In a surprising reversal, the New York Stock Exchange (NYSE) announced early this week that it no longer intended to delist three Chinese telecom companies that had been targeted by the outgoing Trump administration for suspected ties to the Chinese military.
The NYSE officially announced Monday that based on “further consultation with relevant regulatory authorities,” it no longer planned to delist China Telecom, China Mobile and China Unicom from trading.
The recent delisting was prompted by U.S. President Donald Trump’s November executive order calling for the removal of companies from U.S. markets described as “communist Chinese military” companies.
The U.S. Treasury Department subsequently released a list of 35 so-called communist Chinese military companies, including the three that had been set to delist from the NYSE as soon as Thursday.
The NYSE did not explain the exact reason for this major turnabout, but some observers speculated it could be related to pressure from Wall Street and corporate executives concerned about losing investment opportunities or fearful of economic retaliation from China, which has been locked in a bitter trade war with the United States throughout the greater part of Trump’s four years as president.
With President-elect Joe Biden preparing to take the helm on January 20, U.S. financiers and market analysts see the wisdom in not taking additional punitive regulatory action against the three companies that dominate China’s mobile business until Biden’s policies toward China become clearer.
They say once Trump leaves office, it may be difficult or ill-advised for the U.S. to start another wave of financial warfare against China and its economic interests.
Still, some analysts believe the U.S. banning Chinese companies with ties to the Chinese military serves U.S. national interests and that the Biden administration may seek to follow through the blacklist policy in a way that least affects U.S. investors.
In a statement issued late Monday, the NYSE said its decision-making was not over, and that NYSE regulators “continue to evaluate the applicability” of the outgoing president’s executive order.
Pressure from Wall Street
Francis Lun, chief executive officer of GEO Securities Limited in Hong Kong, believes the NYSE’s decision to delist the three companies on December 31 was irrational and unwelcome to Wall Street, which he suspected might have played a role in the NYSE’s flip-flop.
"This proves that Wall Street and financial circles are China’s greatest friends,” Lun told VOA in a phone interview on Tuesday. “What a fortune has Wall Street made from China. If there were no dealings with Chinese businesses, [Wall Street’s] revenue would have slipped by one-fourth."
Lun said he hoped Biden's approach to China wouldn't be as hostile and tough as Trump’s. Once Biden restores normalcy to U.S.-China relations, such a financial containment policy will not sustain, he said.
C.Y. Huang of FCC Partners in Taipei told VOA that Chinese companies would have little to lose should they be forced to delist from the U.S. stock markets.
He said the three companies are currently operating well with solid fundamentals and a steady cash flow. And he said it would be U.S. investors’ loss if they were banned from buying shares in these companies, whether they are listed in the U.S. markets or elsewhere, such as the Hong Kong stock market.
Huang said there would be fewer incentives for many of those 300 Chinese companies, whose shares are currently traded in the U.S. markets, to stay after U.S. investors become less friendly and regulatory restrictions are tightened.
In contrast, China’s stock markets are becoming more attractive to Chinese companies, he said. There have been successful precedents of companies raising more funds or enjoying a higher price-to-earnings ratio back in China. For example, last year, JD.com and JD Health successfully raised $3.9 billion and $3.4 billion, respectively, in the Hong Kong bourse. SMIC raised $8.24 billion in Shanghai A shares. All three were record-breaking initial public offerings.
"China continues to embrace rising capital inflows, although the capital market in Hong Kong, from a certain perspective, will become Sinicized, which means that it will have more Chinese funds in it,” Huang said.
But blue-chip stocks are always favored by investors, whether their money is from the U.S. or China, Huang said. He added that it would be U.S. investors’ loss if they were not allowed to invest, because funds from other regions, such as Europe, China and Singapore, would fill the void.
Return to China
Since the Holding Foreign Company Accountability Act came into effect in December, Chinese companies that cannot comply with U.S. auditing standards in the future may not be able to continue to list in the U.S.
Under this premise, Huang believes that in the next two to three years, Chinese companies withdrawing from U.S. stock markets and returning to China for listing is inevitable.
He emphasized that this trend would be a "double-edged sword" for the U.S., hurting both U.S. investors and Chinese companies. He also said many U.S. companies that rely on the Chinese market were unwilling to lose out on the business opportunities from China’s army of 600 million middle-income consumers or the world’s largest 5G market in China as a result of rising U.S.-China tensions.
Oliver Rui, professor of finance and accounting at China Europe International Business School (CEIBS) in Shanghai, said the U.S. has been brushing aside the auditing standards on Chinese companies for more than a decade to benefit Wall Street. He said that in the face of hostile sanctions from the U.S., China could easily counterattack.
"[China has] too much leverage,” Rui said. “For example, if U.S. companies which set up factories in China have done deals with the U.S. military, China can also sanction them. Who doesn't have a military client? If you look carefully, it is impossible for any of the world's top 500 companies to have no connection [with the military].”
Revenge from China
Before the NYSE announced the cancellation of the delisting plan, the Chinese Ministry of Foreign Affairs, the Ministry of Commerce, and the China Securities Regulatory Commission all spoke out harshly against the U.S.'s measures last weekend.
A spokesperson for the China Securities Regulatory Commission said Sunday that “the U.S. implemented administrative orders for political purposes and unreasonably suppressed foreign companies listed in the U.S. This has seriously undermined normal market rules and order.”
The China Securities Regulatory Commission said as the American Depository Receipts (ADRs) total less than $3.1 billion and account for, at most, 2.2% of the total shares each, even if the three firms are delisted, the direct impact on their development and market operation is quite limited.
China’s Ministry of Commerce said it would “take necessary measures to resolutely safeguard the legitimate rights and interests of Chinese enterprises."
Daphne Wang, assistant research fellow at the Institute for National Defense and Security Research in Taipei, believes the NYSE's delisting decision may be related to China's pressure and threat of retaliation.
She said based on cybersecurity and national security considerations, the U.S. will not easily back down from blacklisting Chinese companies with ties to the Chinese state or military.
Wang said the Biden administration might find a way to implement the blacklist while easing the impact on U.S. investors and companies.
"The United States has the funds, and it will not allow American money to help China grow its strength that is strong enough to rival with the U.S. So, it will definitely impose capital controls,” she said.