Chinese firms listed on Wall Street will likely find themselves cut off from US markets by 2024. According to a global asset management firm, tensions between the US and China are eroding business relationships between the two.
Game Over For Chinese Firms
David Loevinger, managing director at TCW Group, says that good times are ending for Chinese firms. “I think for a lot of Chinese companies listed in US markets, it’s essentially game over.
This is an issue that’s been hanging out there for 20 years — we haven’t been able to solve it,” he said. At present, the TCW Group holds $265.8 billion in assets under management as of September this year.
In particular, the major reason for the potential dropping of Chinese firms from US stock markets is tightened regulations.
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Earlier, the US Securities and Exchange finalized rules this month on additional laws on foreign companies. The agency plans to implement a law to ban offshore firms from listing in the US stock exchanges.
Specifically, the SEC wants the power to ban firms that do not comply with audit or information requests.
Ban Stems From Chinese Firms’ Refusal To Comply With US Regulators
In fact, the new rules received approval last year after Chinese regulators denied audit verification requests from the Public Company Accounting Oversight Board.
Loevinger doesn’t see any improvements in their relationship soon. He said that the US has no way to solve this within the next few years.
He envisions most Chinese firms to slowly gravitate away from US exchanges and drift towards the Hong Kong and Shanghai indices.
A recent example is a Chinese firm, Didi. The ride-hailing giant traded for less than six months in the New York Stock Exchange before delisting itself.
Now, it’s making plans to join the Hong Kong Stock Exchange instead. By delisting from the NYSE however, Didi and other firms lose access to a diverse group of buyers, sellers, and intermediaries.
Chinese Government Disliked Didi’s NYSE Listing
In the case of Didi, Chinese regulators reportedly expressed their disapproval of Didi’s decision to list in the US. In particular, Beijing didn’t want Didi to proceed without resolving its pending cybersecurity issues.
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As a result, regulators told Didi executives to prepare for delisting. They want the rideshare company to point to concerns on data leakage for its reason to quit the NYSE.
Apart from Didi, many other Chinese firms already started listing themselves in the Hong Kong index. This includes Chinese tech giants dominating the Asian market.
Among the US-listed companies are Alibaba, JD.com, Baidu, NetEase, and Weibo. In addition, Loevinger said that Didi is just the first domino to fall. “We have already hit the turning point,” he said.
Loevinger also said he doesn’t see the Chinese government will give US regulators unfettered access to internal auditing documents.
“If U.S. regulators can’t get access to those documents, then they can’t protect US markets from fraud,” he added.
Watch the Bloomberg Markets and Finance news video reporting that the US SEC moves step closer to delisting Chinese firms:
Do you agree with making it difficult for non-cooperating foreign firms to stay listed? Also, do you agree that Chinese firms would rather delist than submit to SEC regulators?
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