Five Chinese state-owned giants on Friday separately announced plans to delist their American depository shares (ADS) from the New York Stock Exchange (NYSE), drawing widespread attention amid escalating China-US tensions and constant US crackdowns on Chinese companies, including a push to potentially delist hundreds of Chinese firms in what many call a “financial decoupling.”
Shortly after the announcements flashed across trading screens just minutes apart, China’s top stock regulator, the China Securities Regulatory Commission (CSRC), issued a statement, stressing that the companies’ decisions were made out of their own commercial considerations and that it will maintain communication with relevant overseas regulatory agencies to jointly protect the legitimate rights and interests of companies and investors.
Chinese and US regulators have been in talks about audit rules covering US-listed Chinese firms.
Given the relatively small sizes of the ADS issues, the delistings will have a limited impact on the companies’ operations, officials and experts said. However, the wave of announcements, coming as a growing number of Chinese firms are delisting from US markets, showed the further worsening conditions of US markets due to the US government’s relentless crackdowns on Chinese companies, analysts noted on Friday.
Wave of delisting plans
According to a statement from Chinese energy giant PetroChina Co Ltd issued on Friday, the company notified the NYSE during the day that it will apply for a voluntary delisting of its ADS. The company said it intends to file a form with the US Securities and Exchange Commission (SEC) around August 29 and complete the delisting within 10 days thereafter.
The company gave several reasons for the decision in the statement, including the fact that it is facing a “considerable administrative burden” for performing the disclosure of obligations to maintain the ADS listing in the US.
Four other Chinese companies made similar statements on Friday – China Life Insurance Co, China Petroleum & Chemical Corp, Aluminum Corp of China and Sinopec Shanghai Petrochemical Co.
The US government has constantly intensified its crackdown campaign against a wide range of Chinese companies, including a push to delist US-listed companies by changing audit rules.
Before the announcements on Friday, more than 20 Chinese companies listed in the US had sought listings in the Chinese mainland or Hong Kong via primary, secondary or dual primary listings. The number is likely to burgeon in the coming months as the SEC had put 159 Chinese concept stock companies on its delisting watch list by the end of July.
The CSRC statement said that it supports companies’ decisions made according to their own situations and in line with regulations of the overseas destinations where they are listed.
It also noted that since that those companies’ ADS issues account for a small percentage of their overall shares, the delisting plan would not affect those companies’ moves to use both home and overseas capital markets for fundraising.
PetroChina also said in its statement that its issued and outstanding ADS represented approximately 3.93 percent of the total H Shares and approximately 0.45 percent of the total share capital of the company as of August 9.
Song Guoyou, deputy director of the Center for American Studies at Fudan University, said that the overall impact on the Chinese companies would be limited, since they had not encountered business setbacks or sudden political shocks. Instead, the entire context is clear as bilateral audit negotiations between the two sides persisted for years, he said.
The delistings announced on the same day, on the other hand, could be a blow to the influence of the US’ financial sector across the world, experts noted.
Decaying US market
“As the US chooses to reject instead of attract more qualified global companies to list in its markets, its market size will shrink, which goes against its wish to maintain top position among global capital markets,” Li Daxiao, chief economist at Shenzhen-based Yingda Securities, told the Global Times on Friday.
Gao Lingyun, an expert at the Chinese Academy of Social Sciences (CASS) in Beijing, said that in the eyes of global investors, the US is not a purely market-oriented financial market any more, noting that not only Chinese firms but other foreign firms may have second thoughts when considering whether to list in the US.
In addition, many investors in the US and internationally will lose a valid path to invest in high-potential Chinese firms, Gao said.
In what analysts call a politically charged move, the US has taken gradual steps to intensify requirements for Chinese listed companies to disclose information. For example, in mid-2021, the SEC announced it would not allow Chinese companies to raise money in the US unless they fully explained their legal structures and disclosed the risk of their business being interfered with by the Chinese government, a report from Reuters noted.
Xi Junyang, a professor at the Shanghai University of Finance and Economics, told the Global Times that it’s almost certain that Chinese companies listed in the US will withdraw to avoid risks, as the US market environment is continuing to deteriorate.
“On a smaller scale, the SEC is setting increasingly more hurdles like audit rules or information disclosures for Chinese companies. In a larger sense, the two countries’ relations have become increasingly uncertain and it’s very likely that listed companies will experience unfair treatment in the US amid such political tensions,” Li said.
Gao predicted that more Chinese companies may follow suit and delist from the US markets, especially if they’re large state-owned firms.
“Rather than exposing themselves to constantly rising political risks in the US, it may be a better choice to delist from the US and rearrange their financing approaches, such as going public in Hong Kong, as many suggested, ” Gao said.
Apart from the “financial decoupling” effort, the US has taken a series of provocative actions against China in recent days in many ways, including signing a chip subsidy act that’s intended to cripple China’s chip industry.
Experts noted that if the US government continues to push for a “financial decoupling” between China and the US, it would lead to huge losses for both markets. There are about 250 Chinese companies listed in the US, whether directly or by using ADS.
Analysts called on the two countries to strengthen communication to address the audit dispute. The US in particularly should meet China half way to reach consensus on the regulatory matter, they added.
“US regulators should think long-term, instead of taking a shorted-sighted approach toward China,” Li said.
Partisan infighting drama shows the US has degraded into a ‘banana republic’
US partisan conflicts escalate as both parties target the 2024 presidential election. Cartoon: Vitaly Podvitski
The US is presenting the world a partisan infighting drama. After the FBI searched former US president Donald Trump’s home at Mar-a-Lago in Florida, Trump on Wednesday invoked his Fifth Amendment right in refusing to answer questions under oath in New York over alleged fraud at his family business.
There have been many controversies and allegations about Trump. However, the timing of the FBI and the US Department of Justice’s (DOJ) actions indeed cause suspicion. The midterm elections are less than three months away, which makes external observers on US affairs easily speculate that the investigation into Trump and the raid of his home are really aimed at influencing the outcome of the midterm elections, discrediting Trump and hindering him from running in the 2024 presidential election, Chinese analysts noted.
The FBI search led to fierce bickering between Democrats and Republicans. Democrats defended it as a long-overdue step toward justice and proof that no one – even a former president – is above the law, while Republicans and Trump supporters accused the Democrats of weaponizing federal agencies against political opponents and vowed to probe what they alleged was political interference at the DOJ if they win the majority in Congress in November.
The political farce, like a soap opera, is far from over. When Trump tried to turn the FBI’s raid to his benefit, citing the investigation in fundraising emails soliciting political donations from his supporters, he added extra comedy color to this drama.
Analysts believe that the search on Trump’s home will open Pandora’s box – the Democrats will be revenged in the same way after they step down and the US partisan battle is losing its bottom line. “This is possible. There will be a more vicious competition such as hunting down opponents through judicial means,” said Xin Qiang, deputy director of the Center for American Studies at Fudan University. He noted that this will lead to further division in politics or even society. “It cannot be ruled out that some other US presidents may also face constant lawsuits after stepping down in the future,” Xin told the Global Times.
This isn’t the political ecology that a healthy power is supposed to have. In fact, the US has degraded into a “banana republic.” The search on Trump’s home further steps on the accelerator of US political degeneration and decline.
The US itself is sick. Although it’s still a major power with a strong economy, military and a domineering diplomacy, it has serious political, economic, social and legal problems. The intensifying political division and partisan battle have led to a major crisis in the US at all levels.
The art and core of democracy is compromise, but the situation in the US is a fierce struggle – If I cannot engineer your downfall, then it is me who’s going to jail. Is this still democracy? US politics has not followed the path of benign partisan democracy of compromise, but is heading toward the opposite direction – toward a populist and authoritarian direction with deeper partisan divisions, opposition and polarization.
The foundation of the US empire is loosening, and it has been shaken by American politicians themselves. Trump insisted that “Such an assault could only take place in broken, third-World countries. Sadly, America has now become one of those countries, corrupt at a level not seen before.” But it is these unscrupulous politicians, who live on partisan struggle, that make the US degenerate.
The US has completely destroyed its image as described by the political elites. When there is no partisan mutual trust left, how can the rest of the world still believe the US?
“With more of such farces of partisan struggle emerging in the future, the US will have more serious domestic political problems, which will naturally change other countries’ views on the party politics of the US. They will at least raise more questions and reflect on the so-called Veto Politics and its negative influence upon national governance capability of the US. This is inevitable,” Xin said.