Jan 11, 2021
Besides the apparent advantage of raising capital, having a company listed on the New York Stock Exchange comes with prestige. These are benefits that Chinese companies may no longer be able to enjoy in the US. In his final months in the Oval Office, US President Donald Trump has decided to escalate the US-China tensions even further.
It started with Washington banning several Chinese applications, including Alipay, owned by China’s billionaire Jack Ma.
President Trump is continuing to pile the pressure on Chinese tech companies in the closing days of his administration. https://t.co/Om4ugaNxqF
— CNN (@CNN) January 6, 2021
And, as though that weren’t bad enough, they issued an order for the delisting of some 30 Chinese companies from the US Indices. The NYSE (New York Stock Exchange) said it would suspend the trading of shares of the following companies as of January 11th: China Unicom, China Mobile, China Telecom.
What does it mean?
The investors who already own stock in these companies have the option to divest the stock until November. Not that that’s any help, considering that each of those companies’ stock suffered steep declines on Friday as news came in. China Mobile hit a 14-year low, and China Unicom fell by 11%. According to Reuters, these events wiped out some $5 billion of the firms’ values in Hong Kong.
The NYSE (New York Stock Exchange) announced on New Year’s Eve that it would delist those companies. Four days later, they backtracked and said they wouldn’t proceed. They issued a statement explaining that there would be no delisting until,
“further consultation with relevant regulatory authorities in connection with Office of Foreign Assets Control”
However, in the end, they changed their mind again, saying that trading of those companies would be suspended as of Monday, January 11th. The stock prices of those companies were bouncing all week with NYSE’s flip-flopping.
Stacey Cunningham was reminded this week that being the president of the New York Stock Exchange means taking tough knocks in full public view. This time, it was over the bourse's flip-flops on delisting three Chinese telecom companies https://t.co/kAA7Q9q0KT
— FT China (@ftchina) January 11, 2021
Reuters and the Wall Street Journal reported that Alibaba and Tencent might be next to get blacklisted by Washington. As a result, their shares plummeted. Last year, the US saw roughly 30 IPOs (initial public offerings) of China-based companies, raising roughly $11.7 billion. And what’s the return on that, you ask? According to Renaissance Capital, the companies that got a minimum of $100 million capital funding got an average return of 81%.
Why did the US ban these Chinese applications?
Expectedly, Beijing didn’t take this lightly. Hua Chunying, China’s Foreign Ministry spokeswoman, warned that China would, at any cost, protect the rights of its companies against US aggression. The promise came shortly after Washington banned US transactions with Alipay, QQ, QQ Wallet, WeChat Pay, Cam Scanner, WPS Office, SHAREit, and VMate. According to the White House authorities, these applications can track and collect information on US federal employees.
“The United States must take aggressive action against those who develop or control Chinese connected software applications to protect our national security,” the order said.
A massive sell-off of Chinese company stock was roused when Indices such as FTSE Russel and S&P Dow Jones announced they’d drop the firms from their benchmarks. All the providers cite Trump’s order as the reason for the drop. The ban targets approximately 30 firms that the White House believes are associated with the Chinese military. If Tencent and Alibaba find themselves blacklisted, further tension will rise between the world’s largest economies.