The incoming Biden administration will probably be a great deal more friendly to Beijing than the Trump administration was.
Although now-President-elect Joe Biden was pushed to be more hawkish toward China during the campaign due to the general popularity of President Donald Trump’s hard-line stance on the communist regime, actually confronting Beijing is a different matter.
In at least one key matter, however, the new president won’t have to take any action.
The move was made after Treasury Secretary Steve Mnuchin said he personally disagreed with the NYSE decision to put the three companies back on the exchange.
China Mobile Ltd., China Telecom Corp Ltd. and China Unicom Hong Kong Ltd. were all set to be delisted on Jan. 11 pursuant to a November executive order from President Trump that barred companies associated with the Chinese military from being publicly traded.
However, after announcing the plans to delist the companies on New Year’s Eve, the NYSE reversed course on Monday after a consultation with the Department of the Treasury’s Office of Foreign Assets Control.
Mnuchin disagreed with the decision and let the NYSE know it.
According to Reuters’ Wednesday report, “sources, who asked to remain anonymous due to the sensitivity of the matter, said Mnuchin had called NYSE President Stacey Cunningham on Tuesday to express his concerns over the decision to relist the companies, as the exchange sought further confirmation on the matter.”
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On Wednesday, the NYSE again said the companies would be delisted.
“The Treasury secretary was on the phone with the NYSE (president) now and was told that NYSE would reverse their decision,” an official said Tuesday.
This isn’t just a symbolic move.
A separate Reuters report noted that the delisting caused a cascading effect, with global index providers MSCI Inc, FTSE Russell and S&P Dow Jones Indices saying they would cut the companies.
That, in turn, cut $5.6 billion from the companies’ value Friday on the Hong Kong exchange, where the shares are more widely traded, Reuters reported.
That’s because all three indexes are used by financial instruments known as index-tracking funds. Essentially, what they do is broadly match the market so that investors have minimal exposure to the vicissitudes of individual stocks or broader sectors.
“If you’re a passive index provider, of course, you need to get out of the way,” Kay Van Petersen, global macro strategist at Saxo Capital Markets in Singapore, told Reuters.
“And obviously if you’re active and you know the index providers are going to have to get out of the way, you’re not going to just be sitting around while something is getting sold off.”
In three straight media briefings on Tuesday, Wednesday and Thursday, Chinese foreign ministry spokeswoman Hua Chunying insisted there would be limited exposure to the telecom companies and insisted the United States would be the loser.
Here was Hua on Tuesday, after the NYSE had apparently decided against the delisting: “Lately some political forces in the United States have been wantonly suppressing foreign companies listed in the country, exposing an arbitrary and capricious uncertainty in its rules and mechanisms,” she said.
“The suppression against Chinese companies will have very limited direct impact on them, but will harm the national interests and image of the United States and the global standing of the American capital market. We hope the United States will respect rule of law and market principles and do things conducive to upholding order in the global financial market, protecting investors’ lawful rights and interests, and promoting the steady development of the global economy.”
She made a similar statement on Wednesday. On Thursday, after the re-delisting, Hua was much more terse, saying she had “talked about China’s position on this many times” and that “China’s stance on this issue is very clear. The United States will only end up hurting its own interests, credibility and image.”
Usually, a good sign that isn’t the case is when functionaries like Hua are trotting out language like this. Another good sign this will have more than a cursory effect is when Beijing propaganda mouthpiece China Daily is freaking out. In a Tuesday piece, headlined “Telecom firms see limited impact from NYSE delisting,” some poor writer had to spend 540 words convincing readers that really, everything’s just fine.
China Daily reported the order “disregarded related companies’ actual conditions and global investors’ legitimate rights and interests and severely disrupted market order, a spokesperson for the China Securities Regulatory Commission said on Sunday.”
The paper also quoted a Chinese academic who said the “US government is politicizing its capital markets in the hope of containing the rise of Chinese technology companies.”
The delisting poses a thorny issue to Biden, whose tough talk on China is a recent development. One of his top advisers was one of the Clinton White House’s liaisons to Congress when the Clinton administration wanted to grant China permanent normal relations status and China has praised Biden’s election, calling it a “new window of hope.”
For all of the “limited impact” Chinese analysts claim they’re seeing from this, one of the first things Beijing will likely request from the incoming Biden administration is that the listings get restored — even though the intermingling of Chinese tech firms and the country’s military has long been an issue.
The optics of tossing this aside would be brutal on the new administration. That, hopefully, will make it a lot harder for Biden to go easy on Beijing.
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