News Analysis
rising competition between the United States and China is creating so much tension on Wall Street that Chinese companies listed in the United States are starting to retreat to Shanghai and Hong Kong, rather than surrender their data to U.S. regulators.
In early 2021, the New York Stock Exchange delisted China Telecom, China Mobile, and China Unicom in compliance with a U.S. executive order that banned U.S. investment in Chinese military-linked firms.
But some Chinese companies are leaving the United States, or not listing in America, at the direction of Beijing. latter hopes to keep its corporate data secret from U.S. regulators and investors, and in the long term to move finance from New York, London, and Tokyo to Shanghai and Hong Kong, where the Chinese Communist Party (CCP) has more control.
process is already well underway. A Dec. 15 report noted that David Loevinger of the TCW Group predicts that most Chinese companies listed in the United States will delist and “gravitate back to Hong Kong or Shanghai” by 2024.
Alibaba, JD.com, Baidu, NetEase, and Weibo have already dual-listed in Hong Kong.
“I think for a lot of Chinese companies listed in U.S. markets, it’s essentially game over,” Loevinger told CNBC. “This is an issue that’s been hanging out there for 20 years.”
Didi, the Chinese ride-hailing company, went public in New York for $4.4 billion in June, and within six months announced plans to delist and move to Hong Kong. Company shares dropped precipitously. Didi supposedly did so due to pressure from Chinese regulators over concerns about U.S. access to Didi’s data, including personal information about Didi customers in China. But in the process, it got away with what should be considered highway robbery.
Loevinger said: “I just don’t think China’s government is going to allow U.S. regulators to have unfettered access to internal auditing documents of Chinese companies. And if U.S. regulators can’t get access to those documents, then they can’t protect U.S. markets from fraud.”
moves could have the positive effect—due to stricter U.S. Securities and Exchange Commission (SEC) requirements and a new cautionary signal to investors—of protecting them against Chinese companies that refuse to reveal the financial data that all other companies are required to disclose according to SEC reporting requirements.
Chinese company removals to China would discourage U.S. and other investors from capitalizing Chinese companies that will empower a country that is self-admittedly seeking to expand its dictatorial powers into one of global hegemony.
But the danger is that some U.S. and international investors will follow Chinese companies, and their outsized and possibly Ponzi-ish returns, to Hong Kong and Beijing.
response of the New York Pezou to the Didi delisting was that “American investors will still have little trouble handing over their money to Chinese companies, but it will have to be on China’s terms.”
Once investments are in China-listed shares, the CCP could more easily capture them through capital controls such as reinvestment requirements that ensure that profits are not repatriated outside of China.
transparency risk for investors in China will stay high, since Chinese companies will continue not to disclose their financial details. And the authority of the U.S. government—in particular the SEC—will be undermined because Beijing will have again successfully refused to play by the rules.
Captured capital will deprive the United States and allies of taxes, revenues, and investors that will become increasingly beholden—politically as well as economically—to Beijing. se investors will then be useful conduits for political influence in Washington, Brussels, and Tokyo in the service of CCP interests globally.
question that arises—due to American and allied investors who, true to type, are chasing returns in China with little, if any, regard for their national security implications—is whether laws should be strengthened against investing in adversaries like China, Russia, Iran, and North Korea.
question also arises as to what should be done about the approximately $2.3 trillion of institutional and state pension fund investments in China. Is it possible to require investors to liquidate these positions and invest elsewhere? Will Beijing make this impossible through capital controls? If so, can U.S. and allied courts make investors whole by attaching Chinese assets internationally?
se are all policy questions that the United States and allies must take more seriously. longer we wait, the more we invest in communist China, increasingly to the point where it becomes too big to fail. At that point America—and with it democracy globally—will have lost.
Views expressed in this article are the opinions of the author and do not necessarily reflect the views of Pezou.
Pezou : US-China Capital Controls