Market participants should think about relocating because of the conflict between American and Chinese regulators.
After 3 years, the shares of most Chinese companies will disappear from the American stock exchanges. David Lovinger, Managing Director of Emerging Markets Research at TCW Group, shares this opinion with CNBC.
Experts believe that shares of Chinese companies will disappear from US stock exchanges due to political differences between Beijing and Washington. Several organizations have left the American market. One of them is Didi.
Recall that the company managed to go public in the United States in the summer of 2021, despite an antitrust investigation being held against it. After the list, the Chinese authorities put pressure on DiDi. In particular, the company was accused of illegally collecting user data and violating a number of business processes. In the midst of regulatory pressure, DiDi’s shares immediately fell after the IPO.
In December 2021, Chinese authorities discovered a data leak on the DiDi network. Against the background of the incident, company representatives decided to “move” from the New York Stock Exchange to Hong Kong.
What’s Wrong With Chinese IPOs Abroad?
Amid DiDi’s IPO and the pressures the organization faces, media reports that the Chinese company has been registered in the United States for years through a series of legislative loopholes. For this purpose, market participants, among other things, register businesses in offshore zones. The move helped Chinese companies circumvent a ban on attracting foreign investment. Also, registration in offshore zones, according to media reports, simplifies listing in the United States.
In the summer of 2021, the Chinese authorities decided to limit the project’s access to legal loopholes. The result of the PRC regulator’s actions was the delay in the listing of local companies in the United States.
US regulators have also taken steps that could complicate IPOs for Chinese organizations. CNBC drew attention to the fact that the US Securities and Exchange Commission (SEC) in December 2021 approved a number of specific amendments to the law. They would allow regulators to bar foreign companies registered in the country from trading shares. The innovation will apply to organizations whose auditors do not comply with requirements to provide information to local regulators. Many Chinese companies risk falling into this category.
According to David Lovinger, the tense political situation between China and the United States will not allow these countries in the near future to resolve the problems that Chinese companies face when trying to conduct IPOs in America. Because of the pressure, TCW Group’s managing director of emerging markets research believes most Chinese organizations that have successfully launched stock trading in the United States will be forced to follow DiDi’s example.
CNBC drew attention to the fact that many Chinese companies, including Alibaba, JD.com and Baidu, amid the conflict between the United States and China, have been double-listed. The shares of these organizations are traded both on the American market and in the PRC.
We remind you, previously on the network there was information that Ant Group would share user data with Chinese regulators for the sake of an IPO.