Beijing Setting Up Trap to Collect Money From Wall Street, China Experts Say

Beijing Setting Up Trap to Collect Money From Wall Street, China Experts Say
A pedestrian passes the New York Stock Exchange on Nov. 30, 2021. (John Minchillo/AP Photo)
Justin Zhang
News Analysis

Chinese companies are transitioning to a different model to raise money by going public. When one of China's concept stocks is delisted from the United States, it's then listed in Hong Kong or mainland China. At the same time, the Chinese Communist Party (CCP) is working hard to present an image of economic prosperity to attract foreign investment.

Experts believe that these moves are a trap set by the CCP to deceive overseas investors.

On Dec. 22, China Mobile launched the initial public offering application process, expecting to be listed in China in January 2022. In addition, China Unicom, China Telecom, and China Mobile, the three major Chinese telecom operators that were delisted from the United States, all have transferred back to China for A-share listing.

Didi, the Chinese version of Uber that delisted its shares from the New York Stock Exchange under pressure from Chinese authorities, indicated that it will go public in Hong Kong instead.

The CCP has devised a new retreat strategy: State-owned firms return to China’s stock market from Wall Street, and private firms return to Hong Kong for listing, according to experts.

Mike Sun, a Chinese investment strategy expert living in the United States, told The Epoch Times that the CCP probably truly wants to see this happen. Chinese authorities are still negotiating with the U.S. government for Chinese concept stocks to stay on Wall Street. If those negotiations don't work out, it wouldn't be a bad thing for the CCP to have these companies return to China for listing.

As the United States has become increasingly stringent in its supervision of listed companies from China, it's very likely that more Chinese concept stocks will withdraw from the U.S. stock market. On Dec. 20, the U.S. Securities and Exchange Commission (SEC) required listed Chinese companies to disclose more risks that they may bring to investors.

Previously, the amended Holding Foreign Companies Accountable Act began requiring foreign companies to disclose more information about their relationship with the government and provide more details from their financial reports. However, these regulations were rejected by the CCP on the grounds of "endangering national security."

As of the end of 2020, more than 600 Chinese companies were listed in the United States with a total market value of approximately $6 trillion, accounting for about 9 percent of the U.S. stock market. However, Chinese concept stocks withdrawing from the United States has become an irreversible trend in the past three years.

Hong Kong financial analyst Katherine Jiang told The Epoch Times that if these companies return to China for listing, they'll still be able to bring huge amounts of capital with them from Wall Street.

Loosening Monetary Policies to Beat the Fed

Now, as the market expects the Federal Reserve to raise interest rates ahead of schedule and more aggressively, the CCP is also stepping up its monetary and fiscal policies. Contrary to the Fed's tightening of monetary policy, the CCP continues to run on the path of a loose monetary policy, which it has officially named "cross-cyclical and counter-cyclical macro-control."

The CCP’s Central Bank decided on Dec. 20 to lower the benchmark loan prime rate to 3.8 percent from 3.85 percent. The bank's reserve ratio was lowered in early December, freeing up approximately $190 billion.

Internally, the CCP is facing tremendous pressure to stabilize the economy, according to Sun. Externally, it has to keep an eye on the Fed’s timetable in conjunction with its own monetary policies in order to prevent large-scale capital outflow.

Therefore, the CCP’s newly formulated policies serve two purposes: to secure foreign funds and to prevent capital outflow. To achieve these goals, the CCP has created an image of economic prosperity.

"In the past, Wall Street fed the Chinese companies very well," Sun said. "Even if these companies are now forced to return to China to be listed on domestic stock exchanges, they have already collected a lot of money from Wall Street."

Among the Chinese companies listed in the United States, there are many state-owned or semi-state-owned companies that are disguised as private companies. The company filings are now relatively complete, making it difficult for the SEC to verify their background.

Take Fangda Group as an example. Based in Liaoning Province, China, Fangda, a so-called private enterprise, is an industrial conglomerate focusing on carbon, chemicals, medical, and steel products manufacturing.

“We have always insisted on listening to the Party and following the Party. We now have more than 300 legal entities. As I often say, the Fangda Group belongs to the Party, the country, and the society,” Fang Wei, chairman of Fangda's board of directors, said on Dec. 8.

Fangda Group has been the only strategic investor in the restructuring of HNA Group Co. since the latter filed for bankruptcy.

Under the guise of “private enterprises,” these companies have completely bypassed the laws of the United States, as it's extremely difficult to trace such deep and hidden connections.

Although the Holding Foreign Companies Accountable Act is now forcing Chinese companies to exit U.S. stock exchanges, the CCP may be willing to welcome Chinese concept stock companies back to their domestic listings at this time.

Jiang said the CCP is expanding the capital market and needs suitable assets to attract overseas funds to stay in the Chinese market for the long term. Even if these companies return to Hong Kong or China now, not only have they already collected money, but companies with good potential can also continue to attract foreign investments.

Connecting the financial markets of mainland China and Hong Kong is a key part of the CCP’s capital expansion plan. It hopes to use the Hong Kong market to attract outside capital to stay in China's capital market for a long time, Sun said.

He believes that the CCP is trying to attract foreign investment through the "economic prosperity" created by the release of huge amounts of funds into its financial system, which is equivalent to setting up a trap to lure foreign investments.