China’s ‘wolf warrior diplomacy’ has arrived on Wall Street

• China’s assertive nationalistic behavior – known as “wolf warrior diplomacy” – has entered financial markets.
• This week, Beijing punished a Chinese tech company listed on the New York Stock Exchange and announced rules governing all Chinese companies listed overseas.
• Consider that part of the Chinese Communist Party that is tightening its grip on power at home and closing its doors on power abroad.
• This is an opinion column. The thoughts expressed are those of the author.

It was only a matter of time before Beijing’s heightened nationalism hit Wall Street.

This week, Chinese authorities punished Didi, a ridesharing company, for its public debut on June 30 on the New York Stock Exchange. Shortly after Didi’s crackdown, Beijing announced new measures that could restrict Chinese companies from going public abroad.

What all of this tells us is that Beijing is no longer going to tolerate its tech stars making foreigners rich on foreign trade. And this is further proof that China is closing its society and economy to the West.

Bring it all home

In order to register more freely on foreign stock exchanges, Chinese companies are creating what is called a “variable interest entity”. In such an arrangement, a Chinese company sets up another company in a tax haven like the Cayman Islands where foreigners can invest. The Chinese company then signs an agreement that gives control and profits to the Cayman entity, from which the money is distributed to shareholders and the company back to China. For years, Beijing has generally looked the other way when it comes to VIE.

Now, according to Bloomberg, Beijing’s new regulations are designed to limit the ability of Chinese companies to create these entities. The proposed rules would govern what data can and cannot be shared abroad, target “illegal securities activities” and establish extra-national laws that Chinese companies should follow, regardless of where they are. are listed.

Didi’s shares have fallen about 20% since its IPO, partly because Beijing announced the measures, and partly because it has become a target for national authorities. On July 2, the Cyberspace Administration of China announced that it was investigating Didi. Two days later, Chinese app stores were ordered to stop allowing users to download Didi. The CAC claims that Didi illegally collected user data.

And it may be true. But it’s also likely to be a signal that the “wolf warrior” assault – a sort of Chinese diplomacy named after a hyper-nationalist movie – has arrived in financial markets. Two other Chinese tech companies listed in the United States – Kanzhun and Full Truck Alliance – have also seen their downloads halted by Chinese regulators. The nearly 250 Chinese companies with a market capitalization of $ 2 trillion listed on the major US stock exchanges should all watch their backs.

China closes

There are two main reasons for this seemingly sudden crackdown – one is China’s growing antagonism with the West, and the other is the Chinese Communist Party’s own desire for power and self-preservation. Together, they represent the reality that China is once again closing its doors to the world, reversing the opening that began in the 1970s.

As part of a broader crackdown on civil society, the Chinese Communist Party has tightened its control over any sources of power that may challenge it at home. This includes tech billionaires like Alibaba founder Jack Ma, who was recently publicly brought under control by Beijing. And that includes tech companies, like Tencent and Pinduoduo, another e-commerce giant.

Targeting of overseas-listed tech companies is also putting pressure on Chinese companies to consider an IPO instead to list in Shanghai or Hong Kong. It’s no secret that China’s encroachment on Hong Kong has caused an exodus of financial firms from the city. Making it the new landing place for Chinese tech companies to go public could help it maintain its status as a global financial center.

It is also no secret that the United States and China risk what some call “decoupling,” that is, essentially breaking ties and creating a world with technology and technology. separate financial centers centered on the United States or China. In some ways, because the two powers have become so antagonistic, this is already happening. Nationally, Beijing has invested in technological advancements in hopes of making the country a tech superpower by 2025. Now it is calling its companies home.

What is doubly important is that none of the above is primarily aimed at making China rich. It’s about building up power for the CCP. Under President Xi Jiinping, this has become Beijing’s foremost motivation, and we should all expect it to act on it, even when it means harming its own domestic businesses.

A chilling effect

Last year, Congress passed the Holding Foreign Companies Accountable Act, which requires foreign companies listed on U.S. stock exchanges to be audited by the Public Company Accounting Oversight Board. If they refuse for three consecutive years, they can be struck off. Last month, the Senate passed legislation that would reduce the time limit to two consecutive years.

The problem is that so far Chinese regulators will have absolutely nothing.

It’s a look down. If the Chinese companies listed here in the United States do not comply, they will be delisted. If they comply, Beijing could go after these companies in its country. In the meantime, the recriminations fuse. GOP Senator Marco Rubio of Florida called Didi’s IPO “reckless and irresponsible” weeks before Beijing cracked down on the company, arguing that Didi is a black box.

Rubio and Democratic Senator Bob Casey of Pennsylvania introduced a bill in May that would ban companies from going public on U.S. exchanges if they fail to comply with U.S. regulators and submit to a Public Company Accounting Oversight audit. Board.

All of this pressure from Beijing and Washington will undoubtedly have a chilling effect on Chinese companies listed here in the United States. So yes, that’s another form of decoupling – and it’s coming from both sides of the Pacific.