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A few weeks ago, China promised to better cooperate with the US stock market regulator, the SEC, to support IPOs (initial public offerings) of its companies overseas. However, it seems that there is already a catch.
China made some earthshaking promises last month to boost investor confidence. The country notably announced that it would cooperate much better with the SEC in order to better support Chinese companies listed in the United States. This announcement came following Chinese stock markets plunged into the red. One concern was that Chinese companies were threatening to lose their US listings because they failed to comply with SEC auditing requirements. Some companies are already on a list for delisting.
The Chinese government seems to have succeeded in its bet, at first. Shortly following the news, Chinese stocks surged once more. The Hang Seng China Enterprises Index, which tracks major Chinese companies, has risen 23% since March 15, the day before the Chinese government’s announcement. But behind this rise in strength, the reality is less reassuring.
Baidu threatened to lose its listing in the United States
The question is whether investors reacted too enthusiastically. On Thursday, it emerged that the SEC added Chinese company Baidu and its streaming subsidiary iQIY to the delisting list, along with three other companies. On Friday, Baidu shares were down 4.5% at the close of trading in China. On the New York Stock Exchange, the action even lost 8% on Thursday.
Other Chinese companies listed on the US stock exchange were also affected. Alibaba lost 6.7% of its value on the New York Stock Exchange. In Hong Kong, the Chinese e-commerce giant suffered a 2.1% loss on Thursday.
It appears that China is currently prohibiting companies from meeting US audit requirements. The country fears that the United States will have access to sensitive data in this way. At first glance, it seems that China is mainly interested in boosting the stock exchanges with nice words. It remains to be seen whether the Chinese government will actually implement the promised actions.
More and more Chinese companies are buying their own shares
Richard Martin, managing director of consultancy firm IMA Asia, previously noted that those investing in China should pay attention to political decisions first. “You can invest in the country. Just make sure you understand the political and strategic developments,” is his final piece of advice.
At the same time, Chinese companies themselves are trying to gain investor confidence. The Alibaba Group, for example, recently announced that it would increase its share buyback program from $15 billion to $25 billion. Smartphone maker Xiaomi will also buy back shares for $1.28 billion. The same goes for JD Health, a Chinese online pharmaceutical store. This company recently announced a $380 million buyout program.