Monday, May 23

Global Trade Alert! No IPO for Chinese Companies in America

American business authorities suspend IPO for Chinese companies in America, signaling another global trade tension between the two! There will be no Chinese companies in the U.S. stock exchange entering an IPO anytime soon, as per U.S regulatory authorities.

As per Reuters, The U.S. Securities and Exchange Commission (USSEC) suspended processing applications from Chinese companies either for their U.S. initial public offerings (IPO) or other securities sales. The market situation seems terse with this new conflict in the row.

The U.S. Securities and Exchange Commission (USSEC) is America’s apex trade authority that has decided to craft new regulations for Chinese companies in the U.S. based on the recent financial experience of many American investors in Chinese companies. 

On July 30, 2021, SEC Chairman Gary Gensler requires Chinese companies to disclose to the U.S. regulator and investors the potential impact of regulatory enforcement on the company’s financial performance before USSEC grants any Chinese company an IPO status. 

In addition to Chinese companies applying for IPO, the USSEC commissioner Alison Lee also requires all existing Chinese companies on NASDAQ to disclose foreseeable financial risks amidst China going berserk with new regulatory impositions. 

The USSEC seems to have a reason behind halting all IPO applications by Chinese companies in the U.S. and mandating existing Chinese IPOs in the U.S., disclosing financial risks for all big and small investors who have invested in them and already experienced them financial burn.

On July 26, we reported the crackdown of Beijing on Chinese edtech companies. We discussed how China’s new regulation for edtech businesses would have a global impact not limited to China. Although the move stemmed from China’s population growth strategy, the seismic effect is felt at U.S.’s stock exchange.

We also know that Chinese regulators banned Didi Global (NYSE: DIDI), the ride-sharing giant from China doing business in the U.S., from onboarding new customers within days of their blockbuster U.S. IPO. For whatever China’s internal reasons, the ban slapped investors with tremendous loss erasing Didi’s market value by almost $21 billion.

In 2020, Alibaba had a regulatory fallout inviting scrutinies and suspension of the Ant Group IPO. Then in April 2021, China fined Alibaba $2.8 billion, accusing the tech giant of breach of the Anti-Monopoly Law, sending shockwaves to the investor community. Needless to say, Jack Ma is still missing!

China’s Faustian ambitions seem to have upset the global market in various ways. It has upset businesses, investors, countries, almost every entity responsible for China’s economic growth. China’s unsettling business relationship and existing political tension won’t sustain its power fetish for too long.

While there was a plausible reason behind the edtech crackdown, as China cited that in the educational interest of the future of its children, but the world also understands it was a deep ploy to facilitate population growth. In a way, it is a penalty for progressive Chinese people not interested in having a second child or no kids to help China recover its own mistake of the one-child policy ruling the country for ages. 

The move by USSEC seems to be a necessary one when we see China badly needs a power check. Much like in the case of China’s one-child policy, where Chinese citizens now have to oblige China with a second child or two kids, Chinese businesses ready for IPO in America are suffering China’s regulatory whims in its attempt to contain power. But from all ends, probably China is missing out on factoring in the loss if these Chinese companies decide to sever their umbilical with China and go private.

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