The Strange Delist Twist

Tech cold war moves from infrastructure to the financial market

Last week, the New York Stock Exchange (NYSE) announced plans to delist three state-owned Chinese telecommunication companies. Yesterday, it declared its intention to reverse that decision, only to announce later in the evening that it’s again considering delisting the shares. This dizzying array of events provides an indication that there won’t be any immediate detente in the ongoing tensions between the US and China. Things are truly topsy-turvy.

Specifically, the NYSE could delist shares of China Mobile, China Telecom and China Unicom. The intention with the delisting is to comply with an executive order from the US government that imposes restrictions on companies identified as affiliated with the Chinese military. The three Chinese companies said holders of their American depositary receipts (ADR) can swap those securities for their Hong Kong-listed ordinary shares through the Bank of New York Mellon, which is the depositary for all three companies’ ADR programmes.

A delisting, if it does happen, is likely to have little material impact on the telecom companies, because they’re also listed on the very liquid Hong Kong exchange. Still, the move shows that there’s little let-up in the growing animosity between the world’s two largest economies. It also highlights the souring of long-established business ties between the US and China, which have grown over decades as China sought to internationalize and reform its state-run corporates.

China Mobile, the largest of the three companies, first listed its shares in New York in 1997, becoming one of the first major Chinese state-owned enterprises to sell shares on the New York exchange. Later, other telecom companies as well as state-run banks, oil companies and airlines began listing their shares on the US market. Major private Chinese companies have also sold shares there, including Alibaba, the online shopping giant, which in 2014 made what was then the world’s largest public listing in New York.

China Telecom was also under fire from the US Federal Communications Commission, which in December said it had begun the process of revoking the company’s authorization to operate in the US. And in the same month, President Trump signed a law that would bar Chinese companies from US stock exchanges unless they adhere to US auditing standards, intensifying a rush by US-listed Chinese firms to seek backup listings in Hong Kong.

The US has stepped up economic sanctions and travel bans on Chinese companies, government officials and members of the Chinese Communist Party, especially in the last few weeks of the Trump administration. In December, the US announced plans to limit visas for members of the Chinese Communist Party and their relatives to one month, instead of 10 years. It has also shut out Chinese tech giant Huawei from the US market and lobbied other countries to follow suit, albeit with mixed results.

In our view, China should not expect any relief from the incoming administration of Joe Biden. The hard line on China in terms of trade and national security is a bipartisan issue and the Biden administration will not want to appear to be softening its stance early in the presidency. Although trade tensions and the technological cold war will remain in focus for some time to come, they are likely to be tempered by a greater level of predictability and consistency in policies. This should mean a clearer picture for global trade and a more constructive environment for dialogue between Beijing and Washington.