“You’re fired.” “No, I quit.”
That, in a nutshell, describes the state of play for US-listed Chinese shares. US regulators and China hawks on Capitol Hill want them deported, so to speak. At the same time, Xi wants some of them, particularly Didi, to come home. On this issue, at least, Washington and Beijing see eye to eye.
The fraught Didi saga is rapidly approaching its denouement. The ride-hailing giant’s star-crossed US listing will be reversed, imminently, although details were initially sparse. The company on Thursday said it plans to delist from the NYSE under pressure from Chinese regulators who, following the company’s US IPO five months ago, tightened the screws citing data security risks.
One way or another, Didi is moving to Hong Kong. Or at least that’s the plan. Didi wants its ADRs to be exchanged for “freely tradable shares of the company on another internationally recognized stock exchange.” The move will likely take months to orchestrate and that’s assuming it goes smoothly. Much depends on what Beijing wants the company to do upon exiting the US. For now, the idea is for Didi to file in Hong Kong in March.
Didi won’t be the last delisting. On one hand, Beijing is drawing up new rules aimed at closing the VIE route, a loophole of sorts that Chinese firms use to list on foreign exchanges. On the other hand, the SEC will soon require foreign companies to submit to transparent audits if they want to list on US exchanges. That isn’t new. The PCAOB spat dates back years. But Donald Trump’s multi-sided economic war with China brought it back to the fore. “While more than 50 jurisdictions have… allow[ed] the required inspections, two historically have not: China and Hong Kong,” SEC Chair Gary Gensler said Thursday.
HKEX shares surged on Friday (figure below). The 4.3% gain was the best one-day rally since August.
Market participants are anticipating new business as Chinese firms avoid the US and list in Hong Kong.
Zhao Lijian, from the Chinese Foreign Ministry, on Friday called the SEC actions “political suppression” and said China will take “steps” to protect its interests.
But, again, the irony is that the interests of the US and China are aligned for once. Both countries would rather Chinese companies pack up and go home. On Friday, the perpetually beset Hang Seng Tech index dropped back near a record low (figure below).
It remains down almost 50% from the February highs, when shares began their descent amid Beijing’s never-ending regulatory crackdown on big tech.
For what it’s worth, more than 250 Chinese ADRs trade in the US. Combined, their market cap is almost $2 trillion. According to BofA, 150 of those companies wouldn’t meet listing requirements in Hong Kong.
“It’s beginning to appear to be a classic case of ‘I quit, no you’re fired,'” JonesTrading’s Mike O’Rourke said, of a potential mass exodus of Chinese companies from US exchanges. “After two decades of Chinese companies tapping the US market for capital, and US investors faring pretty well, the symbiotic relationship appears to be coming to an end.”
