Is it really so utterly unthinkable that Hong Kong could ever be more than an ideological battleground between the United States and China? Long-time residents such as Bloomberg’s Matthew Brooker think so. Traders who have been driving Hong Kong Exchanges and Clearing (0388.hk) higher this week think so. The American Chamber of Commerce in Hong Kong is not quite sure, but would like to think so.
Why? Because the two countries have too much skin in the game? Is that really the best explanation that can be offered for why financial decoupling is unlikely? If so, it is weak thinking at best, complicit at worst.
The traders are easiest to forgive for not exercising their imaginations. Nevermind that HKEX is a tougher club to join than the Nasdaq for many reasons, as pointed out by the SCMP’s Enoch Yiu. These investors clearly believe a gaggle of Chinese tech IPOs are winging their way to Hong Kong, free of cyber-reviews, and that the mass migration of listed Chinese firms from New York is also imminent.
They are just following the best advice money can buy, of course. As an FT report notes, investment bankers are desperately trying to salvage lucrative IPO fees by repackaging their New York hopefuls for Hong Kong. This is despite the odds of success, as one source said: “If you want to do a deal this year, at best you’ll be delayed until 2022 and at worst you won’t be able to do it.”
Nevertheless, they deserve sympathy. None of these people could reasonably be expected to wonder whether HKEX might now be seen by American national-security hawks the same way a target moving into the open draws a bead from a Predator 30,000 feet above.
Continue reading Believe in Hong Kong, but watch the sky
Hong Kong might be the obvious choice for Chinese tech IPOs after the central government tightened rules on overseas listings, but tough accounting and disclosure requirements still stand in the way, suggesting it could be months before the stock exchange (HKSE) starts to benefit, and even then, many aspiring companies might not make it. This is according to an analysis on SCMP written by its veteran capital-markets reporter, Enoch Yiu.
Companies that want to shift their listing from the US to Hong Kong may have to rework their accounts and application documents to comply with the tougher standards imposed by the Hong Kong bourse operator than US exchanges, accounting and legal sources said.
Some of the biggest differences include accounting principles and reporting standards, offshore ownership structures and classes of shares with variable voting rights. “Listing requirements in Hong Kong are stricter,” said Wang Hang, a partner at legal firm Baker McKenzie in Beijing. “The key is to evaluate whether the issuer can fulfil the listing conditions. That is to say, not all of these companies are capable of shifting [their choice of venue] to Hong Kong.”
More on SCMP
After last week’s newsletter had been sent, more than one analyst came out to pronounce that Beijing’s decision to review Chinese companies’ IPOs on the New York Stock Exchange over cyber-security concerns was not about financial decoupling. Rather, it was a natural progression of China’s systematic tightening of controls over the rambunctious tech sector, they said.
Today, it emerged that Beijing plans to exempt companies wanting to list on the Hong Kong Stock Exchange (HKEX) from any such data-security reviews.
As had previously been argued, bureaucrats such as those at the Cyber Administration of China have been having a well-deserved run in the limelight recently. But make no mistake, their new-found powers are resting on their interests being aligned with loftier political goals, particularly those laid out by President Xi Jinping on July 1 speech atop Tiananmen Gate, which are aimed primarily at establishing China’s position in the world, primarily against the United States.
It would be hard to find a better example to illustrate this point than the decision to exclude HKEX from the CAC’s reach. Investors certainly got it, as 0388.hk surged soon after the news broke, closing the day up 3.27%. What other way is there to see it, other than Beijing would like to hasten the removal of its best companies from New York to Hong Kong by applying its rules differently against companies in the two jurisdictions?
Continue reading This isn’t decoupling?
The US government is about to issue an unprecedented official warning toward American businesses operating in Hong Kong, according to a report in the Financial Times, quoting sources in the Biden administration. The warning is understood to be related to risks of data access under recently passed national security legislation as well as new anti-sanctions legislation, recently passed by the National People’s Congress, targeting companies that comply with US sanctions against Chinese companies and individuals.
The warning will, like a travel advisory, not require actual compliance, but it is understood to be the first of its kind issued by the US government against American companies operating in Hong Kong. It is also likely to be accompanied by a new list of sanctions against officials in Hong Kong.
More on FT
Hong Kong – and by extension the GBA – moved into a new category of geopolitics this week. It is now no longer only the frontline of an ideological war between China and the West; it is also where the two sides are set to fight some of their fiercest battles in the Great Financial Decoupling to come.
It might be said that conflict between the Treasuries of the two superpowers has been under way for some time. Sanctions imposed last year by the United States against some of Hong Kong’s and China’s top officials have shaken the city’s financial institutions. Moreover, who can forget former US President Donald Trump’s saber-rattling throughout four fraught years, which led to speculation the Hong Kong dollar might be cut off from the global financial system. Yet what makes the likelihood of real, protracted financial conflict more likely now is the Cyber Administration of China’s action against the country’s dominant ride-hailing app, Didi Chuxing; what that action means for Chinese listings on stock exchanges in New York and Hong Kong; and the likely US reaction.
The Didi saga might appear similar to what happened to Ant Financial, only this time the IPO of a colossal tech company was knee-capped days after the fact, rather than days before. Didi will recover, of course, as will Ant (which will likely list later this year), but the confidence of foreign investors in China’s tech sector will surely take longer to bounce back. This is especially as the CAC has also announced it will henceforth vet all further IPOs by Chinese companies on overseas exchanges – at least, by those using the so-called Variable Interest Entity structure. (Which are the only ones worth buying.)
Continue reading Hong Kong braces for incoming
Guangdong’s recovering foreign trade numbers have been somewhat surprising since the start of this year. The downturn in US-China relations and the imposition of trade tariffs had been expected to hit China’s biggest exporting province the hardest. And yet trade was still up – barely, at 0.8% YoY in the first four months, but still not as bad as had been feared.
Two reasons for this have been revealed by sources within the Guangdong Customs Department recently: Russia and Latin America.
From January to April this year, trade with Russia jumped 26.5% to RMB19.74 billion. Most of that was exports, at RMB18.5 billion. This is only a fraction of the province’s overall exports, at RMB1.2 trillion, but it is enough to move the needle.
Latin American trade was much larger, and not all of it was exports. According to the Customs data, from January to April, Guangdong traded goods worth RMB92.18 billion yuan from Latin American countries, up 10.3% year-on-year. Exports were RMB64.51 billion, up 6.9%; imports were RMB27.67 billion yuan, up 19.2%.