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Protocol | China

The NYSE China flip-flop is part of a bigger battle between profit and accountability

Western investors want transparency. But what if guaranteeing that closes a door on the U.S. profiting from China's tech success?

The NYSE China flip-flop is part of a bigger battle between profit and accountability

The New York Stock Exchange can't decide whether to delist certain Chinese tech apps.

Photo: Julien Chatelain

The New York Stock Exchange's flip-flopping statements this week over the delisting of Chinese tech stocks highlight a longstanding dispute over how much access Chinese corporations should have to U.S. capital markets. It's a debate that some experts say pits profit against accountability, and one that will likely continue under the Biden administration.

The confusion began last week, when the NYSE announced that it would delist the stocks of three Chinese telecom companies — China Telecom, China Mobile and China Unicom — to comply with the Trump administration's order in November barring U.S. companies and individuals from investing in Chinese firms that work with the Chinese military.

The NYSE reversed that decision on Monday, only to change it again on Wednesday when it reaffirmed the plan to delist the stocks. Trading in the Chinese telecom company shares will cease at 4 a.m. Eastern Time on Jan. 11, the NYSE said.

The NYSE could not be reached for further comment.

Stephen Diamond, a law professor at Santa Clara University, said the exchange may have been caught flat-footed by yet another unexpected move by the Trump administration, which has been waging a bitter trade and economic war against China. "The NYSE just got caught in this whole mess that is Trump," he told Protocol. "It's like every other administrative effort. It's driven by Trump's ego, not by rational policy."

A report by The Wall Street Journal on Thursday suggested that U.S. officials are also considering a ban on Americans investing in Alibaba and Tencent.

The NYSE announced that its delisting would be pushed through after Treasury Secretary Steven Mnuchin told it that he disagreed with the reversal, according to CNBC. Diamond said delisting the Chinese companies' stocks was clearly not in the interest of the NYSE.

"They didn't want to do this in the first place, probably," he said. "The NYSE has been pretty aggressive about courting Chinese stocks. … It earns revenue from listing fees and trading commissions. … Their motivation is to obviously keep as many of these listings as they can."

Edith Yeung, a general partner at venture firm Race Capital, who writes the China Internet Report, said delisting Chinese companies could also drive many Chinese firms to other exchanges, shutting out U.S. investors from fast-growing businesses. Of the private companies globally that raised the most funding in 2020, the top 10 raised $13.6 billion combined, and six of those 10 were based in China, she said, citing Crunchbase data.

"The Treasury Department and the New York Stock Exchange need to make up their mind," Yeung told Protocol. "If U.S. IPO markets continue to jerk Chinese companies around, it will send a really unwelcome signal to these high-growth Chinese companies that maybe they should consider listing in Hong Kong and Shanghai instead."

But Diamond said the NYSE's move also turns the spotlight on longtime concerns about the lack of transparency and accountability from many Chinese corporations. The latest was Luckin Coffee, which was delisted from the Nasdaq after reportedly being under investigation after disclosing financial fraud. With many Chinese companies, "things like corporate governance or shareholder rights … don't exist in any meaningful way," he said.

Diamond cited the recent controversy over Chinese tech titan Jack Ma, who has reportedly been forced to keep a low profile amid an apparent dispute with the Chinese government. Beijing is reportedly pressuring Ant Group — the Chinese fintech that was on the cusp of a record-breaking IPO and for which Ma is the major shareholder — to share the financial giant's consumer-credit data.

"If Jack Ma disappears, what is CalPERS going to be able to do about an investment it makes?" Diamond said, referring to the California Public Employees' Retirement System, a major institutional investor. "Nothing."

"This whole issue of Chinese access to the U.S. capital market is a critical issue that has to get taken seriously by the new SEC and the new administration," he said. "As ham-handed and clumsy and, frankly, sometimes even racist some of the criticisms [by] the Trump administration have been of China, there is a real issue about transparency and accountability for Western investors."

In fact, the incoming Biden administration is widely expected to rebuild traditional U.S. alliances as a way to counter China's growing influence, especially on the economic front. Biden plans to meet with some of the world's major leaders at an international gathering called Summit for Democracy. China and Russia are not expected to be invited.

Charles Elson, a finance professor at the University of Delaware and a corporate governance expert, said the controversy over the delisting of Chinese telecom stocks underscores the balancing act that the NYSE is often forced to undertake.

"By delisting, you lose the revenue from those listings," he told Protocol. "By including those listings, you get the revenue — but there's a public perception issue. Are you supporting a position that's antithetical to the national interests of the United States?"
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