The market has not yet begun to reflect the risk of Sino-US decoupling

The author is a research assistant at the China Center of Oxford University and the author of “Red Flag: Why Xi Jinping’s China is in Danger”

The Sino-US decoupling dichotomy runs through the global capital markets and has issued a clear warning to investors.

After China launched a security investigation, the U.S. ride-hailing group Didi’s newly listed shares in the United States fell sharply, illustrating the risks involved.

Beijing now wants to restrict, if not for the final ban, Chinese companies will need to enter the US capital market more and more. submit Comply with normal regulatory and disclosure requirements. If China refuses, Washington will also be hostile to China’s listing. This is just the latest example of what Washington calls financial decoupling or what Beijing calls a process of self-reliance.

However, it seems indifferent to politics, Wall Street companies, non-financial companies, and investors Keep hitting the road To the Red Gate of China, I was welcomed by Beijing.

In the first half of 2021, inward direct investment and securities capital inflows together accounted for nearly 3% of GDP, almost as high as the trade surplus. Many leading U.S. and some EU financial companies have invested funds in their asset management and investment banking joint ventures in China, or have obtained approval from majority equity partnerships.Holding Chinese bonds and stocks increase rapidly.

Why is there a surge? One-off factors include familiar topics such as economic recovery, differences in the yields of Chinese and American bonds, and exchange rate changes.

Investors also believe that China can provide what they want: a growing market and a large number of largely unrelated assets. For foreign banks, China may be a lucrative source of fee income. This year, China has always been a sweet spot.

However, as the experience of Didi emphasizes, investors should remain vigilant. First, they are directly hit by many quasi-financial, technology, and data-intensive platforms that the government has flooded with their funds. The movement stemmed from China’s concerns about financial instability and its determination to curb ambitious private companies and entrepreneurs.

However, when capital is tamed by the party’s supervision, this also means that these innovative companies that have been deprived of growth potential or are regarded as banks for regulatory purposes should not receive similar technology valuations.

Second, investors are in the crosshairs where assets and valuations become the targets of random political initiatives. Many American companies are now restricted or prohibited from doing business with Chinese entities.Investors are Notifying Sale of shares in dozens of Chinese companies related to the repression in Xinjiang and Hong Kong and the People’s Liberation Army.

Repression, human rights violations, and suspected use of forced labor have raised concerns about the “S” part of environmental, social, and governance investment standards, especially among the retail sector and shareholder activists.

Investors are affected by the new legislation, which authorizes the US Securities and Exchange Commission to require disclosure of shareholder information, the board of directors’ liaison with the Chinese Communist Party, and the release of audit records to US-authorized audit and supervision companies.

Failure to do so may be because Chinese regulators prohibit their companies from making such disclosures in accordance with national secrecy regulations, which will result in delisting after the proposed two years, which may result in insufficient liquidity and risk of loss.

China also has the tools to deal with has Pass legislation This year helped its companies remove the impact of US export controls and sanctions that apply outside China, and recently approved the Anti-Foreign Sanctions Act, which provides legal protection for Chinese companies to appeal against sanctions-otherwise they will face penalties .

This gradual accumulation of decoupling rules and regulations between the two parties will attract more companies and investors to an awkward space in which the contradiction between politics and narrow financial interests will become more apparent. There is nothing to say that this confrontation cannot last for a while.

As investors and companies face more conflicts of interest and decisions about whose rules to follow and whose rules are defied, politics is likely to win. Valuations have not even begun to reflect this.

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