Decoupling of US-China links harmful: Beijing

BEIJING/NEW YORK • China warned yesterday of instability in international markets from any "decoupling" of China and the United States, after sources said Washington was considering delisting Chinese companies from US stock exchanges.

US President Donald Trump's administration is considering the move, three sources briefed on the matter said last Friday, in what would be a radical escalation of US-China trade tensions.

It would be part of a broader effort to limit US investment in Chinese companies, two of the sources said. One source said the move was motivated by the Trump administration's growing security concerns about the companies' activities.

Chinese Foreign Ministry spokesman Geng Shuang said he had noted the reports on delisting and the response from the US Treasury, which said there were no plans to block Chinese listings "at this time".

China-US trade and financial cooperation is mutually beneficial, Mr Geng told a daily news briefing.

"Exerting maximum pressure and even seeking the forced decoupling of China-US relations will harm the interests of Chinese and American companies and people, create turmoil in financial markets, and endanger global trade and economic growth," he added.

"This does not accord with the interests of the international community."

Mr Geng said he hoped the US would work with China to deepen economic and financial cooperation, and that the US would take a "constructive attitude" towards resolving differences.

In June, US lawmakers from both parties introduced a Bill to force Chinese companies listed on American stock exchanges to submit to regulatory oversight, including providing access to audits, or face delisting.

The Chinese authorities have long been reluctant to let overseas regulators inspect local accounting firms - including member firms of the Big Four international accounting networks - citing national security concerns.

On Sunday, China said that it would continue to open up its financial markets and encourage foreign investment.

"We will take further steps to promote high-quality, two-way financial opening and encourage foreign financial institutions and funds to invest in the domestic financial market to boost the competitiveness and dynamism of the domestic financial system," said a summary from the eighth meeting of China's Financial Stability and Development Committee that was posted on its website.

Meanwhile, US stock exchange Nasdaq is cracking down on initial public offerings (IPOs) of small Chinese companies by tightening restrictions and slowing down their approval, according to regulatory filings, corporate executives and investment bankers.

Nasdaq's attempt to limit these stock market flotations comes as a growing number of them end up raising most of the capital in their IPO from Chinese sources, rather than from US investors.

The shares of most small Chinese companies trade thinly following their US listing because most of them stay in the hands of a few insiders. Their low liquidity makes them unattractive to many large institutional investors, to whom Nasdaq is seeking to cater.

For example, when Chinese online pharmacy network 111 Inc raised US$100 million (S$138 million) in its IPO on Nasdaq last year, shares were mainly sold to connections of the company's executives, 111 chief executive Liu Junling told Reuters.

Some 19 Chinese companies went public on Nasdaq last year, up from eight in 2017, based on submissions by investment banks underwriting them to Dealogic.

Nasdaq first proposed changing the listing rules in October last year and the changes took effect in August. The new rules have raised the average trading volume requirements for a stock, and call for at least 50 per cent of a company's shareholders to invest a minimum of US$2,500 each in an IPO.

Nasdaq also said in June that it may delay the US listing of a company that does not demonstrate a strong enough nexus to US capital markets, including having no shareholders, operations, management or board members with links to the US.

Chinese companies have raised more than US$70 billion in the US stock market since 2000, according to Refinitiv data.

The New York Stock Exchange, the other major US stock exchange, is looking closely at Chinese listings, according to a source familiar with the matter. However, it has yet to introduce rule changes similar to Nasdaq's.

REUTERS, BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on October 01, 2019, with the headline 'Decoupling of US-China links harmful: Beijing'. Print Edition | Subscribe