China’s Pivot Away from Wall Street

The delisting of the Chinese “Uber,” Didi Chuxing ADR from the New York Stock Exchange where it is trading for $6.59 a share is a disappointment for investors who bid up the price to $15.53 when the company listed on the NYSE just 6 months ago. But, the delisting of this company needs to be seen not just in regard to one company but rather in the context of China’s pivot away from Wall Street and how it will affect investments and investment opportunities going forward.

Investing in the Didi Global, Inc. ADR

The Chinese ride share company made a big splash on July 2, 2021 when its ADR was listed on the NYSE. Then Didi got caught in a regulatory crackdown that is part of a wholesale political shift within China as Chairman Xi Ping consolidates his power and attempts to control the increasing power of the Chinese business and tech sector as well as subdue general unrest and unhappiness within his mainland Chinese population. Folks who anted up $15.63 a share are holding a $6.59 stock that will delist and only be available through a broker in Hong Kong. The ongoing investigations of Didi within China are said to center on cybersecurity risks as well as anticompetitive practices. According to Reuters Didi says it will ensure its New York-listed stock would be convertible into “freely tradable shares” on another internationally recognized stock exchange. If you own Didi stock and want to stay the course you will need to wait to see just where the stock will be listed next, Hong Kong or not, and how to proceed.

China’s Pivot Away from Wall Street

China has experienced amazing economic growth over the decades since Nixon’s visit, Deng Xiaoping’s allowing modified capitalism to promote growth, their entry into the World Trade Organization with unfettered access to global markets, a veritable flood of Western foreign direct investment into the country, and access to Western capital via listing on foreign stock exchanges like the NYSE. The thinking in the West was that by letting China trade with the world and investing there China would open up to the world and gradually transition to a democratic society much like Taiwan, South Korea, or Japan. But, the Chinese Communist Party has never wanted to give up control of the country and has always managed affairs in China to achieve its own goals without allowing the sort of freedoms that would endanger their ultimate power.

China’s Pivot Away from Wall Street

China Needs Less Foreign Capital

One of the essential building blocks of the Chinese economic miracle has been access to capital via listing of stocks on foreign exchanges. But, one problem for those companies is that the US is demanding that those companies follow US rules as far as disclosing their finances. Companies themselves may not wish to do this and, more and more, the Chinese Communist Party does not want to share any information with the West. Meanwhile, China has accumulated more of its own wealth and would like for their home grown investors to benefit from the growth of their companies.

How Will China’s Pivot Away from Wall Street Affect Your Investments?

According to an article in The New York Times about whether or not China needs Wall Street, the roughly 250 Chinese companies still listed in the USA have a total share value of $2.1 trillion out of a total $48.5 trillion US stock exchange market cap. By comparison all ADRs listed in the US have a total market cap of $8 Trillion. Like Didi, any Chinese companies that delist will end up trading elsewhere so investors could, in theory, follow them to other exchanges. How many investors want to have investments listed on the Beijing, Shanghai, Shenzhen, or Hong Kong stock exchanges is another matter. We expect that ETFs and funds that make or track foreign investments will allow investors access to Chinese markets if too many companies delist in the USA. A more pertinent issue might well be what those companies will be worth without ready access to US stock markets. And, as the USA and China steadily decouple as tensions heat up, it could become increasingly difficult to invest in anything Chinese.

China’s Pivot Away from Wall Street – Slideshare Version

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