ESINCE At the start of the trade war between America and China, investors, politicians and businesses tried to gauge how well and how quickly the world’s two largest economies will decoupling. The finance model is clarified with the announcement that Didi Global, a Chinese ridesharing company, is considering delisting its shares from New York City, just six months after an initial public offering (Initial Public Offering) the.
It’s likely that all of the $ 2.1 billion in shares of other mainland Chinese companies traded in the Big Apple will eventually follow suit, with the approval of the Chinese Communist Party. Yet do not imagine that the Chinese leadership is seeking financial isolation. Because at the same time, they are busy welcoming Wall Street companies into the continent’s financial system. China pursues an asymmetric decoupling strategy: reducing its dependence on the West even as it seeks to increase the West’s dependence on China. Didi will not be the last example of this approach.
For decades, the Chinese government tolerated and at times encouraged companies to raise capital in distant markets. When the first Chinese company went public in New York in 1993, cross-border listings were approved by authorities, who recognized that US markets offered lower cost of capital, smarter investors, and better corporate governance. Regulators across the continent have even turned a blind eye to tricky legal workarounds, known as variable interest entities (LIFEs), which allowed ambitious Chinese tech companies to bypass the mainland’s obscure restrictions on foreign ownership.
Over the past two years, the mood has changed. In 2019, Alibaba, the most valued Chinese firm listed in New York, requested an additional listing in Hong Kong: indeed, a financial plan B. Now, Didi will go further by leaving New York completely. He is said to be under pressure from the Cyberspace Administration of China to move his list, possibly to Hong Kong, which is increasingly under the direct supervision of the mainland government. In the meantime, it seems likely that further LIFEs will be prohibited.
One of the reasons for this change is a US law, targeting Chinese companies, which requires foreign companies to reveal bloody details of their audits or be kicked off US stock exchanges. Don’t confuse this with a defeat for China. It is not about severing ties with global finance. Instead, it opens up the mainland’s markets and pushes Western banks, insurers and fund managers to come in and play by its rules. Many Wall Street companies are getting new licenses and expanding their business in China. JPMorgan Chase’s cross-border exposure to the country has increased 9% since 2019. Foreign portfolio investors’ holdings of stocks and bonds have nearly doubled in the past three years, to $ 1.1 billion. Even as President Xi Jinping launched a war on big tech and tycoons under the banner of “common prosperity,” more than $ 100 billion was invested in mainland markets in the first nine months of the year. 2021.
China hopes it can have the best of both worlds: access to global funds and know-how, but under its direct supervision. There are obvious risks, from the Chinese point of view. China’s domestic markets are still uncharted territory in some ways, and foreign investors may not commit as much capital because of concern about currency controls, unfair treatment from regulators, and the risk of expropriation. . Yet, at the end of the day, the vast size of the Chinese market and the depth of its corporate scene means it’s hard to say no.
Asymmetric decoupling raises two questions. One is whether the American approach is working. The more it punishes Chinese companies, whether listed in America or those that buy American high-tech components, the more China develops its own capabilities, undermining American preeminence and creating alternatives for third countries. It could leave America with less global influence, not more.
The other question is where China will apply its asymmetric strategy. This can already be seen in the raw materials industry, with more trade on the mainland, and in technology, where China is trying to develop local semiconductors. But the most blatant dependence in all of China is on the US currency, which is used for most cross-border payments and which exposes it to sanctions and the threat of exclusion. If Xi can’t tolerate a ride-sharing company listed in New York City, it’s a safe bet that he’s even less keen on China being subordinated to the greenback. He is surely doing everything in his power to develop an alternative. ■
This article appeared in the Leaders section of the print edition under the title “Asymmetric Decoupling”