Five of China’s largest state-owned companies, with a combined market cap of over $300 billion, PetroChina Co Ltd, China Life Insurance Co, China Petroleum & Chemical Corp, Aluminium Corp of China, and Sinopec Shanghai Petrochemical Co., announced their intention to delist from the New York Stock Exchange in a flurry of announcements on Friday amid rising US-China tensions.
These Chinese juggernauts’ market capitalizations as of August 2022 are as follows: China Life Insurance ($94.88 billion), China Petroleum & Chemical Corp ($70.23 billion), and PetroChina ($132.11 billion) are the three largest financial institutions in the country.
Sinopec Shanghai Petrochemical Co. ($3.77 billion) is a subsidiary of Sinopec (market cap: $68.45 billion), which is one of the biggest petrochemical enterprises in China.
Sinopec is the second-largest producer of alumina in the world and the third-largest producer of primary aluminium. Aluminium Corp of China is the largest producer of aluminium in the world.
The main factor at play here is a tighter examination of Chinese firms listed in the United States, which American authorities insist upon following legislation passed by Congress in this regard during the Trump administration in 2020.
The measure was passed in response to lengthy discussions that Beijing perceives as “crackdowns” on Chinese enterprises and as “financial decoupling” that failed to grant American authorities full access to examine the audit papers of Chinese companies that are listed on US stock exchanges.
This revelation is not earth-shattering in and of itself, but it does have consequences for the five Chinese companies and the market cap of the New York Stock Exchange as a whole, which is currently $26.2 trillion.
Will it damage the reputation of the New York Stock Exchange? Eventually, maybe. Will it have a significant impact on how Chinese corporations operate? Unlikely. (For instance, at PetroChina, American depository shares made up about 0.45% of the company’s total share capital.)
Even still, it is a sign that will be taken note of in the financial markets, as more and more Chinese companies prepare to delist from US markets.
It’s interesting to note that the 2020 US legislation contains a proposal to delist US-listed businesses by altering audit procedures.
As of the end of July, 159 Chinese idea stock companies—companies with operations in China—were listed on the US Securities and Exchange Commission’s delisting watch list.
Given the tight competition for supremacy among international capital markets, opinions of foreign investors matter, and the exit of high-potential Chinese companies from the New York Stock Exchange cannot help but reflect adversely on the exchange.
Wall Street is also a potent lobbyist. The Chinese game plan would therefore be to get the strict US regulations moderated, which are currently tightening the screws on Chinese companies raising money in the US unless they fully disclosed their legal structures and disclosed the risk of their business being interfered with with with by the Chinese government.
Undoubtedly, China is interested in coming to a consensus. In the future, the deciding factor will be how many significant state-owned Chinese companies delist from US marketplaces. About 250 Chinese businesses are listed in the US. That is where the ambiguities in US-China relations will manifest themselves.
Chinese corporations will logically adjust their financing strategies—for instance, by going public on the Hong Kong stock exchange—rather than subject themselves to escalating political dangers in the US. Political dangers can also originate from a variety of places.
Historically, political risks could have been evaluated in terms of policy choices and changes affecting trade tariffs, taxes, labour conditions, privatization and regulation, changes in political leadership, political volatility, or uncertainty resulting from terrorism, riots, coups, war, etc., which could disrupt a company’s ability to carry out its chosen strategy and be able to deliver its products or services cost-effectively.
Geopolitical dangers, however, such as the Russian engagement in Ukraine, have brought about a completely different pattern – the “sanctions from hell” frozen Russian currency and gold reserves, seized Russian private assets and expelled Russian institutions from the western banking system.
Leading western politicians have intimated that if China helped Russia, they could do the same terrible things to China as well.
However, given how much bigger China’s economy is than Russia’s and how interdependent the US, EU, and China’s economies are, this is easier said than done.
The Taiwan situation continues to be a major concern. Following House Speaker Nancy Pelosi’s trip to Taiwan on August 1-2, Chinese commentators have warned of “serious wide-ranging implications for bilateral ties, including in economic fields,” citing as an example the decision by China’s top electric-vehicle battery manufacturer Contemporary Amperex Technology Co to postpone its plans to announce a multi-billion dollar plant in North America.
A statement in the Global Times on August 4 that was unattributed warned that “With the initiation of large military drills around the Taiwan island, the mainland has truly started or hastened the process of reunification, which the US cannot halt.
Therefore, China is essentially ready for US action. One can only speculate as to what China would do to reduce potential dangers, especially its significant ownership of US Treasury securities.
Only after Japan does China rank as the second-largest foreign holder of US Treasury securities. In May, China’s holdings of US government bonds fell below $1 trillion for the first time in 12 years, to $980.8 billion.
Reducing holdings of US treasuries could become a preventative measure if China’s risk appetite for owning US debt continues to decline as a result of the worsening China-US ties. That might further damage the US dollar’s reputation as the actual engine of the world economy.
“The Russia-Ukraine crisis has already severely damaged the dollar’s standing. At present, if China reduces its holdings of US treasuries, the development of US-China tensions might further erode the dollar’s standing.
In this approach, Pelosi’s graduation trip will eventually hurt the US economy and undermine the dollar’s confidence.
That could be stretching things, but at least such heretical ideas are being expressed! The silver lining in all of this is that Washington and Beijing appear to concur that jaw is superior to war-war.
Kurt Campbell, the coordinator for Indo-Pacific affairs in Biden’s national security council, confirmed during an on-the-record press conference yesterday regarding Pelosi’s visit that Biden and Chinese President Xi Jinping had discussed the possibility of an in-person meeting when they last spoke on the phone in late July “and agreed to have their teams follow up to sort out the specifics.”
Although both leaders are anticipated to attend the G20 summit in Bali in November, Campbell claimed that there were no fresh specifics to share.
Interestingly, a week after Nancy Pelosi’s trip to Taipei, a prominent Chinese editor observed calmly that “one of the reasons” could be that she purposefully used the Taiwan issue to incite “a storm of public opinion” and “create an atmosphere” for the passage of the CHIPS and Science Act last Tuesday, in a subtle “combination of punches” against China.
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In these unprecedented political times in America, one can never be sure! Actually, Campbell singled out Beijing’s sanctions against Pelosi and her family as something she disagreed with.
However, Campbell added, “We will not be reactionary or kneejerk. ” The US would guarantee freedom of navigation in the Taiwan Strait and the surrounding area.
We’ll take our time and work hard. By our long-standing commitment to freedom of navigation, we will continue to fly, sail, and operate wherever international law permits, including during the upcoming few weeks executing regular air and maritime transits via the Taiwan Strait.
The Biden Administration “did not want to intensify the heated situation,” Campbell said, declining to confirm allegations that the US had decided not to sail an aircraft carrier through the strait or provide specifics about when any such transits would take place.
