Chinese companies listed on Wall Street are likely to be cut off from US capital markets for the next three years as tensions between Beijing and Washington persist, a global asset management company says.
“I think the game is essentially over for many Chinese companies listed in US markets,” David Loevinger, managing director of emerging markets research at TCW Group, told CNBC on Wednesday. “This is a problem that has been hanging out there for 20 years – we couldn’t solve it.”
As of September 30, 2021, TCW Group had assets of $ 265.8 billion under management, according to the company’s website.
The US Securities and Exchange Commission this month finalized rules to implement a law that would allow the US market regulator to prohibit US-listed foreign companies from trading if their auditors fail to comply with requests for information from US regulators.
The law was passed in 2020 after Chinese regulators repeatedly denied requests from the Public Company Accounting Oversight Board to review audits of Chinese companies that are listed and do business in the United States.
Given the current mistrust between the US and Chinese governments and the fact that bilateral relations are not going to improve anytime soon, there is no way we will resolve this in the next few years, Loevinger said.
“So the reality is that by 2024, most Chinese companies that are listed on US stock exchanges will no longer be listed in the United States. Most will return to Hong Kong or Shanghai, “he told CNBC to” Street Signs Asia. “
Less than six months after going public, Chinese ride-hailing giant Didi announced that it would begin delisting from the New York Stock Exchange and instead make plans for a Hong Kong listing.
When a company delists from a stock exchange like the Nasdaq or the New York Stock Exchange, it loses access to a broad pool of buyers, sellers, and brokers.
I just don’t think China’s government will give US regulators full access to internal audit documents for Chinese companies.
Chinese regulators have reportedly been dissatisfied with Didi’s decision to be listed in the US without addressing outstanding cybersecurity concerns. Regulators reportedly asked company executives to come up with a plan to delist from the United States amid concerns about the data leak.
In addition to Didi, many of the leading Chinese internet companies listed in the US have already double-listed Hong Kong. Some high profile names include e-commerce giant Alibaba, its rival JD.com, search engine giant Baidu, game company NetEase, and social media giant Weibo.
“We have already reached the turning point,” said Loevinger, pointing to Didi’s delisting announcement. “I just don’t think China’s government will give US regulators unrestricted access to internal audit documents for Chinese companies.”
“And if US regulators can’t get access to these documents, they can’t protect US markets from fraud,” he added.