Chinese companies should no longer be allowed to list on U.S. exchanges and take advantage of American investors in light of the recent debacle involving ride-hailing giant Didi Chuxing following its debut on the New York Stock Exchange (NYSE), according to Sen. Marco Rubio (R-Fla.).
The crackdown battered Didi’s stock. Its share price, which had previously risen to above $16, dropped sharply below its initial $14 IPO price to under $12 as of Monday, erasing billions of dollars in shareholder value.
The senator described Beijing’s clampdown, which came with little warning and was light on detail, as an “intentionally opaque” decision. It provides “yet another reason we cannot allow these companies, which have no meaningful independence from the political whims of the Chinese government and Communist Party, to list on our exchanges and take advantage of American investors,” Rubio added.
Rubio and other critics have long sounded the alarm on the risks posed by Chinese companies listed on American exchanges. These firms pose an “enormous” threat to U.S. investors, according to Rubio, because they are often controlled by the Chinese Communist Party (CCP) and are shielded from U.S. oversight.
U.S. regulators have been unable to inspect audit firms based in China for more than a decade. The Chinese regime has prevented audit inspections of China-based companies, citing national security and privacy as reasons for noncompliance.
“Didi’s sudden collapse in value underscores what a black box all these Chinese companies are, but even if the stock suddenly surged, American investors would have no way to ascertain its real financial strength,” Rubio said.
Sending a Message
The CCP’s crackdown on Didi is part of a “broader struggle … between Chinese capital markets and Western capital markets,” Jim Rickards, an economist and lawyer, told The Epoch Times.“The idea that every China tech company can go list on the New York Stock Exchange is effectively over,” said Rickards, also author of “The New Great Depression: Winners and Losers in a Post-Pandemic World.”
Anne Stevenson-Yang, co-founder and research director of J Capital Research, told The Epoch Times Didi is paying the price for not heeding the regulators’ demands. “Beijing is making sure that people know that it has to be with their blessing, or else not at all,” said Yang, who is also the author of “China Alone: The Emergence from and Potential Return to Isolation.”
Rickards likened the clampdown to a public execution.
“It’s like bringing someone in front of a firing squad and inviting the public to witness it,” he said. “You get rid of one bad actor in the view of the communists, but you really send a message to everybody else, ‘here’s what’s going to happen to you if you don’t do what we say.’”
The author said that the losses experienced by American investors would be viewed by the CCP as a welcome byproduct of its crackdown.
Risky Business
Didi is not the first Chinese company to suffer the wrath of the CCP.Late last year, the regime scuttled the massive planned IPO of Ant Group, the fintech affiliate of Alibaba, when regulators announced an investigation into its lending practices days before it was due to list in Shanghai and Hong Kong. The tech giant found itself in the regime’s crosshairs after Alibaba founder Jack Ma publicly criticized Chinese financial regulators in an October speech in Shanghai. The once-high flying entrepreneur had made few public appearances since then.
Since October 2020, the share price of NYSE-listed Chinese tech firm Alibaba has declined to less than $210 from more than $310. Regulators in April slapped the tech giant with a $2.8 billion fine over antitrust breaches.
“Investors need to be aware of the risks associated with investing in Chinese companies, and apply an appropriate discount,” Stevenson-Yang said.
The United States has recently tightened oversight over Chinese firms listed on American exchanges.
In March, the U.S. securities regulator began a rollout of rules to exclude foreign companies from U.S. exchanges if they did not comply with U.S. auditing standards. The move would remove Chinese firms from U.S. exchanges if they fail to comply with U.S. auditing standards for three straight years.
Taking Action
Rubio said that Congress needs to take further action to protect Americans from the risks posed by Chinese companies, especially given that “Wall Street seems totally uninterested in tackling this problem on its own.”Global stock-index providers such as MSCI and FTSE have added Chinese stocks to their global and emerging markets indices, allowing billions of dollars of U.S. investment to flow into Chinese equities.
Rubio in May introduced the “Index Provider Transparency and Accountability Act” which he said would “introduce much needed reforms to empower everyday investors whose retirement savings are manipulated by the unregulated and unaccountable index providers.”
The senator urged policymakers to “wake up to the huge vulnerability created by the openness of our capital markets to predatory Chinese firms, which have no independence from the authoritarian regime in Beijing.”
Didi did not return a request for comment.
