Beijing To Relax Its Grip On Tech And Foreign-Listed Stocks

Sebastien Callebaut -

U.S.-Listed Chinese Stocks Surge On Chinese Government's Support Signals

On Wednesday, the Chinese government signaled support for the listing of Chinese companies abroad and that its crackdown on technology companies would end soon. Reacting on the news, shares of Chinese companies listed in the U.S. surged. Alibaba increased by 36.7%, JD.com increased by 39.4%, and Pinduoduo increased by 56%.

  • Chinese and American regulators are working on a cooperation strategy on Chinese equities listed in the United States
  • Chinese state media reported on Wednesday: "The Chinese government continues to support various types of companies to list overseas."

Delisting Worries

Following a revival of Covid-19 and the Ukraine crisis, investors' worries about economic growth were amplified by fears of forced Chinese stock delistings from U.S. exchanges.

On March 10, a number of Chinese stocks dropped sharply after the SEC threatened them of delisting for failing to comply with the Holding Foreign Companies Accountable Act (HFCAA), a regulation passed in 2020 allowing the SEC to delist companies if audits for three consecutive years cannot be reviewed.

  • Beijing is now reported to be ready to make concessions on the publication of Chinese audit information
  • U.S.-listed Chinese companies would be permitted to share audit information to U.S. accounting regulators
  • John Zolidis, president of the New York-based equity research firm Quo Vadis Capital, said that greater transparency for US auditors would "improve investor confidence in US-listed Chinese companies"

Beijing's Tech Crackdown May Be Over

Following Beijing's crackdown to break up internet monopolies, the valuation of Alibaba and Tencent have plummeted by more than 40% in 2021.

  • The Hang Seng index, which monitors Chinese tech firms, dropped to a six-year low on March 15, it was up more than 20% on Wednesday
  • The Nasdaq Golden Dragon China index, which tracks the performance of U.S.-listed Chinese firms, was down 38.8% in 2022 and 69.2% in the previous year before surging 33% on Wednesday

However, in February 2022, economists predicted that the worst of China's regulatory crackdown was over as Beijing is shifting its focus to promoting economic growth.

Zhiwei Zhang, chief economist at Pinpoint Asset Management, stated: “As one senior official, Han Wenxiu, said in December, the government will refrain from launching policies that have negative impact on economic growth,”, “President Xi [Jinping] also published an article which reiterated the importance of digital economy. I’d expect the government to focus on economic stability this year.”

Disclaimer

Please note that this article does not constitute investment advice in any form. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.

Credits

Photo by Vidar Nordli-Mathisen on Unsplash.