Chinese state-owned companies requested “voluntary exclusion” from the U.S. stock market, allegedly due to high costs and low returns.
These companies are Sinopec and PetroChina, two of the world’s largest oil companies, the Aluminum Corporation of China (Chalco), as well as China Life Insurance, and a Shanghai-based subsidiary of Sinopec.
For years now, the U.S. Securities and Exchange Commission has requested dozens of Chinese companies listed on the New York Stock Exchange (NYSE) to submit the necessary documentation for audits required by U.S. law.
However, the Chinese companies refused to provide the information on their financial statements, claiming that disclosure of this data would be in violation of China’s national security.
U.S. regulations require foreign companies operating on the stock market to cooperate with required audits. During the Trump administration, the Foreign Firms Accountability Act (HFCAA) passed into law. It mandates foreign firms trading securities in the United States to submit specific information about their stock trading and other data for three consecutive years.
Chinese state-owned enterprises, since they are government entities, the law requires them to disclose: the names of any Chinese Communist Party (CCP) officials who are members of the company’s board of directors or any affiliated operating entity; and whether the company’s articles of incorporation or other organizing document contains any CCP charter or the text of the charter.
In addition, the U.S. Securities and Exchange Commission (SEC) may require any foreign company to file documentation establishing that the company is not owned or controlled by a government entity from its home country.
Against this backdrop, Chinese companies are in trouble, as the vast majority of are controlled by the CCP and Party officials hold various management positions. Two hundred and seventy Chinese companies operate on the U.S. stock market, only 14 submitted information to the auditors required by the SEC.
The new HFCAA further increased tensions between the CCP and the U.S., restricting the almost unlimited access to U.S. capital so badly needed by large Chinese companies, under pressure from the CCP.
One of the most notable recent cases is that of DiDi, a multibillion-dollar private transportation app funded by Uber in China. When the company began the process of accessing the U.S. stock exchange, the Cyberspace Administration of China (CAC), the state agency responsible for confidential data management, also began multiple investigations into the information DiDi would submit to the SEC.
DiDi achieved stock market listing, however, in late November last year, the CAC and other regulatory authorities asked the company to delist from U.S. exchanges, claiming that Chinese personal data collection laws had been violated, among other reasons.
As a result, DiDi’s shares fell 42 percent, the communist regime imposed a $1.2 billion fine, and local Beijing officials communicated direct investment intentions in the company just as its shares were at the lowest price.
Is the Chinese exodus from the world’s most important stock market beginning?
The voluntary withdrawal of the last Chinese companies from the U.S. stock market opens the door to a question: Will it be the beginning of a mass “self-elimination”?
According to South China Morning Post (SCMP), Gabriel Wildau of Teneo said in an interview that the new HFCAA regulations leave no loopholes and Chinese companies have no way out to avoid compliance.
“In the absence of a bilateral resolution, I think we are on the road to mass delisting in 2024. … To some extent, this disclosure issue has become a sideshow [because] many U.S. politicians seem to believe that U.S. investors should not fund Chinese companies no matter what,” Wildau said.
Not only is the new law changing the stock market landscape in the U.S., but it is also putting the consequences of the Chinese communist regime’s financial control around the world into the international spotlight.
The five companies that voluntarily withdrew are international conglomerates that represent the CCP’s most important interests at the moment: energy supply, oil, aluminum as a raw material, and also financial instruments such as life insurance, health insurance, and others.
China’s post-pandemic economy is failing to recover
The pandemic, the zero COVID policy, conflicts in supply chains, the countless natural disasters that ravaged China, the rampant shortage of international currencies, and the emergence of new pandemics in several provinces of the country are pushing the Asian giant into an unprecedented crisis.
With unemployment on the rise and COVID measures affecting the daily lives of the Chinese, the local economy is suffering. In addition, many foreign companies have left China, taking several billion dollars with them in the process. Chinese inflation is also rising, impacting the overall cost of living.
Xi Jinping’s orders given last year at the annual Central Economic Conference in Beijing focused on achieving stability, however, the social crisis caused by the same CCP measures (known as zero COVID policy) is deeply affecting the country.
Exclusion from the world’s most important capital market would represent a severe blow to a very fragile Chinese economy, which is teetering between the financial rescue of Evergrande, the economic punishments to companies that want to emancipate themselves outside China, and the monetary collaboration with Russia.