Chinese companies facing feedback in the U.S. could seek refuge in Hong Kong
NetEase attributed its decision in part to the need for more funds, which it wants to use to expand its business. But it has also made it clear that he thinks the United States is becoming hostile to Chinese companies because they see the regulator and lawmakers as new rules that would lead to tighter oversight. Some restrictions might even make it harder to advertise or keep a store in New York.
Adopting such rules “could cause investor uncertainty for affected issuers, including us, our market price [US shares] it could be adversely affected and could be excluded from the list if we cannot “meet the requirements,” NetEase wrote in submissions to the Hong Kong Stock Exchange.
NetEase’s recognition is a sign of how much the U.S.-China relationship has deteriorated – and how much it is in danger for Chinese companies that don’t develop a sustainable backup plan.
Other companies are also thinking about Hong Kong
“Chinese tech giants see Hong Kong as an environment,” said Brock Silvers, chief investment officer for Hong Kong-based Adamas Asset Management.
He added that the city is “under Chinese control, but still with access to US dollars.” Unlike mainland China, where there are strict restrictions on capital entering and leaving the country, Hong Kong allows capital to flow more openly. The city currency is also freely convertible.
NetEase is also not the last company to deal with Hong Kong. Approximately 37 Chinese companies qualify for this, according to data provider Refinitiv, based on their market limits, revenue volumes and compliance capabilities.
Baidu and Trip.com declined to comment. But Baidu founder and president Robin Li recently suggested that his business could be turned to Hong Kong if needed.
Motivations develop
But Beijing has rejected some of those restrictions in recent years as part of efforts to bring Chinese companies home. The country is trying to improve its position as a major technological superpower, and the closer some of its most respected companies are, the more influence the government can have over them.
“The political calculus that forced Chinese technology companies listed in the U.S. in search of secondary inventories was originally Beijing’s desire to put those companies under their bureaucratic control,” Silvers said. “But it developed in the light of the trade war and the subsequent separation.”
But that law would force that company to be deleted if they could not be revised for three consecutive years, Goldman Sachs analysts say.
Although the potential for tighter regulatory oversight “is likely to accelerate their trend of double entry into the EU [Hong Kong] market, ”Goldman analysts wrote in a recent report.
The pressure also comes from the Trump administration. Secretary of State Mike Pompeo praised the Nasdaq on Thursday for proposing new compliance rules that could affect Chinese companies, adding that other stock exchanges should consider similar regulations.
And President Donald Trump has given authorities 60 days to recommend steps the regulator should take to reduce Chinese companies that do not comply with U.S. audit rules.
Pros and cons in Hong Kong
“We believe [Hang Seng] it will undergo a similar change in the next few years, and will become an index that largely reflects the growth of new economic firms in China, ”they wrote.
Alibaba was, after all, a great success for the city. Shares listed in Hong Kong have jumped 19% since they started trading in November last year.
“Other companies are following suit,” said Hong Hao, director and head of research for Bank of Communications International in Hong Kong. “It pays to have a plan B.”
Trump’s announcement, however, did not include specific sanctions related to the Hong Kong financial sector. And the display of the Hong Kong dollar for the U.S. dollar seems certain for now: City officials assured investors this week that they have enough reserves to maintain the mooring, which trades the city’s currency in a narrow and stable range.
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