Why the MoneyGram Merger Was a Threat

(Bloomberg View) -- There's been a lot of hand-wringing over Ant Financial's failed acquisition of MoneyGram International Inc. this week. But the decision by U.S. officials to effectively block the deal isn't an indication of souring U.S.-China ties or of Trumpian protectionism. Instead, it's simply an acknowledgement of a new reality: In the information age, consumer data is a national-security interest.

As a money-transfer service with some 350,000 locations in 200 countries, MoneyGram was a sensible strategic target for Ant, which is hoping to expand its business overseas. The problem was that the $1.2 billion deal would've given a Chinese company with government ties extensive access to U.S. consumer financial data, including a large military customer base.

That caught the attention of U.S. regulators and members of Congress, who objected strongly. Ant pledged to keep MoneyGram's servers and data within the U.S., but it soon became clear that the Committee on Foreign Investment in the United States -- a panel that reviews such deals -- wouldn't sign off, and the companies gave up.

That's unfortunate for their shareholders. But none of this is cause for wider alarm.

For one thing, although Chinese investment in the U.S. slowed in 2017 due to capital controls, the American Enterprise Institute estimates that strong annual flows of about $25 billion are likely to continue. President Donald Trump's rhetoric aside, trade ties between the two countries haven't deteriorated. There's even been some decent progress on long-running disputes.

Nor is this a departure from U.S. policy. President Barack Obama prevented a Chinese company from owning wind farms near a Navy base in 2012 and barred a state-backed fund from purchasing a semiconductor company in 2016. Last year, an advisory council urged the incoming Trump administration to "reshape the application of national security tools, as appropriate, to deter and respond to Chinese policies, including by placing individual transactions in the context of broader Chinese policy."

In that light, CFIUS's concerns seem reasonable. It's pretty clear that broader Chinese policy includes acquiring companies that are strategic priorities for the government, including in finance and technology. And it doesn't help that the Communist Party explicitly touts its control over the very technology firms that want to purchase sensitive U.S. consumer data.

More pertinently, China routinely cites national security when barring companies from its own market. In fact, its security laws specifically cover financial institutions that collect consumer data. As a recent report from the European Centre for International Political Economy put it, China's national-security restrictions on the commercial market are "wider and more comprehensive than those deployed by other countries against China."

So blocking the deal wasn't evidence of an anti-Chinese conspiracy. It was more like business (and politics) as usual.

The larger point is that, in the age of big data, it's natural that information will have national-security implications -- just as governments have long considered the effects of energy or industrial deals on their defense capabilities. The MoneyGram acquisition may be among the first big mergers blocked due to data-collection concerns, but it certainly won't be the last.

That said, the U.S. could be more explicit about what it considers a threat. Clarifying CFIUS's mandate to review technology, data collection, and minority or joint-venture stakes would make sense. Likewise, China could reconsider its own policies; even among the pro-China business community in the U.S., there's little support for Beijing's current position given its strong protectionism.

Blocking the MoneyGram acquisition was sure to prove controversial. But the concerns raised by the deal weren't unfounded or unreasonable. And if China objects, then by all means, let's have an open debate on these issues.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Christopher Balding is an associate professor of business and economics at the HSBC Business School in Shenzhen and author of "Sovereign Wealth Funds: The New Intersection of Money and Power."

To contact the author of this story: Christopher Balding at cbalding@phbs.pku.edu.cn.

To contact the editor responsible for this story: Timothy Lavin at tlavin1@bloomberg.net.

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