“There’s no point” excluding Chinese companies from US stock markets, says PIIE

The exclusion of Chinese companies from the US stock exchanges is “a futile push” that will not deny these companies access to US capital markets or harm China’s growth, according to a report by expert group Peterson Institute. for International Economics.

Relations between the United States and China are the worst they have been in decades and the stock market seems to be one of the last fronts where tensions between the two countries develop. In May, the Senate passed a bill that could prohibit many Chinese companies from listing shares in the United States. Last month, President Donald Trump urged regulators to find ways to strengthen scrutiny of those companies.

But there are several ways that Chinese companies can still get money from American investors, including through the private equity market and the Hong Kong stock market, the PIIE report written by Nicholas Lardy and Tianlei Huang said.

“The key point is that the capital market is global. Excluding Chinese companies from listing in the United States would not deny these companies access to US capital,” the authors wrote.

There are around 230 Chinese companies, totaling about $ 1.8 trillion in market capitalization, which are listed on the Nasdaq and New York Stock Exchange, the report noted.

He noted that US private equity firms have been buying up Chinese publicly traded companies. An example is Warburg Pincus and General Atlantic, which recently led a deal to make Chinese tech firm 58.com private, PIIE said.

Additionally, a growing number of Chinese companies listed in the US have sought secondary quotes in Hong Kong, a financial and business center in Asia that is open to international investors, according to the report. Chinese companies that have launched secondary offerings in Hong Kong include top tech players Alibaba, JD.com, and NetEase.

“Institutional investors from the US and US residents who want to own shares in these companies will simply buy them in Hong Kong. Similarly, foreign investors who have invested in Chinese companies through New Listings York will buy them in Hong Kong, “the report said.

The difficulties in completely separating Chinese companies from US investors highlight the interdependence of the world’s two main economies.

That integration is likely to increase, especially in the financial sector, despite Trump’s warning last month that “a complete decoupling of China” remained a political option, PIIE said.

American financial institutions are increasing their presence in China, where authorities are gradually loosening foreign ownership rules. PIIE listed examples of US companies that have taken advantage of China’s opening of its financial sector:

• Goldman Sachs in March 2020 received approval to increase its stake in its JV, Goldman Sachs Gao Hua Securities, from 33% to 51%;
• At the same time, Morgan Stanley was also able to increase its stake in its JV, Morgan Stanley Huaxin Securities, from 49% to 51%;
• Last month, American Express obtained approval to be the first foreign credit card company to launch ground operations in China through a joint venture.

Such developments will make financial decoupling between the United States and China “increasingly unlikely,” the PIIE authors wrote.

“Despite all the fireworks over tariffs and investment restrictions, China’s integration into global financial markets continues apace,” they said.

“In fact, that integration appears to have accelerated by most metrics in the past year. And US-based financial institutions are actively participating in this process, making financial decoupling between the United States and China every more unlikely. “