As tensions escalate between the US and China, China’s five largest state-owned companies have announced their intention to delist from the New York Stock Exchange. These are PetroChina Co Ltd, China Life Insurance Co, China Petroleum & Chemical Corp, Aluminum Corp of China and Sinopec Shanghai Petrochemical Co., which have a market capitalization of over $300 billion.
As of August 2022, the market capitalization of these Chinese giants is as follows: PetroChina – $132.11 billion), China Life Insurance – $94.88 billion, China Petroleum & Chemical Corp – $70.23 billion, Aluminum Corp of China – $10, 29 billion (it is the second largest producer of alumina in the world and the third largest producer of primary aluminum), and Sinopec Shanghai Petrochemical Co. – $3.77 billion – a subsidiary of Sinopec (market capitalization: $68.45 billion) and one of the largest petrochemical companies in China.
Here, first of all, we are talking about closer control of Chinese companies registered in the United States, which US regulators have been pushing for since the 2020 administration Trump passed a law of Congress acting in this direction. The legislation follows the failure of lengthy negotiations to give U.S. regulators full access to scrutiny of US-registered Chinese companies’ audit documents, in what Beijing sees as a crackdown on Chinese companies and a “financial decoupling.”
Both in terms of the market capitalization of the New York Stock Exchange as a whole (which currently stands at $26.2 trillion) and in terms of American depository shares of five Chinese companies, this event in itself is not amazing, but it has certain effects.
Will it bring the New York Stock Exchange into disrepute? Maybe in the end. Will it have a serious impact on the activities of Chinese companies? Hardly. For example, PetroChina’s US depositary shares accounted for approximately 0.45 percent of the company’s total share capital.
Nevertheless, this is a milestone event that will be celebrated in the financial markets, even as a growing number of Chinese firms have also announced intentions to exclude themselves from US markets. Interestingly, the 2020 US legislation also provides for the need to delist US registered companies by changing the audit rules. As of the end of July, the US Securities and Exchange Commission has listed 159 Chinese joint-stock companies (companies that operate in China) on its exclusion watchlist.
With the fight to maintain a leading position in global capital markets fierce, the perception of global investors does matter, and an outflow of high-potential Chinese companies is bound to reflect badly on the New York Stock Exchange. Wall Street is also a powerful lobbyist. Thus, the Chinese game plan may be to relax the strict US rules that are currently tightening the screws on Chinese companies raising money in the US unless they fully explain their legal structures and disclose the risk of Chinese government interference in them. business.
Clearly, China’s interest lies in reaching a consensus. Going forward, the ultimate litmus test will be whether larger Chinese state-owned firms will be excluded from US markets. There are about 250 Chinese companies registered in the US. This is where uncertainty in US-China relations comes into play.
It is only natural that Chinese companies will change their approaches to financing. For example, they will go public on the Hong Kong Stock Exchange instead of exposing themselves to growing political risks in the US. And political risks can come from a variety of sources.
Traditionally, they can be measured in terms of political decisions and changes affecting trade tariffs, taxes, working conditions, privatization and regulation, changes in political leadership, political instability or uncertainty caused by terrorism, unrest, coups or war.
But geopolitical risks, such as the conflict in Ukraine, have introduced a whole new pattern. Namely, “sanctions from hell” froze Russian foreign exchange and gold reserves, confiscated Russian private assets, and drove Russian banks out of the Western banking system. Leading Western politicians have hinted that similar terrible things could be done to China if it helps Russia. But this is easier said than done, given the sheer size of the Chinese economy compared to Russia and the high degree of interdependence in EU-China trade and US-China economic relations.
Meanwhile, the situation in Taiwan is becoming increasingly threatening. After the visit of the Speaker of the House of Representatives Nancy Pelosi in Taipei on August 2-3, Chinese comments threatened “serious wide-ranging implications for bilateral ties, including on the economic front”, citing the decision by China’s leading electric vehicle battery manufacturer Contemporary Amperex Technology Co. America plant worth several billion dollars.
One anonymous comment in the Global Times on August 4 threatened that “with the start of major military exercises around the island of Taiwan, the mainland has effectively started or accelerated a process of reunification that the US cannot stop.” This means that China is, in fact, ready for American intervention. One can only imagine what China will do to eliminate potential risks, including its huge holdings of US Treasury bonds.”
After Japan, China is the second largest foreign holder of US Treasuries. Chinese U.S. Treasury holdings fell to $980.8 billion in May, dropping below $1 trillion for the first time in 12 years, further deterioration in Sino-U.S. relations is likely to have a direct impact on China’s propensity to take risks associated with owning Treasury bonds US, and reducing US Treasury holdings could be one precautionary option. This could deal another blow to the global position of the US dollar, which is the real backbone of the US economy.
“The Russian-Ukrainian conflict has already dealt a serious blow to confidence in the dollar. Now, if China reduces its holdings of US Treasuries, escalating tensions between China and the US could further weaken the dollar’s status. In that sense, over the long term, Pelosi’s ‘graduation trip’ will eventually backfire on the US economy in ways that undermine confidence in the dollar.”
Maybe it looks like a stretch, but such blasphemous thoughts are generally transmitted on the air. The good part of all this is that both Washington and Beijing seem to agree that chatter is better than war.
More broadly, Pelosi’s farewell message, which Kurt CampbellCoordinator for Indo-Pacific Affairs at the National Security Council Bidendid during a press call was confirmation that the last time they spoke on the phone in late July, Biden and the President of China Xi Jinping raised the possibility of a face-to-face meeting “and agreed that their team will continue to work to sort out the details.”
Campbell said there are no new details yet to be announced, but both leaders are expected to attend the November G20 meeting in Bali.
In these extraordinary times in American politics, nothing is certain. In fact, Campbell also singled out Beijing’s sanctions against Pelosi and her family members for disapproval.
He stated that the US will ensure freedom of navigation in the Taiwan Strait and the region, but added that “we will not reflex and we will not kneel. We will be patient and efficient. We will continue to fly, sail and operate where international law allows, in line with our longstanding commitment to freedom of navigation, which includes standard air and sea transits across the Taiwan Strait in the next few weeks.”
Significantly, Campbell did not provide details on when any such transits would take place, nor did he confirm reports that the US had decided not to pilot the aircraft carrier through the strait because the Biden administration “does not want a serious confrontation to escalate.”
Author: M. K. Bhadrakumar — M. K. Bhadrakumar – retired ambassador columnist for Indian newspapers Hindu and Deccan Herald, Asia Times, Rediff.com, Russia & India Report, and the website of the Strategic Culture Foundation (Moscow).
Translation by Sergei Dukhanov