The New York Stock Exchange will start delisting Chinese corporations affiliated with their country’s military beginning today. This move follows a US executive order imposing restrictions on Chinese military-owned or controlled companies. Between January 7 to 11, companies China Mobile Ltd., China Telecom Corp Ltd., and China Unicom Hong Kong Ltd. will cease trading on the New York Stock Exchange. These three companies generate revenue in China and deal with business in Hong Kong. As such, exposure in the NYSE is thin at best. This means the delisting is more of a symbolic action rather than an economic sanction.
Among the affected hedge US fund managers are Renaissance Technologies LLC, Dimensional Fund Advisors LP, and Two Sigma Investments LP. They comprise three of the largest holders of US listings of the above However, by September, they held only small stakes in the Chinese companies.
Trump’s Executive Order
Last November, President Donald Trump signed an executive order that disallowed US investments in Chinese firms with military connections. The order aims to pressure the Chinese government in reining in abusive business practices. Consequently, US investors cannot trade shares of companies listed and vetted by the Pentagon as having People’s Liberation Army connections.
China Mobile and the others were among the most prominent companies listed in American indexes. In response, Beijing accused the US of slandering their military-civilian integration efforts. China vowed to protect its companies. At the same time, they threatened to blacklist US companies.
In May, the US Federal Communications Commission forbade China Mobile from operating in the US. Then, the FCC instructed local telecom carriers to remove all equipment supplied by Huawei Technologies Co. Next, it started looking into China Telecom’s operations in the country and began mulling if they should revoke all of Huawei’s working permits. China Telecom’s US division responded by insisting it’s an independent business based in the States. Therefore, they are not subject to Chinese control.
Why the NYSE Lists Chinese Companies
NYSE began recruiting Chinese companies over the last decade to attract global investments. In return, these firms can benefit from an NYSE listing to attract more shareholders. In fact, there are more investors who are willing to invest in foreign companies than Chinese investors investing in local businesses. The delisting of Chinese companies signals a backtrack spurred by concerns outside of trading activities. Until China and the US resolve their differences, expect more repercussions.
Meanwhile, Hong Kong Exchanges changed their rules to take back former listings. HK indexes allow companies to sell shares with weighted voting rights. This strengthens the company founders’ powers while weakening protections for minority investors. Large Chinese companies such as Alibaba Group Holding Ltd. and JD.Com Inc. created secondary listings in Hong Kong in the past two years apart from the NY listing. Doing so gives firms a way out as tensions between the US and China continue to simmer. Lately, the two countries trade accusations of trade violations, espionage, and coronavirus origin stories.
Watch the Bloomberg Markets and Finance news video reporting on the SEC as they push the delisting of Chinese companies connected to the Chinese Military:
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