S. private equity firm that bought the payments company in 2007, just before the global financial crisis. There is, of course, no way for KKR to get official approval to sell First Data to a Chinese entity.
Expect more such financial protectionism soon on both sides of the Pacific, especially as Chinese companies expand into countries that have a tense relationship with Beijing, where governments may suspect them of pursuing political and strategic agendas. In Japan, for example, Alipay is working with the Lawson convenience store chain as well as swish department stores such as Takashimaya and electronics chains including Bic Camera. Since credit card companies charge merchants and customers as much as 5% in transaction fees, the appeal of such alternative payments systems is obvious.
Or consider the situation in India, which has the fraught combination of scarce domestic risk capital and an open market in this sector. This means that new economy companies are largely either American, such as Facebook, Google and Amazon, or companies with Indian faces backed by capital provided by Alibaba, SoftBank or Tencent. For example, Paytm, a digital wallet company based in New Delhi, is 60% owned by SoftBank and Alibaba. At some point, the Reserve Bank of India may decide that it is not in the country's interests to have such a sensitive sector in the hands of foreign entities.
Such combinations of local management and foreign capital present challenges for regulators all over the region -- although in many cases it is no longer easy to distinguish between home-grown companies and foreign ones. Tan, the Singapore-based founder of Grab, says he is not moving to Indonesia, but spends time there virtually every week. "Last week, Jakarta. Week before Medan. Week before Surabaya. Week before that Makassar," he noted in mid-April.
Grab's largest shareholder is Tokyo-based SoftBank. But is Grab less Indonesian than its principal local rival, Jakarta-based Go-Jek, whose backers include the U.S. private equity firms KKR, Sequoia and Warburg Pincus along with Tencent and Farallon, a U.S. hedge fund? Go-Jek believes so, and says it is considering a Jakarta listing to help bolster its case.
By contrast with these new potential forms of economic nationalism, the ratcheting up of trade protectionism that has taken place in the last few weeks is more straightforward, even though global supply chains complicate the issue. Indeed, for the U.S. to levy tariffs on steel from Asia seems quaintly old-fashioned, like a return to the trade frictions of the 1980s. At a conference at the Boao Forum in China on April 10, Chen Derong, president of China Baowu Steel Group, noted that Chinese exports of steel to the U.S. account for less than 1% of production. Chen spent more time talking about less traditional metals such as cobalt and lithium than he did about steel.
Sometimes it appears that governments and companies hardly occupy the same universe; Politicians live in a parochial world where globalization is going into reverse, while business people pay little heed to borders. But the conflict between them is not likely to disappear any time soon.
Henny Sender is the Financial Times' chief correspondent for international finance, based in Hong Kong, and contributes occasional columns to the Nikkei Asian Review. She has extensive experience of covering international finance.