Image source,Reuters
Three days after Didi Chuxing went public on the New York Stock Exchange at the end of June, China conducted a security review of the company.
As the relationship between the United States and China continues to be all-out tense, Beijing has repeatedly “governed” Chinese high-tech and education companies listed in the United States, and those Chinese stocks listed in the United States have recently “beyond the spectacle” performance. It has aroused more speculations and associations about the future direction of Sino-US relations.
Recently, the stocks of Chinese companies listed in the United States have seen their biggest decline since the 2008 financial crisis.
The Nasdaq Golden Dragon China Index, which is composed of 98 largest Chinese stocks listed in the United States, has fallen nearly 15% in the past two trading days. Since hitting a record high in February, the index has now fallen sharply by more than 45%.
In the five months since February this year, the value of Chinese companies listed in the United States has been wiped out by approximately $770 billion.
In the same period of this downward trend, the Chinese government has recently adopted a series of vigorous governance measures on the high-tech and education industries.
American Law v Chinese Law
Regarding the measures taken by the Chinese government to supervise listed companies in the United States, Allison Lee, a member of the US Securities and Exchange Commission (SEC), stated on July 26 as part of the regular reporting obligation. Chinese companies listed on the U.S. stock exchange “must disclose the risks of the Chinese government’s intervention in their business.”
Image source,NASDAQ
The Nasdaq Golden Dragon China Index has fallen nearly 15% in the past two trading days.
This is the first time a U.S. Securities and Exchange Commission official has commented since the Chinese regulator launched a large-scale cybersecurity review of the ride-hailing giant Didi Chuxing.
At the beginning of July, the Chinese authorities issued the “Opinions on Strictly Cracking Down on Illegal Securities Activities in accordance with the Law”, which mentioned strengthening cross-border supervision and cooperation, and required the implementation of the main responsibility for information security of overseas listed companies.
Before the announcement of this heavy policy, the State Internet Information Office of China issued an announcement from the Office of Cyber Security Review, in order to “prevent national data security risks, safeguard national security, and protect public interests”, it is the world’s largest online car-hailing car that was just listed in the United States at the end of June. The platform “Didi Travel” implements cyber security reviews. The Chinese government’s “sudden” regulation of Didi Chuxing has caused the company’s share price to plummet.
At the same time, in the United States, according to the “Foreign Company Accountability Act” signed into effect by former US President Trump in December 2020, if a foreign company fails to pass the audit of the US Public Company Accounting Oversight Board (PCAOB) for three consecutive years , Will prohibit the securities of these foreign companies from being listed on any exchange in the United States.
In this regard, Chinese Foreign Ministry spokesperson Wang Wenbin once criticized the US move as an unreasonable political suppression of Chinese listed companies in the US, and urged the US to stop “discriminatory clauses involving China” and not to politicize securities supervision.
What puzzles the outside world is that the US regulatory laws have not yet reached the enforcement deadline. China has begun its own supervision of listed companies in the US and has caused such a huge loss in Chinese concept stocks. What is the rationale for this?
China concept stocks
The so-called Chinese concept stocks are the collective term for all Chinese stocks listed overseas.
In the 1990s, Chinese companies began trial stock financing on the New York Stock Exchange and Nasdaq in the United States.
In July 1993, Shanghai Petrochemical (Sinopec), as a pilot company, became the first Chinese state-owned company to be officially listed and traded on the New York Stock Exchange; subsequently, Chinese companies listed in the United States and Huaneng Power, which were listed in October 1994 , Gulf Resources in November 1994, Ever Glory International in November 1996 and China Southern Airlines in July 1997.
In the process of China’s economy “surpassing Britain and catching up with the United States” in the past 20 years, the “Chinese concept” has also changed from an initial gimmick to a value investment that investors value. For example, the stock value of many Chinese companies after listing in the United States has greatly exceeded the valuation at the time of the initial public offering. When Alibaba, the largest Chinese company in the US stock market, went public in 2014, the company was valued at 21.767 billion U.S. dollars. Now it is 505.6 billion U.S. dollars, which is 25 times the original value.
Didi under scrutiny: Is Beijing “preparing for a rainy day” for the Sino-US financial collision
In recent years, news of the rapid rise in stock prices on the first day after Chinese companies went public in the United States abounds. It also shows that the international investment community has sought after “Chinese concept stocks” and is generally optimistic about the Chinese market.
According to the latest statistics of the United States-China Economic and Security Review Commission (United States-China Economic and Security Review Commission) in May 2021, a total of 248 Chinese companies have been listed in the United States so far, with a total market value of US$2.1 trillion.
Although the relationship between China and the United States has been tense in the past few years, and the United States has imposed sanctions on China in many aspects such as economy, trade, and technology, according to the statistics of the committee, the number of Chinese companies listed in the United States is still increasing. The number of stores in the month increased from 217 to 248 in May.
However, the total market value has declined from 2.2 trillion yuan in October last year.
“Cold War Signal”
Analysts have different opinions on how to interpret the Chinese government’s series of heavy-handed blows to its own national companies, but many of them believe that this is actually a signal of the Cold War, or that China is about to have a tough showdown with the United States, or that bilateral relations are showing signs of further deterioration. .
Stephen Roach, a well-known figure in American economics, a senior researcher at Yale University, and former chairman of Morgan Stanley’s Asian region, recently made a speech on the “Chinese hit” of the Chinese concept stocks listed in the United States. .
In an interview with CNBC, the commercial channel of the US National Broadcasting Corporation, he said that China’s “actions touched on the core issues that have been exciting for China for many years, and this worries me.”
Roach claims to be a “natural optimist” on China issues, but he believes that China’s recent actions are “targeting the economic core driven by new entrepreneurs and targeting their business model.”
Roger Garside, a former veteran British diplomat in China who has been engaged in capital markets for a long time and recently wrote “China Coup: The Great Leap Forward of Freedom” (China Coup), in an interview with the BBC in Chinese, believes that in view of the US “Foreign Companies Questions” The deadline for the “Law of Responsibility” is approaching, and the dispute between China and the United States over whether and how to delist more than 200 listed companies in the United States will inevitably have a huge conflict, leading to a huge crisis.
In addition, former US Secretary of State Kissinger, who played an important role in the normalization of Sino-US relations before 1950, has also warned many times that if China and the United States cannot properly resolve the immediate contradictions, the world will face the danger of a cold war.
Roach agrees with Kissinger’s warning and believes that in recent years, the US sanctions on Chinese technology companies, sanctions on Chinese and Hong Kong officials, warning companies not to deal with Chinese companies, etc., are all signals of the Cold War.
Recently, the Chinese authorities have taken action against Didi and education and training institutions. Although many commentators consider it to be a powerful medicine for China to face problems such as population aging and education capitalization, more analysts have begun to treat China’s Population and education issues should be considered in the context of Sino-US competition and confrontation, and I believe that in this way can we better see how Beijing and Washington are arranging and playing games for the next move.