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China deals with US listings

Readers will have observed that my posts have become infrequent. I am slipping towards retirement.  My commentary on current events will move principally to my Twitter account @profgillis. A number of readers have asked for my commentary on the recent developments in China, so I will go out with this likely final post.

U.S. listed Chinese companies have found themselves in the crossfire between the U.S. and China. First the trade war, then the Holding Foreign Companies Accountable Act, then executive actions banning investment in Chinese companies tied to the PLA or Xinjiang. From the Chinese side companies have faced increased regulatory supervision with respect to anticompetitive behavior and failure to accept the primacy of the state. Most recently, DiDi has been challenged on the application of the pending data security law. It has been proposed that overseas IPOs will be subject to review prior to the IPO. Wilmer Hale has an excellent analysis of the new rules.

In my opinion, there are several factors at work here. Firstly, China is putting in place regulations that were overdue. Many of the companies have engaged in practices that hurt consumers and would never have been allowed in any developed market. When China introduces new regulations, it tends to adopt best practices from each country around the world, and this often leads to stricter rules in China than the rest of the world.  Secondly, some of the response may be a reaction to U.S. actions against Chinese companies.  For example, the data security issues on DiDi seem remarkably similar to the since rescinded Trump order on TicTok. I believe that China is disappointed that Biden has not softened the U.S stance on bilateral relations. I think China may have sent a message to U.S. investors that decoupling would likely lead to huge losses for them and is hoping these investors put some political pressure on the U.S. government.

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