Analyst said that, expected restrictions from the United States on investing into the companies of China would have an unlimited effect on China as well as it also hurt the U.S. The comments come following the reports that the White House sees investment hard shoulder on China, like delisting the stocks of China in the U.S. and limiting pension fund’s investment of the government in the Chinese market. Restrictions like the delisting of Chinese goods in New York (N.Y.) could send the signal that the United States now not as open as before. The professor of finance at Tsinghua University in Beijing, Ning Zhu, said during an interview with an international news website that it’s going to have a fairly broad impact.
The stocks of the United States lower on Friday when Bloomberg first reported the news. KWEB (the KraneShares CSI China Internet ETF), which tracks big internet-related Chinese companies listed in Hong Kong or New York, fell 3.8%. According to the analysts, the reported limitations could be a struggle of the White House to gain influence in the forthcoming trade talks between the United States and China. However, it is uncertain when will the White House announce curbs on the investment of the U.S.
Monica Crowley, the Treasury assistant secretary for public affairs of the United States, stated that the management is not anticipating blocking the companies of China from listing shares on the stock exchange of the United States at present. They welcome investment in the U.S. The Securities Regulatory Commission of China did not comment on a faxed request for remarks.
Possibilities outside the United States
Zhu said that if the United States to bring these investment curbs, it would tough to implement and will negatively affect the capita; markets of the U.S. Many start-ups of China planned to list in the United States for a speed boost to their brand and approach to the U.S. dollars. According to the Lance Noble and Andrew Batson analysts’ August report, over 200 Chinese firms, including e-commerce giant like Alibaba, raised tens of billions of U.S. dollars on the United States capital markets through American Depositary Receipts or listings.
All and above, not all the big Chinese companies decided to list in New York. Tencent, a leading developer of several mobile games and the parent of the WeChat messaging app listed in Hong Kong. Food delivery company Meituan-Dianping and smartphone manufacturer Xiaomi also listed them in Hong Kong last year. Zhu pointed out that London is another alternative. The government of China would also agree to keep its major companies at home and announced a new stock board in July to make a healthier environment for tech companies to go public.
American Investors might Miss Opportunities
On the other side, external investment in mainland-listed stocks of China remains limited, even as China tries to exposed its market further to the investors from overseas. Since, the local stock market led by retail investors, so the authorities are trying to making efforts to attract more steady inflows from institutional investors. MSCI, the global stock index provider also progressively adding some mainland A-shares of China to its main emerging markets index, and over $1.9 trillion in assets involved in the benchmark index as at the end of 2017.
The Bloomberg Barclays Global Aggregate Index started to add Chinese bonds in April. Also, J.P. Morgan announced that it would contain Chinese debt in its index of benchmark bond early next year. Chinese assets’ full inclusion in these bond and stock indexes would mean that several Americans would indirectly invest in the Chinese capital markets over mutual funds and other broadly held investment products. Furthermore, if these types of United States investments banned, the investors of America would miss an opportunity on what several analysts expect will a long-standing growth story.
Guanghua School of Management finance professor, Michael Pettis said in an email that as there might be other political reasons for the restriction of the United States capital flows to China, so Washington has to understand that the consequences for the trade imbalance are totally against what they desire. Pettis explained that if the U.S. succeeded in stopping the American capital from staying home that going to China, then the overall U.S. imports of capital will rise, and with this atmosphere the United States’ current account deficit – not only China but overall.
China to increase overseas access to its Financial Services Industry
Along with encouraging significant external participation in its capital markets, China is making efforts to escalate foreign access to its local financial services industry. China makes a lot of announcements in this regard during the last eighteen months, among which the giving permission to a foreign bank to take maximum ownership of its domestic securities joint venture. Zhu said that if this trend continues, in spite of how gradually, being banned from China would mean U.S. mutual fund companies, U.S. banks will at a real disadvantage to their worldwide competitors.
Transparency Concerns to White House from Chinese Companies
Among other reasons, one reason may for planning the investment restriction is to save the investors of the United States from extreme risk because of the lack of regulatory supervision of Chinese enterprises. CEO of investment research organization Stansberry China, James Early says that there is a kernel of legality in this. He mentioned that several Chinese companies that able to access the United States public markets round about 2010 received no penalties for deceitful behavior. Mainland capital markets of China exist between the largest in the world but usually, fall short of liquidity and governance levels of additional developed markets.
The previous week, FTSE Russell planned not to add China to its broadly tracked government bond index due to problems like lack of trading activity and pro-long settlement periods. NY-based research provider, Rhodium released an analysis in 2018 fall and found that sixty-five percent of the Chinese companies present in the MSCI growing markets index at that time eventually controlled by the state. At that moment, MSCI declined to comment on 3rd-party reports in a statement. The statement said that the presence of (state-owned enterprises) SOEs is not an exceptional phenomenon in China; however, normal in several emerging markets. All the enterprises, including SOEs, treated on equality basis until they meet the eligibility criteria of the index.