Profits and stock prices of Chinese companies have fallen significantly, with Chinese and Hong Kong stocks, some of the world’s worst performing stock markets, down 10% by the end of 2023.
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Hong Kong stock market falls below the 15,000 yen level, the lowest in 15 months
Hong Kong stock market falls below the 15,000 yen level, the lowest in 15 months
Among the risks facing shareholders of Chinese companies are limited transparency and the risk that purchasing civilian and military stock in Chinese companies could undermine U.S. national security.
“Investors in Chinese companies may support activities that are contrary to U.S. national interests, including censorship, surveillance, and the development of technology used to support the military,” the report said. “Ostensibly, private enterprises in China are subject to state pressure and control.”
VIEs are seen as a way for Chinese companies to circumvent Chinese government restrictions on foreign stocks in sensitive areas, particularly internet companies, and have recently come under increased scrutiny from the United States and China. Alibaba, the technology company that owns business services company Pinduoduo, consumer company JD.com, and South China Morning Post, relies on VIEs.
Market Voice: Despite IPO Challenges, Chinese Startups Still Desperate for US Investors
Market Voice: Despite IPO Challenges, Chinese Startups Still Desperate for US Investors
Last year, the China Securities Regulatory Commission (CSRC) began requiring all Chinese companies listed overseas to obtain approval, regardless of corporate structure.
Mark Ieki, head of listing strategy at Green Impact Exchange, which promotes corporate sustainability, said, “China is trying to maintain opportunities to raise foreign capital, but such efforts are based on economic and national security priorities.” It needs to be consistent with the matter.”
The requirement comes after ride-hailing company DiDi Global forced a NYSE initial public offering in 2021 against the wishes of the Chinese government, leading to an embarrassing delisting 11 months later that wiped out US$60 billion; It came after nine years of U.S. requests and a reluctant agreement. Have foreign auditors monitor the accounts of overseas listed companies.
“While the CSRC touts measures needed to ensure regulatory compliance and prevent fraud, its review process is extensive and includes assessing the company’s safeguards against disclosure of what the party-state considers state secrets. included,” the report states.
The U.S. Security and Exchange Commission also announced that it would increase its oversight of VIEs due to concerns over past scandals and misconduct. Although other companies also use his VIEs, Chinese companies are leading the use of his VIEs to protect their core assets.
In the past year, 24 Chinese companies have listed on US exchanges, raising a total of US$656 million in capital. During the same period, 11 companies were delisted, including China Eastern Airlines and China Southern Airlines. These airlines are the last two state-owned enterprises (SOEs) to hold initial public offerings (IPOs) in North America, worth a total of $32.3 billion. Many of the voluntary delistings of state-owned enterprises took place immediately before or after the U.S.-China audit agreement.
Chinese state-owned enterprises cited “high administrative burden and costs” in explaining their decision to withdraw. But the committee also noted that the withdrawal would prevent U.S. regulators from gaining insight into these companies.
U.S. reporting requirements that Chinese state-owned enterprises want to avoid include the percentage of stock owned by government agencies, the name of each Chinese Communist Party official on the board of directors, and whether the company’s articles of incorporation include the Chinese Communist Party’s charter. .
Analysts said goodwill is severely lacking in bilateral relations. “The fundamental mistrust and fundamental anxiety about the strategic intentions of both sides continues to deepen,” said Anna Ashton, director of China operations at Eurasia Group. She said: “The question is: Will it decline at a controlled rate or will it fall off a cliff?”
The U.S. Commission was established in 2000 to study the national security implications of U.S.-China trade and economic relations, advise Congress, and recommend legislative action. Recent hearings have included topics such as China’s role in supply chains, international law, economic coercion, and military diplomacy.
Tuesday’s report also mentioned the possibility that the Chinese government could back out of an agreement to allow audits of Chinese public companies, undermining transparency.
The committee found that “recent compliance has been achieved after many years of uncertainty.” “Concerns remain about continued cooperation by Chinese regulators. In particular, there is a possibility that Chinese regulators may reintroduce restrictions in violation of the agreement, leading to forced delisting of companies and This may result in potential disadvantage to investors.
Chinese stocks are down, US stocks are down too – will reforms work to stem the tide?
Chinese stocks are down, US stocks are down too – will reforms work to stem the tide?
The Chinese Embassy in Washington said the Chinese government opposes attempts to politicize securities regulation. “We have always advocated resolving the regulatory issues of cross-border listing audits through regulatory cooperation mechanisms,” said Embassy Spokesperson Liu Pengyu.
Investors could also find themselves drawn into the geopolitical showdown between the United States and China, as dual-use restrictions on Chinese companies tighten, the committee said. Weibo, the Chinese social media platform currently valued at US$2.4 billion on the Nasdaq market, “censors posts on its blogging platform under the direction of the government, and the central and local governments are It is being used to monitor and censor protests.”
And Hesai, which raised $192 million in a Nasdaq IPO a year ago and makes laser sensor systems for self-driving cars, has “a wide range of battlefield applications,” according to the paper. “The technology has been certified by the U.S. military,” and the company was excluded from contracts with the Department of Defense. commission.
“Both sides have a lot of regulations in place,” Hinote said. “I think it’s like investing at your own risk.”