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China’s regulator soothes nervous markets over Chinese stocks’ delisting woes after global sell-off

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China’s securities regulator said it maintains an open attitude to where companies seek to raise funds and respects their choices, denying reports of any imminent restrictions on overseas listings as it soothes market jitters to reverse a global sell-off of Chinese stocks.

Reports that regulators are pushing for so-called variable interest entities (VIE) to drop their listings in the United States are a “complete misreading and misinterpretation” of the regulations, the China Securities Regulatory Commission (CSRC) said in a statement on Sunday, without identifying the report.

The statement followed a sell-off of offshore listed Chinese stocks after Didi Global announced its plan to delist from New York to raise capital in Hong Kong instead, a mere five months after it defied Chinese regulators’ injunctions to list in the United States. Didi’s drastic U-turn raised concerns that antitrust crackdowns that have wiped out nearly US$1 trillion in the value of Chinese stocks offshore may extend and expand into broader areas.

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Such concerns are misplaced, the CSRC said, as “the main propose [of antitrust crackdowns] was to regulate monopolistic behaviours, protect the interests and data security of small and medium firms, eliminate regulatory vacuum, and prevent the capital’s disorderly expansion,” the regulator said.

The Nasdaq Golden Dragon China Index – which tracks US-listed stocks that are exposed to operations in China – plunged 9.1 per cent on Friday, the most since 2008, according to Bloomberg’s data. Shares of dozens of Chinese companies fell in New York, including this newspaper’s owner Alibaba Group Holding, whose shares are listed in the US and in Hong Kong.

Didi did not state a reason for the relisting in Hong Kong, but its announcement came just a day after an announcement by the Securities and Exchange Commission (SEC) that ordered US-listed Chinese companies to disclose their ownership structure.

Source: China Renaissance. SCMP alt=Source: China Renaissance. SCMP>

It also followed after months of sweeping regulatory crackdown from Beijing on the country’s internet companies, and companies in the education and real estate sectors.

The Cyberspace Administration of China (CAC), China’s internet watchdog, opened a cybersecurity review of Didi on July 2, two days after it forced its way to its New York IPO, which was characterised by Chinese officials as a “deliberate act of deceit“. Soon after, the CAC launched cybersecurity reviews into other internet companies, and Beijing has introduced new rules for listing overseas, including another sets of rules for listing in Hong Kong.

China plans to ban companies from going public on foreign stock markets through VIE structures, Bloomberg reported on December 1, citing unidentified people familiar with the matter. The CSRC denied the report on the same day, and again on Sunday, saying that recent regulatory scrutiny was not aimed at any particular industry or companies, and they were unrelated to the overseas listing activities of Chinese enterprises.

The Chinese security regulator said it has conducted discussions with the US regulatory agencies including the Securities and Exchanges Commission (SEC) and the US Public Company Accounting Oversight Board (PCAOB), and called for the two countries to continue “candid communication” regarding financial supervision.

There were 248 Chinese companies with US$2.1 trillion in combined capitalisation on three of the largest US exchanges – Nasdaq, New York Stock Exchange and NYSE American – according to a May 2021 count by the US-China Economic and Security Review Commission, a US Congressional body. Alibaba Group Holding was listed in New York in 2014 in what was then the world’s largest initial public offering.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP’s Facebook and Twitter pages. Copyright © 2021 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2021. South China Morning Post Publishers Ltd. All rights reserved.

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