Biden’s Chinese policy is riskier for US financial firms than Trump

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U.S. Vice President Joe Biden delivers remarks during the Strategic and Economic Dialogue (S&ED) at the State Department in Washington, the United States, June 23, 2015.

Youri Gripas | Reuters

BEIJING – As US-China tensions continue to simmer under a new administration, the risks to US investors exposed to China will only increase, according to a report by Cowen.

“We believe that President Biden poses a greater risk to financial firms on the Chinese front than President Trump,” Jaret Seiberg, analyst with the Washington-based Cowen Washington Research Group, wrote in an April 7 memo. “We believe Team Biden will be more strategic, more multilateral and more effective in the way they take on China than Team Trump.”

Relentless pressure from the United States will likely transform the policies of the Trump era with initially long grace periods into a reality. This includes delisting Chinese companies from US stock exchanges, Seiberg said.

Tensions between the two countries escalated under former President Donald Trump, focusing first on trade and then spreading to technology and finance. The Trump administration wanted to limit U.S. investment in Chinese companies and stocks with new regulations, but the policies have had relatively less impact than tariffs and sanctions on Chinese companies.

Since taking office at the end of January, the American president Joe biden has kept a firm stance on China. His administration called the country “More assertive competitor“and Thursday added more Chinese tech companies to a US blacklist, citing national security concerns.

“(The delisting) is going to happen. Congress enacted a law last year, and we see no likely scenario in which it repeals that law,” Seiberg said, noting that Beijing is unlikely to allow the laws. United States to inspect audits. “This will likely force these Chinese companies to trade in Hong Kong.”

In December, Trump signed a law stipulating that foreign companies cannot be listed on a US stock exchange if they fail to comply for three consecutive years with US Public Accounting Oversight Board audits.

The council website lists around 300 cases of refused inspections, with an overwhelming majority of Chinese companies listed in the United States such as Ali Baba and Baidu. In the past 15 years, some Chinese companies have been able to raise billions of US dollars through stock quotes before their financial fraud was revealed, causing huge losses to investors.

Despite growing political tensions, 30 China-based companies went public in the US last year – raised the most capital since Alibaba’s giant IPO in 2014 – and many more have done IPOs since. Optimists said the three-year compliance period will give businesses and politicians time to act.

No more investment restrictions

Cowen’s Seiberg expects the Biden administration to block US investments in Chinese banks and expand a blacklist of US investments to include more Chinese companies, especially those with suspected ties to the Chinese military .

Chinese companies are likely to face more challenges in acquiring U.S. financial firms, including fintech start-ups, given the continued limits on Chinese acquisition of U.S. consumer data, Seiberg said.

Some extreme, but highly unlikely, measures the Biden administration could take include banning Hong Kong from offsetting US dollars, he said. But he doesn’t expect the United States to go so far as to write off China’s holdings in US Treasuries.

“It would destroy global demand for US Treasuries, as foreigners fear they will become the next target,” Seiberg said. China is the world’s second largest holder of treasury bills.

The Biden administration should also watch out for retaliation from Beijing.

China could stop complying with previous commitments and revoke changes that allow foreign companies to acquire the majority of their operations in China, including finance, Seiberg said.

– CNBC’s Michael Bloom contributed to this report.


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