The Justice Department accused Google of maintaining an illegal monopoly over search and search advertising, in the government’s most significant legal challenge to a tech company’s market power in a generation.
In a lawsuit, filed in a federal court in Washington, D.C., on Tuesday, the agency accused Google, a unit of Alphabet, of using several exclusive business contracts and agreements to lock out competition.
Such contracts include Google’s payment of billions of dollars to Apple to place the Google search engine as the default for iPhones. By using contracts to maintain its monopoly, the suit says, competition and innovation has suffered.
Google responded by describing the lawsuit as “deeply flawed.”
“This lawsuit would do nothing to help consumers,” the company said in a statement on its website. “To the contrary, it would artificially prop up lower-quality search alternatives, raise phone prices, and make it harder for people to get the search services they want to use.”
Attorney General William P. Barr, who was appointed by President Trump, has played an unusually active role in the investigation. He pushed career Justice Department attorneys to bring the case by the end of September, prompting pushback from lawyers who wanted more time and complained of political influence. Mr. Barr has spoken publicly about the inquiry for months and set tight deadlines for the prosecutors leading the effort.
The lawsuit may stretch on for years and could set off a cascade of other antitrust lawsuits from state attorneys general. About four dozen states and jurisdictions have conducted parallel investigations and are expected to bring separate complaints against the company’s grip on technology for online advertising.
A victory for the government could remake one of America’s most recognizable companies and the internet economy that it has helped define since it was founded by two Stanford University graduate students in 1998.
But Google has long denied accusations of antitrust violations and is expected to fight the government’s efforts by using a global network of lawyers, economists and lobbyists. Alphabet, valued at $1.04 trillion and with cash reserves of $120 billion, has fought similar antitrust lawsuits in Europe.
The United States on Tuesday accused Google, a unit of Alphabet, of illegally maintaining a monopoly over search through several exclusive business contracts and agreements that lock out competition.
At a press briefing Tuesday morning, Deputy U.S. Attorney General Jeffrey A. Rosen outlined the rationale behind the case.
Mr. Rosen hailed the Google lawsuit as a “milestone” in the Justice Department’s efforts to foster competition in the internet markets, but he emphasized that this was not a stopping point — suggesting that the D.O.J. may continue to pursue other monopoly cases of technology companies.
Mr. Rosen said that Google “has maintained its monopoly power through exclusionary practices that are harmful to competition.”
“Google is the gateway to the internet and a search advertising behemoth,” he said.
Mr. Rosen said the Google lawsuit had “nothing to do” with complaints from President Trump and other Republicans that technology companies exercise political bias in policing speech on their platforms, calling it a separate worry from these “competitive concerns in the marketplace.”
The Justice Department lawyers were guarded about many aspects of the investigation, including their conversations with the company and whether they considered building out the case into other parts of Google’s business or their conversations with the company. They specifically avoided answering a question about whether the D.O.J. spoke to Larry Page, Google’s co-founder and former chief executive of its parent company, Alphabet.
The lawyers stopped short of calling for specific relief, such as pulling apart pieces of Google’s conglomerate of business lines. Remedies such as divestitures are typically reached further along in a case, experts say.
Seven states may soon file a separate antitrust lawsuit against Google, the New York attorney general, Letitia James, announced on Tuesday. That’s in addition to the 11 states that joined the U.S. Department of Justice on Tuesday in filing a lawsuit against Google, accusing it of maintaining an illegal monopoly over search and search advertising.
The attorneys general in the states that signed on to the Justice Department suit are all Republican. Ms. James and the attorneys general of Colorado, Iowa, Nebraska, North Carolina, Tennessee, and Utah said in a joint statement that they had been conducting separate but parallel bipartisan investigations into Google’s anticompetitive market behavior over the last year.
“This is a historic time for both federal and state antitrust authorities, as we work to protect competition and innovation in our technology markets,” the statement read. “We plan to conclude parts of our investigation of Google in the coming weeks.”
If the states decide to go ahead with the complaint, they would file a motion to consolidate their case with the Department of Justice’s lawsuit, and proceed to litigate the case cooperatively.
The Department of Justice sued Google on Tuesday, accusing the tech giant of maintaining an illegal monopoly over search and search advertising. The lawsuit, filed in a federal court in Washington, D.C., on Tuesday, is the government’s most significant legal challenge to a tech company’s market power in a generation.
Here’s how business leaders, policymakers, academics and antitrust experts are reacting to the news.
Senator Josh Hawley, Republican of Missouri, who launched an antitrust investigation of Google when he was Missouri’s attorney general, wrote on twitter: “I applaud this suit as desperately needed and long overdue. #BigTech’s free pass is over.”
David Cicilline, a Democratic congressman and the chairman of the House Judiciary antitrust subcommittee, said in a tweet that he released a report three weeks ago detailing steps Google had taken to maintain and expand its monopoly power. “This step is long overdue,” he wrote, referring to the lawsuit. “It is time to restore competition online.”
Senator Tom Cotton, Republican of Arkansas, tweeted that Google’s “anticompetitive conduct is harming the public and American business,” and praised the Justice Department for “finally holding Google accountable.”
Tim Wu, a professor at Columbia Law School who specializes in antitrust issues, pointed out in a Twitter post that the Justice Department’s case against Google is similar to its case against Microsoft:
The Justice Department is showing that it isn’t just Silicon Valley who clones successful products: they’ve basically cloned the Microsoft case and added Google’s name to it
— Tim Wu (@superwuster) October 20, 2020
Avery Gardiner, a consumer advocate and a senior fellow at the Center for Democracy and Technology, a nonprofit organization focused on influencing technology policy, wrote on Twitter that the Department of Justice’s statistics show that it “didn’t bring even a single case for alleged abuse of monopoly power” from 2010 to 2020, except for in 2011 when there was one case.
Luther Lowe, senior vice president of public policy at Yelp, in his tweet warned against characterizing the lawsuit as a “partisan vendetta by the Trump Administration”:
Some might try to characterize today’s filing as a partisan vendetta by the Trump Administration. That is the false narrative Google wants you to hear. The House Antitrust Subcommittee report was signed by all Ds and there are 2 bipartisan state AG groups doing their own G cases. https://t.co/7dTZ5QhQn8
— Luther Lowe (@lutherlowe) October 20, 2020
George Slover, senior policy counsel at Consumer Reports, said that the increasing dominance of platforms like Google over digital commerce and communications is concerning for people across the political spectrum. “These powerful online platforms that connect us all on the internet must be held accountable, and competition must be protected,” Mr. Slover said in a statement.
Representative Jim Jordan, Republican from Ohio, applauded Attorney General William P. Barr’s decision to file the lawsuit in his tweet about the Google suit:
Shortly after the Department of Justice filed its antitrust lawsuit against Google on Tuesday, the company’s top executives sent emails to its employees with a message: Stay focused.
And for Google, that means don’t go blabbing about antitrust issues.
“While we can expect some tough criticism and even misleading claims about our work, it’s important not to get distracted by this process, including speculating on legal issues internally or externally,” Kent Walker, Google’s chief legal officer, wrote in an internal email viewed by The New York Times.
Mr. Walker repeated his public statements that the case is “deeply flawed” and that Google is confident that the Justice Department’s complaint “doesn’t square with the facts of the law.” He noted that lots of successful companies have faced similar lawsuits and questions in the past.
In a separate email, Sundar Pichai, Google’s chief executive, urged Googlers to stay focused on their work so that users will continue to use its products, not because they have to but because they want to.
“Scrutiny is nothing new for Google, and we look forward to presenting our case,” Mr. Pichai wrote. “I’ve had Googlers ask me how they can help, and my answer is simple: Keep doing what you’re doing.”
In a lengthy post on Google’s website on Tuesday, Kent Walker, senior vice president of global affairs, set out the company’s response to the Justice Department’s lawsuit, which he labeled “deeply flawed.”
“This lawsuit would do nothing to help consumers,” Mr. Walker wrote. “To the contrary, it would artificially prop up lower-quality search alternatives, raise phone prices, and make it harder for people to get the search services they want to use.”
The post detailed Google’s rebuttals to the suit:
Google’s agreements with Apple and other device makers and carriers to surface its search product were no different from those that many other companies have, it said. “Other search engines, including Microsoft’s Bing, compete with us for these agreements,” Mr. Walker wrote.
Consumers are using Google because they want to, not because they have to, the company said. It said other search engines, such as Bing or Safari, were easily available for download if people chose to use them instead.
Mr. Walker said in the post that the lawsuit was wrong about how Americans use the internet. “It claims that we compete only with other general search engines. But that’s demonstrably wrong. People find information in lots of ways: They look for news on Twitter, flights on Kayak and Expedia, restaurants on OpenTable, recommendations on Instagram and Pinterest,” he wrote.
Attorney General William P. Barr has played an unusually active role in the investigation that led to the antitrust lawsuit that the Justice Department filed against Google on Tuesday.
He pushed prosecutors to wrap up their inquiries — and decide whether to bring a case — before Election Day. Most of the roughly 40 lawyers building the case had said they opposed bringing a complaint by Mr. Barr’s Sept. 30 deadline. Some said they would not sign the complaint, and several left the case this summer.
Mr. Barr, a former telecom executive at Verizon who once argued an antitrust case before the Supreme Court, signaled that he would put the tech giants under new scrutiny at his confirmation hearing in early 2019. He said that “a lot of people wonder how such huge behemoths that now exist in Silicon Valley have taken shape under the nose of the antitrust enforcers.”
Since then he has taken a hands-on approach to the investigation, putting it under the control of his deputy, Jeffrey Rosen, who in turn hired an aide from a major law firm to oversee the case and other technology matters. Mr. Barr’s grip over the case tightened when the head of the Justice Department’s antitrust division, Makan Delrahim, recused himself from the investigation because he represented Google in its acquisition of the ad service DoubleClick in 2007.
In a blog post, Google called the lawsuit “deeply flawed” and said that it would not help consumers. The Trump administration has attacked Google, which owns YouTube, and other online platform companies as being slanted against conservative views.
The lawsuit is likely to outlast the Trump administration. The Justice Department spent more than a decade taking on Microsoft. The agency filed its lawsuit against the company in 1998 and the settlement was approved in 2002.
While it is possible that a new Democratic administration would review the strategy behind the case, experts said it was unlikely that it would be withdrawn under new leadership.
The Justice Department on Tuesday filed an antitrust lawsuit against Google, accusing the company of maintaining an illegal monopoly over search and search advertising.
The government was joined by 11 states, all with Republican attorneys general: Arkansas, Florida, Georgia, Indiana, Kentucky, Louisiana, Mississippi, Missouri, Montana, South Carolina and Texas.
Senator Mitch McConnell, Republican of Kentucky and the majority leader, has advised the White House not to strike a deal with Speaker Nancy Pelosi on a new stimulus bill before Election Day, he told Republican senators privately on Tuesday, cautioning against reaching an agreement that most in the party cannot accept.
Mr. McConnell’s counsel, confirmed by three Republicans familiar with his remarks, threw cold water on Mr. Trump’s increasingly urgent push to enact a fresh round of pandemic aid before he faces voters on Nov. 3. It underscored the divisions within the party that have long hampered a compromise.
Ms. Pelosi had said earlier on Tuesday that she was “optimistic” a deal could be reached with the Trump administration in the coming days. But Republicans are growing increasingly anxious that Mr. Trump and his team are too eager to reach a multitrillion-dollar agreement and are conceding far too much to the Democrats. Republicans fear that scenario would force their colleagues up for re-election into a difficult choice of defying the president or alienating their fiscally conservative base by embracing the big-spending bill he has demanded.
Republicans in the Senate were also concerned that any vote on such a package could interfere with the Senate’s hasty timetable for confirming Judge Amy Coney Barrett to the Supreme Court by early next week. Mr. McConnell said he told the White House he was particularly concerned a deal before then could inject unwanted unpredictability into the schedule, according to the Republicans, who requested anonymity because they were not authorized to discuss a closed party luncheon.
Mr. McConnell made it clear that he knew his counsel was likely to leak out, making reference to the possibility that his remarks could appear in the news media, two of the Republicans said.
A short time later, outside the hearing room where Republicans met privately, Mr. McConnell told reporters the Senate would consider a broad bipartisan stimulus deal if the White House and Democrats struck one. But he would not say if it would hold a vote before Election Day, and members of his leadership team have warned that Republican votes could be hard to come by in the chamber.
“If a presidentially supported bill clears the House, at some point we’ll bring it to the floor,” he said, without elaborating on the timetable.
Ms. Pelosi and Steven Mnuchin, the Treasury secretary, were scheduled to discuss the matter at 3 p.m. Tuesday. “Hopefully, by the end of the day today, we’ll know where we all are,” the speaker said in an interview on Bloomberg TV.
On Sunday, Ms. Pelosi said that to pass a bill before the election, a deal would have to be reached within 48 hours. But in the interview on Tuesday, she softened that time limit, saying instead that legislation would have to be finished by the end of next week for aid to begin flowing by Nov. 3.
“It isn’t that this day was the day that we have a deal,” Ms. Pelosi said. “It was a day that we would have our terms on the table to be able to go to the next step.”
Mr. McConnell planned a test vote later Tuesday on a narrow measure that would revive the Paycheck Protection Program, a popular small-business loan program. While Democrats support the program, they are expected to oppose the narrow bill, contending that a far broader package is needed.
Stocks on Wall Street rose on Tuesday, though trading was turbulent as investors reacted to developments between Democrats and Republicans over a new economic stimulus package.
After rising nearly 1.5 percent the S&P 500 gave back much of those gains late in the afternoon to end about half a percent higher. Speaker Nancy Pelosi had set Tuesday as a deadline for reaching an agreement on a package, but earlier in the day she suggested that she might be willing to extend that timeline.
Investors have watched the on-again, off-again talks closely in recent weeks, holding out hope for government spending that would support jobless Americans, small businesses, industries that have been hit hardest by the coronavirus pandemic, and state and local governments.
Stocks had received an early afternoon lift, following Ms. Pelosi’s appearance on Bloomberg Television, during which she sounded optimistic notes on the possibility of striking a deal on additional stimulus before the election.
But it was later reported that Senator Mitch McConnell, Republican of Kentucky and the majority leader, advised the White House not to strike a deal before Election Day.
The odds remained long that Democrats and the Trump administration could enact a plan before the Nov. 3 election. If differences over funding levels and policy issues could be resolved, there are still Senate Republicans to contend with, who are unlikely to approve a spending package as large as the one under discussion.
Shares of the big tech companies rose even as the Department of Justice filed an antitrust lawsuit against Google, accusing the company of maintaining an illegal monopoly over search and search advertising. The suit had been widely expected. Shares of Alphabet, Google’s parent company, were up more than 1 percent.
Some European stock indexes were pushed higher on Tuesday by a spate of positive earnings, which helped quell anxiety in markets about rising coronavirus cases and new social restrictions, including national lockdowns in Ireland and Wales. Reckitt Benckiser, the British owner of cleaning brands such as Dettol and Lysol, reported a jump in revenue on Tuesday. Logitech, which makes other computer hardware such as keyboards, said its quarterly sales exceeded $1 billion for the first time in the three months that ended in September.
While Britain struggles to get its national test-and-trace system running more efficiently, travelers will be able to get rapid coronavirus tests at an airport for the first time. Fliers leaving Heathrow Airport in London can get a rapid test for 80 pounds ($104). Starting Tuesday, people going to Hong Kong can take a pre-departure test to meet entry requirements there, the airport said.
The service will initially be offered for four weeks and passengers must book it ahead of time. The tests will be done by private-sector nurses, with results expected within an hour.
Heathrow, Britain’s largest airport, has been urging the government to allow it to offer more testing, particularly to arrivals, in an effort to boost travel. Heathrow argues that on-site testing would limit the need for two-week quarantines for people arriving in Britain. Government ministers have disagreed.
As an international hub, Heathrow Airport typically sees more than 80 million passengers a year. But during the pandemic, governments have introduced a range of travel restrictions, and passengers have been wary of venturing too far from home, causing overseas travel to plummet. The airport said 1.2 million passengers traveled through it in September, down 82 percent compared with 2019.
Heathrow hopes its new program could be the start of a more expansive testing regime in the airport. For now, the airport will offer a test known as LAMP, which is not as sensitive as PCR testing, used by the country’s national health service. PCR tests can detect active infections even before symptoms appear, though with a daylong turnaround. Heathrow plans to add antigen tests, another type of rapid testing, later.
The airport also said that travelers to Italy would be able to use the test, but Collinson, one of the companies administering the plan, said it was still in talks with the Italian government, the BBC reported.
The German auto industry is bouncing back strongly from the pandemic as customers make purchases they postponed earlier in the year, earnings reports by BMW and Daimler indicate. Strong economic growth in China, a crucial market for both vehicle makers, has also helped.
But analysts say the miniboom may not last. Infections in Europe and the United States are surging, endangering sales in those two essential car markets. The profit figures “look too good to be sustainable,” Tim Rokossa, an analyst at Deutsche Bank, said in a note, referring to Daimler.
BMW said late Monday that its free cash flow, a measure of profit, quadrupled to 3 billion euros, or $3.6 billion, in the third quarter compared to the same period last year. Daimler said last week that operating profit rose to €3 billion in the quarter from €2.7 billion a year earlier.
Neither company disclosed net profit in the preliminary earnings reports. Daimler will issue a detailed earnings report on Friday and BMW will do so on Nov. 4.
German carmakers have a strong influence on the economic fate of Europe. Cars and trucks are Germany’s biggest export, and German carmakers buy components from all over the continent.
Snap, the parent company of Snapchat, reported a surge in quarterly revenue on Tuesday, as more users flocked to the social messaging app, though it continued to lose money.
Snap said revenue for the third quarter was $678 million, up 52 percent from a year ago, exceeding analysts’ estimates of $559 million. While some analysts had predicted that Snap’s growth would tail off as people returned to school, its number of daily active users rose 18 percent to 249 million.
But the company posted a net loss of nearly $200 million in the quarter, narrower than the loss of $227 million a year ago.
As shutdowns caused by the coronavirus pandemic have continued, Snap has focused on introducing more shopping experiences in augmented reality, allowing people to try on clothes using filters in the app.
“Our focus on delivering value for our community and advertising partners is yielding positive results during this challenging time,” Evan Spiegel, Snap’s chief executive, said in a statement. “The adoption of augmented reality is happening faster than we had previously anticipated, and we are working together as a team to execute on the many opportunities in front of us.”
The Trump campaign celebrated a growth record that Democrats downplayed.
The White House celebrated economic growth numbers for the third quarter released on Thursday, even as Joseph R. Biden Jr.’s presidential campaign sought to throw cold water on the report — the last major data release leading up to the Nov. 3 election — and warned that the economic recovery was losing steam.
The economy grew at a record pace last quarter, but the upswing was a partial bounce-back after an enormous decline and left the economy smaller than it was before the pandemic. The White House took no notice of those glum caveats.
“This record economic growth is absolute validation of President Trump’s policies, which create jobs and opportunities for Americans in every corner of the country,” Mr. Trump’s re-election campaign said in a statement, highlighting a rebound of 33.1 percent at an annualized rate. Mr. Trump heralded the data on Twitter, posting that he was “so glad” that the number had come out before Election Day.
GDP number just announced. Biggest and Best in the History of our Country, and not even close. Next year will be FANTASTIC!!! However, Sleepy Joe Biden and his proposed record setting tax increase, would kill it all. So glad this great GDP number came out before November 3rd.
— Donald J. Trump (@realDonaldTrump) October 29, 2020
The annualized rate that the White House emphasized extrapolates growth numbers as if the current pace held up for a year, and risks overstating big swings. Because the economy’s growth has been so volatile amid the pandemic, economists have urged focusing on quarterly numbers.
Those showed a 7.4 percent gain in the third quarter. That rebound, by far the biggest since reliable statistics began after World War II, still leaves the economy short of its pre-pandemic levels. The pace of recovery has also slowed, and now coronavirus cases are rising again across much of the United States, raising the prospect of further pullback.
“The recovery is stalling out, thanks to Trump’s refusal to have a serious plan to deal with Covid or to pass a new economic relief plan for workers, small businesses and communities,” Mr. Biden’s campaign said in a release ahead of Thursday’s report. The rebound was widely expected, and the campaign characterized it as “a partial return from a catastrophic hit.”
Economists have warned that the recovery could face serious roadblocks ahead. Temporary measures meant to shore up households and businesses — including unemployment insurance supplements and forgivable loans — have run dry. Swaths of the service sector remain shut down as the virus continues to spread, and job losses that were temporary are increasingly turning permanent.
“With coronavirus infections hitting a record high in recent days and any additional fiscal stimulus unlikely to arrive until, at the earliest, the start of next year, further progress will be much slower,” Paul Ashworth, chief United States economist at Capital Economics, wrote in a note following the report.
Black and Hispanic workers, especially women, lag in the U.S. economic recovery.
The surge in economic output in the third quarter set a record, but the recovery isn’t reaching everyone.
Economists have long warned that aggregate statistics like gross domestic product can obscure important differences beneath the surface. In the aftermath of the last recession, for example, G.D.P. returned to its previous level in early 2011, even as poverty rates remained high and the unemployment rate for Black Americans was above 15 percent.
Aggregate statistics could be even more misleading during the current crisis. The job losses in the initial months of the pandemic disproportionately struck low-wage service workers, many of them Black and Hispanic women. Service-sector jobs have been slow to return, while school closings are keeping many parents, especially mothers, from returning to work. Nearly half a million Hispanic women have left the labor force over the last three months.
“If we’re thinking that the economy is recovering completely and uniformly, that is simply not the case,” said Michelle Holder, an economist at John Jay College in New York. “This rebound is unevenly distributed along racial and gender lines.”
The G.D.P. report released Thursday doesn’t break down the data by race, sex or income. But other sources make the disparities clear. A pair of studies by researchers at the Urban Institute released this week found that Black and Hispanic adults were more likely to have lost jobs or income since March, and were twice as likely as white adults to experience food insecurity in September.
The financial impact of the pandemic hit many of the families that were least able to afford it, even as white-collar workers were largely spared, said Michael Karpman, an Urban Institute researcher and one of the studies’ authors.
“A lot of people who were already in a precarious position before the pandemic are now in worse shape, whereas people who were better off have generally been faring better financially,” he said.
Federal relief programs, such as expanded unemployment benefits, helped offset the damage for many families in the first months of the pandemic. But those programs have mostly ended, and talks to revive them have stalled in Washington. With virus cases surging in much of the country, Mr. Karpman warned, the economic toll could increase.
“There could be a lot more hardship coming up this winter if there’s not more relief from Congress, with the impact falling disproportionately on Black and Hispanic workers and their families,” he said.
Ant Challenged Beijing and Prospered. Now It Toes the Line.
As Jack Ma of Alibaba helped turn China into the world’s biggest e-commerce market over the past two decades, he was also vowing to pull off a more audacious transformation.
“If the banks don’t change, we’ll change the banks,” he said in 2008, decrying how hard it was for small businesses in China to borrow from government-run lenders.
“The financial industry needs disrupters,” he told People’s Daily, the official Communist Party newspaper, a few years later. His goal, he said, was to make banks and other state-owned enterprises “feel unwell.”
The scope of Mr. Ma’s success is becoming clearer. The vehicle for his financial-technology ambitions, an Alibaba spinoff called Ant Group, is preparing for the largest initial public offering on record. Ant is set to raise $34 billion by selling its shares to the public in Hong Kong and Shanghai, according to stock exchange documents released on Monday. After the listing, Ant would be worth around $310 billion, much more than many global banks.
The company is going public not as a scrappy upstart, but as a leviathan deeply dependent on the good will of the government Mr. Ma once relished prodding.
More than 730 million people use Ant’s Alipay app every month to pay for lunch, invest their savings and shop on credit. Yet Alipay’s size and importance have made it an inevitable target for China’s regulators, which have already brought its business to heel in certain areas.
These days, Ant talks mostly about creating partnerships with big banks, not disrupting or supplanting them. Several government-owned funds and institutions are Ant shareholders and stand to profit handsomely from the public offering.
The question now is how much higher Ant can fly without provoking the Chinese authorities into clipping its wings further.
Excitable investors see Ant as a buzzy internet innovator. The risk is that it becomes more like a heavily regulated “financial digital utility,” said Fraser Howie, the co-author of “Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise.”
“Utility stocks, as far as I remember, were not the ones to be seen as the most exciting,” Mr. Howie said.
Ant declined to comment, citing the quiet period demanded by regulators before its share sale.
The company has played give-and-take with Beijing for years. As smartphone payments became ubiquitous in China, Ant found itself managing huge piles of money in Alipay users’ virtual wallets. The central bank made it park those funds in special accounts where they would earn minimal interest.
After people piled into an easy-to-use investment fund inside Alipay, the government forced the fund to shed risk and lower returns. Regulators curbed a plan to use Alipay data as the basis for a credit-scoring system akin to Americans’ FICO scores.
China’s Supreme Court this summer capped interest rates for consumer loans, though it was unclear how the ceiling would apply to Ant. The central bank is preparing a new virtual currency that could compete against Alipay and another digital wallet, the messaging app WeChat, as an everyday payment tool.
Ant has learned ways of keeping the authorities on its side. Mr. Ma once boasted at the World Economic Forum in Davos, Switzerland, about never taking money from the Chinese government. Today, funds associated with China’s social security system, its sovereign wealth fund, a state-owned life insurance company and the national postal carrier hold stakes in Ant. The I.P.O. is likely to increase the value of their holdings considerably.
“That’s how the state gets its payoff,” Mr. Howie said. With Ant, he said, “the line between state-owned enterprise and private enterprise is highly, highly blurred.”
China, in less than two generations, went from having a state-planned financial system to being at the global vanguard of internet finance, with trillions of dollars in transactions being made on mobile devices each year. Alipay had a lot to do with it.
Alibaba created the service in the early 2000s to hold payments for online purchases in escrow. Its broader usefulness quickly became clear in a country that mostly missed out on the credit card era. Features were added and users piled in. It became impossible for regulators and banks not to see the app as a threat.
A big test came when Ant began making an offer to Alipay users: Park your money in a section of the app called Yu’ebao, which means “leftover treasure,” and we will pay you more than the low rates fixed by the government at banks.
People could invest as much or as little as they wanted, making them feel like they were putting their pocket change to use. Yu’ebao was a hit, becoming one of the world’s largest money market funds.
The banks were terrified. One commentator for a state broadcaster called the fund a “vampire” and a “parasite.”
Still, “all the main regulators remained unanimous in saying that this was a positive thing for the Chinese financial system,” said Martin Chorzempa, a research fellow at the Peterson Institute for International Economics in Washington.
“If you can’t actually reform the banks,” Mr. Chorzempa said, “you can inject more competition.”
But then came worries about shadowy, unregulated corners of finance and the dangers they posed to the wider economy. Today, Chinese regulators are tightening supervision of financial holding companies, Ant included. Beijing has kept close watch on the financial instruments that small lenders create out of their consumer loans and sell to investors. Such securities help Ant fund some of its lending. But they also amplify the blowup if too many of those loans aren’t repaid.
“Those kinds of derivative products are something the government is really concerned about,” said Tian X. Hou, founder of the research firm TH Data Capital. Given Ant’s size, she said, “the government should be concerned.”
The broader worry for China is about growing levels of household debt. Beijing wants to cultivate a consumer economy, but excessive borrowing could eventually weigh on people’s spending power. The names of two of Alipay’s popular credit functions, Huabei and Jiebei, are jaunty invitations to spend and borrow.
Huang Ling, 22, started using Huabei when she was in high school. At the time, she didn’t qualify for a credit card. With Huabei’s help, she bought a drone, a scooter, a laptop and more.
The credit line made her feel rich. It also made her realize that if she actually wanted to be rich, she had to get busy.
“Living beyond my means forced me to work harder,” Ms. Huang said.
First, she opened a clothing shop in her hometown, Nanchang, in southeastern China. Then she started an advertising company in the inland metropolis of Chongqing. When the business needed cash, she borrowed from Jiebei.
Online shopping became a way to soothe daily anxieties, and Ms. Huang sometimes racked up thousands of dollars in Huabei bills, which only made her even more anxious. When the pandemic slammed her business, she started falling behind on her payments. That cast her into a deep depression.
Finally, early this month, with her parents’ help, she paid off her debts and closed her Huabei and Jiebei accounts. She felt “elated,” she said.
China’s recent troubles with freewheeling online loan platforms have put the government under pressure to protect ordinary borrowers.
Ant is helped by the fact that its business lines up with many of the Chinese leadership’s priorities: encouraging entrepreneurship and financial inclusion, and expanding the middle class. This year, the company helped the eastern city of Hangzhou, where it is based, set up an early version of the government’s app-based system for dictating coronavirus quarantines.
Such coziness is bound to raise hackles overseas. In Washington, Chinese tech companies that are seen as close to the government are radioactive.
In January 2017, Eric Jing, then Ant’s chief executive, said the company aimed to be serving two billion users worldwide within a decade. Shortly after, Ant announced that it was acquiring the money transfer company MoneyGram to increase its U.S. footprint. By the following January, the deal was dead, thwarted by data security concerns.
More recently, top officials in the Trump administration have discussed whether to place Ant Group on the so-called entity list, which prohibits foreign companies from purchasing American products. Officials from the State Department have suggested that an interagency committee, which also includes officials from the departments of defense, commerce and energy, review Ant for the potential entity listing, according to three people familiar with the matter.
Ant does not talk much anymore about expanding in the United States.
Ana Swanson contributed reporting.
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