It still appears that yesterday Jack Ma announced the debut of Chinese e-commerce giant Alibaba Group on the New York Stock Exchange in 2014.
The Chinese billionaire invited eight Alibaba customers and employees to ring the bell that has traditionally marked the opening and closing of trade every day, as a token of gratitude to his company’s front-line workers and customers.
Those bell-ringers wore matching T-shirts with a quote from Mr. Ma printed on the front: “Keep your dream, just in case.”
Alibaba’s eight representatives wore matching T-shirts for the occasion. (Reuters: Lucas Jackson)
Jack Ma’s American dream of listing on the US stock market has been widely shared by Chinese businessmen over the past few decades.
There are currently 261 Chinese companies listed on the New York Stock Exchange, with a combined capital of approximately $ 1.9 trillion.
But some of them may be on the verge of losing that dream.
In May, the U.S. Securities and Exchange Commission (SEC) announced that more than 80 companies, including Chinese e-commerce giant JD.com and video platform Bilibili, were at risk of being removed from the stock market. .
They have joined a growing list of Chinese companies, from technology leader Baidu to fast-food chain Yum China, which the SEC says will be kicked out of the U.S. capital market in 2024 unless they meet new standards. audit over the next two years.
“This is part of the broader context of US concerns about the operations of Chinese companies in the United States,” said Professor Andrew Walter, who specializes in international finance at the University of Melbourne.
While the SEC’s warnings are the Biden administration’s latest action in the ongoing U.S.-China financial war, the move dates back to a financial saga that began two decades ago.
The fall of Wall Street dear
The dispute between the United States and China now has its roots in the national audit scandal that changed the shape of Wall Street at the turn of the century. (Reuters: Carlo Allegri)
In 2001, the financial world was shaken by a scandal that ended with the energy giant and beloved Wall Street Enron Corp., then widely regarded as one of the largest and most innovative companies in the United States.
After it was revealed that Enron had used creative accounting to cover up fraud and corporate corruption, the company filed for bankruptcy, resulting in a $ 11 billion shareholder loss.
In response, the United States introduced the Sarbanes-Oxley Act in 2002, which required all listed companies, both domestic and international, to allow U.S. regulators to inspect their audits.
However, for years, China and Hong Kong have rejected SEC applications for national security reasons, leaving regulations in a state of limbo for decades.
While the Donald Trump administration and the ongoing trade war between the United States and China have pushed U.S. authorities to address the issue, the drop that dared the joy was the fraud perpetrated by Luckin Coffee.
Luckin Coffee burst onto the American scene in 2019. (Reuters: Brendan McDermid)
Founded in 2017, the chain launched nearly 2,400 coffee shops in China in two years and began trading on the Nasdaq in 2019, raising $ 645 million through its initial public offering.
It was one of the most important listings for a mainland Chinese company in the United States that year. A rising star, she seemed ready to compete with Starbucks and Costa.
But soon Luckin Coffee was accused of inflating revenue. In 2020, an internal investigation revealed that his leadership forged $ 310 million in sales the previous year.
The company has been withdrawn from listing on the Nasdaq and went into bankruptcy last month. However, its fall has alerted U.S. regulators who had already begun to control Chinese companies.
In late 2020, the U.S. Congress passed a bill that prevents Chinese companies from being listed on the New York Stock Exchange if they refuse to comply with U.S. audit processes.
The Biden administration also named Gary Gensler president of the SEC, which Professor Walter described as “probably one of the most important appointments in the Biden administration.”
During the Obama administration, Gary Gensler chaired the Commodity Futures Trading Commission and became known for his strong stance on corporate transparency. (Reuters: Evelyn Hockstein)
Widely known for its promise to increase the transparency of reporting, Gensler has proposed mandatory disclosure of climate risk to public companies.
“Gensler would probably say,‘ Look, what we’re doing is just trying to increase the transparency of reporting for U.S. investors, ’” Professor Walter said.
“[And the measures will] reduce concerns that Chinese companies may, in some cases, be hiding information from investors that could create market volatility and poor results for US investors. “
Chinese billionaires are now facing a dilemma
Technology giant Baidu co-founder and CEO Robin Li is among those at a crossroads after the SEC warned that several Chinese companies could be withdrawn from the stock market. (Reuters: Yilei Sun)
Many Chinese corporations may be willing to meet U.S. standards, according to Jeremy Mark, a non-resident member of the Atlantic Council and a former Wall Street Journal journalist.
“Most Chinese companies are very open to having their books audited,” he said. “They want to be a listed company in good standing in the United States, in large part because of access to capital.”
Mark said the search for US capital by Chinese entrepreneurs dates back to the 1990s, when economic reforms and the privatization of state-owned enterprises opened the floodgates for Chinese investors looking for a place to grow their money.
Beijing even encouraged companies to look for foreign investment, because there was a lack of capital flow in the domestic market.
Today, despite China’s rapid economic growth, Chinese entrepreneurs still see Wall Street as the land of their dreams for a global reputation and more flexible access to capital.
“[Many Chinese corporations] they don’t just want to be big Chinese companies, they want to be big global companies, “said James Fok, a veteran financial analyst and author of Financial Cold War.
Fok said some Chinese businessmen were also concerned about their private property rights and the protections offered by the domestic market, which prompted them to choose overseas listing instead of China.
However, Beijing has begun cracking down on billionaires and tech giants for “common prosperity,” with the government targeting foreign-listed companies whose wealth it is unable to track.
China is also concerned that allowing the U.S. to audit materials from Chinese companies could be used against Beijing in the next stage of the U.S.-China trade war.
In July 2021, after a meeting with Beijing officials, Tiktok owner ByteDance abandoned his list plan in the US. Regulators had called on the company to “focus on data security risks.”
“Therefore, for all these reasons, the Chinese [authorities] I would prefer these companies to be listed on the domestic market, “Fok said.
“It’s not necessarily the choice of a private entrepreneur, but it’s the desire of the state.”
What is Beijing’s response so far?
One might expect Beijing to take a firm stand against the US on this issue, but that is not yet happening.
China has so far indicated that it is open to US regulators inspecting the records of Chinese companies. (Reuters: Tingshu Wang)
In recent weeks, China’s financial watchdog said it was willing to change secrecy laws that prevent U.S. regulators from inspecting Chinese companies listed in New York.
He announced that foreign regulators could call for “investigation” or “inspection” of Chinese companies listed abroad and their auditors.
However, Jeremy Mark of the Atlantic Council said there were still questions about the level of access that China would give to US regulators, as he also indicated that he would prefer some Chinese companies to be removed from trading. instead of opening the audit book.
Beijing also encouraged Chinese companies to turn to Hong Kong instead of the US for foreign capital.
James Fok says Hong Kong may not be as attractive to Chinese investors as it used to be. (Supplied)
Last week, Didi, known as China’s Uber, announced that he would retire from the U.S. list and return to Hong Kong, just one year after making his New York debut.
Fok, who served as chief executive of Hong Kong Exchanges and Clearing for nine years, said Hong Kong could offer Chinese companies the same access to foreign capital as New York, while isolating them from geopolitical risks. they will face the US.
However, Hong Kong’s National Security Act may raise international investors’ doubts about the city’s future as a global financial center, according to Professor Walter.
“I think non-Chinese global companies probably see Hong Kong as much less attractive today than it was five years ago,” he said.
“But Chinese companies don’t have many options here.”
In a speech to the International Securities Council Association in May, YJ Fisher, director of the SEC’s Office of International Affairs, stressed that the SEC’s inspection of audit documents of Chinese and foreign companies Hong Kong “did not raise national security concerns.”
Mrs. Fisher also stressed the need to resolve audit issues with China and Hong Kong to protect U.S. investors with a growing interest in the Chinese market.
He also said time was running out to resolve the issues.
“Although the [US regulators] and the Chinese authorities have reached an agreement to continue with the inspections and investigations, we still have a long way to go, “he added.
Lessons for Australia
While the Australian Securities Exchange (ASX) is also a popular choice for Chinese companies looking for foreign investment, over the years there has been a big drop: from 55 Chinese companies listed on ASX in 2017 to just 15 this year.
A spokesman said ASX had tightened its admission rules for the past eight years and that the number of companies …