With the Trump administration on its way out of Washington, many would have been inclined to believe that the U.S.-China spat is over. Instead, the “war” moved into the technological space, with the last move being that the New York Stock Exchange (NYSE) prepared to delist three Chinese companies – China Telecom, China Unicom, and China Mobile.
This is a bold move from the United States, as it is the second time when it announces the delisting. The first time changed its mind, probably because of the implications of such a move. However, an Executive Order issued by the White House on the last day of the previous year approved the delisting.
What followed was a sharp selloff for the shares of the three companies mentioned. Effectively, they will lose access to Western capital. Moreover, the selling continued on the Hong Kong stock exchange, where the shares are listed too.
Troubles Ahead for Chinese Technological Companies
The Executive Order mentioned earlier effectively forbids any U.S. citizen to invest in Chinese companies that are related to Chinese military activities. No less than thirty-five companies make the list, and the Democratic administration about to take the power in the United States will likely stick to the plan.
In other words, the U.S.-China tensions move from the trade sphere into outright economic war as the two sides continue to tease each other.
The U.S. equity market is the largest in the world, as it dwarfs the size of any other market in the world. Because of that, one goal of any multinational company is to raise money by going public in the United States. This is possible by issuing ADR (American Depository Receipts) and listing them on the stock exchange. This way, the American capital is invested in foreign companies as the ADRs have similar properties to common shares.
By cutting the three companies from access to capital, the United States sets a precedent. If the delisting goes according to the plan, there is no reason for investors not to believe that the other companies, or perhaps even more, on the list, will end up being delisted too.
If anything, the U.S.-China tensions are likely to persist. We do not know yet the new administration’s position, but there are several issues to consider – Alibaba, Hong Kong, Tencent, South China Sea conflict.