T HE TIES that bind the world’s 2 greatest economies are deciphering, in fits and starts. The most recent episode involved fits, begins and chaos. On December 31 st the New York Stock Exchange ( NYSE) revealed that it would delist China Telecom, China Mobile and China Unicom, three telecoms giants, shares in which have been traded on Wall Street for several years. It did so, it stated, to adhere to President Donald Trump’s executive order in November prohibiting American financial investments in companies with links to the People’s Liberation Army ( PLA).
This set off a fit among their American investors. As the trio’s share prices swung wildly, funds rushed to offer their stakes before the delisting, which the NYSE stated would happen by January 11 th. Speculation raved that CNOOC and PetroChina, state-run energy goliaths also listed in New York, could be next. Then came the start. Late on January Fourth the NYSE stated it would not eject the firms. Those same funds faced the possibility of redeeming the shares, the rate of which had turned up on news of the NYSE‘s U-turn. If that weren’t disorderly enough, 2 days later the NYSE changed its mind again. It would, after all, boot out the 3 companies.
Something is clear: Chinese companies listed in America face uncertain times. In December Mr Trump signed a bipartisan law that would expel from exchanges in America those business that do not permit American regulators to examine their accounts, which holds true for many Chinese ones. On top of this law, Mr Trump’s executive order is likely to stay a problem; Joe Biden may think twice to rescind it after he takes workplace on January 20 th. It impacts more than 30 companies deemed too cosy with the PLA To comply, FTSE Russell, which maintains international equity indices, prepares to cut a minimum of 11 Chinese technology companies from its lineup. MSCI, a competing indexer, prepares to boot 10 Chinese firms from its benchmarks.
A rupture seems inevitable, then. How much will it matter? If it is limited to Chinese state-owned business ( SOE s), then very little. Just about a dozen SOE s trade in New york city– and only very finely. The majority of have a more robust listing in Hong Kong or mainland China. Paul Gillis of Peking University argues that “it makes no sense for these companies to have US listings and be subject to United States regulations”.
That leaves two other possible casualties. If private-sector companies are included the variety of Chinese firms noted in America swells to over 200, a number of them in hot markets like technology and finance. Their combined market capitalisation surpasses $2.2 trn. Lots of might have links (however rare) with the PLA
Losing access to America’s sophisticated financiers and deep pools of capital would sting such innovators as Lufax, a mainland fintech giant, which managed a $2.4 bn flotation in New York in late October. That risk is why Alibaba, China’s e-commerce titan with a New York listing, hedged its bets in late 2019 by floating in Hong Kong also. Others might follow.
American investors would suffer, too. Goldman Sachs, a bank, estimates that they hold 28%of the $2.2 trn in Chinese-linked market value in America. These stocks have actually outshined the S & P500 index of huge American companies in the last few years. Those without any secondary listing in China, which have most to lose from expulsion, have done even better (see chart). A hasty exodus by Chinese stars might require a fire sale. With Mr Biden not likely to go easy on China, the most financiers can wish for is more coherence– and fewer fits and starts. ■
Editor’s note: This article has actually been upgraded given that publication.
This post appeared in business area of the print edition under the heading “NYSE knowing you”