Marco Rubio is irritated.
Specifically, he’s disturbed that Didi, the Chinese ride-hailing giant whose stock collapsed just days after listing in the US, was allowed to sell shares on the NYSE. The company’s woes began when Beijing abruptly banned it from app stores on data security concerns, the opening salvo in what looks like another wave of regulatory scrutiny aimed at reining in the country’s tech sector.
In remarks to the Financial Times, Rubio said it was “reckless and irresponsible” to let Didi list. “Even if the stock rebounds, American investors still have no insight into the company’s financial strength because the Chinese Communist party blocks US regulators from reviewing the books,” Rubio, an avowed China hawk and an advocate for restrictions on Chinese listings, seethed, derisively describing Didi as “an unaccountable Chinese company.” (Ironic, given the GOP generally prefers less accountability from US companies in the name of “free markets.”)
During the Trump administration, Rubio spearheaded an effort to force the Federal Retirement Thrift Investment Board to halt a fund composition shakeup that would have found government employees investing in Chinese stocks. Last year, he was the target of unspecified Chinese sanctions imposed on US officials in retaliation for measures aimed at Chen Quanguo, party secretary in Xinjiang who sits on the Politburo.
Didi’s co-founders lost some $1.5 billion (on paper) in just two sessions as the stock careened below its IPO price. In the second quarter, senior executives and directors were granted options with what the company described as a “nominal exercise price” on “an accelerated and vested fully” basis. “We believe the granting of share-based awards is of significant importance to our ability to attract and retain key personnel and employees, and we will continue to grant share-based awards,” the company remarked, in an amended filing.
Didi fell in early US trading Wednesday after Tuesday’s dramatic plunge. In Hong Kong, the Hang Seng Tech Index fell again, extending its streak of daily losses to a half-dozen (figure below).
The gauge is down by nearly a third (!) in just five months.
As Bloomberg put it Wednesday, “investors worry that the latest security-based probes have opened a new front in Xi Jinping’s broader campaign against China’s internet giants that began in November with the collapse of Ant’s mega IPO and subsequent antitrust investigations into Alibaba and Meituan.”
As a reminder, Ant’s dual listing was poised to be the largest ever (figure above).
Between them, Tencent, Alibaba, Meituan, Pinduoduo, Kuaishou Technology, JD.com, Baidu and Xiaomi have lost more than $830 billion in market value since February.
Some suggested (despairing) that the wipeout could continue. It’s impossible to know how far Beijing plans to push the regulatory envelope, but when it comes to foreign listings, Xi seems to believe there’s more downside than upside. The prospect of Chinese corporates being exposed to foreign regulatory scrutiny is unpalatable and the idea that vast troves of data on Chinese citizens is somehow “out there,” beyond the reach of the Party, may ultimately prove to be a total non-starter, especially with Xi clearly intent on consolidating virtually all power in himself (and in perpetuity).
On the US side, episodes like the Didi debacle will continue to sour lawmakers on Chinese listings. Rubio again suggested that when Chinese firms raise capital abroad, it funnels hard currency to Beijing. That’s misleading. China doesn’t “need” dollars. It has plenty. But more to the point, some argue the yuan is becoming the hard currency at a time when developed market central banks are still engaged in massive easing programs to fund virus relief measures.
Whatever the case, this is the economic front in the multi-sided Sino-US conflict. There’s a diplomatic front and a military front too. Hopefully, the latter remains confined to the realm of harsh rhetoric. An escalation there would be far more “reckless and irresponsible” than any bungled IPO.
Cramer suggested some skullduggery in the timing. From what I read, it appears that the private shareholders (including Softbank & our beloved Uber) pushed for the ipo, despite the warnings from the central government not to do it.
The PE sharks wanted a US listing to get their dollars. Perhaps they feared that it would be harder to move their proceeds out if the shares were listed in Shanghai or HK.
That may be a major reason for the mooted crackdown on the VIE structure as well.
Both sides pushing things. Will the US force Tencent to sell their interest in global gaming stocks in the name of data security? Reverse things – imagine if it was China demanding that Microsoft sell their X-Box franchise. Mmmm.
Now China is playing the same game.
What could possibly go wrong?
While US investors and our esteemed strategists focus on dot plots, maybe they should lift their eyes and give this some thought.