Daily Management Review

Rising US-China Tensions Prompt Chinese Firms To Cancel Plans For US Listing


Rising US-China Tensions Prompt Chinese Firms To Cancel Plans For US Listing
As tensions rise between the United States and China, the route of raising money by getting listed in the US stock exchanges is being planned to be put off by companies of China. This was reported by the news agency Reuters quoting information from lawyers, bankers, accountants and regulators involved in the process of listing of Chinese companies.
According to the report this fall in the interest to get listed in the US by Chinese companies – particularly by those who are still in the early stages of planning a listing, is a fall out of the new proposed US legislation that seeks to increase barriers for Chinese companies to get listed in the country as well as increased scrutiny after the revelation of an accounting scandal at Chinese Starbucks rival Luckin Coffee.
“We have seen clients putting their U.S. IPO plans on hold for now,” said Stephen Chan, a partner at law firm Dechert LLP in Hong Kong. “The underlying reason for the slowdown is the relationship between the U.S. and China,” he added. “If tensions between the two nations remain, we would expect the slowdown to continue,” Chan said.
According to data from Dealogic, so far this year, a total of $1.67 billion via initial public offerings in New York has been raised by Chinese companies and the companies also plan to raise another half a billion dollars from the US stock market.
Chinese companies had raised $3.5 billion from the US market in 2019.
In recent months, there has been a rekindling of tensions between the two largest economies of the world, in addition to the already existing trade tensions which were partly subsided after the signing of the partial trade agreement in January, over the issue of Covid-19 pandemic and the proposed imposition of national security law for Hong Kong by China. 
The Reuters report quoted a senior auditor from one of the big four accounting firms in China of the US saying that there has been a 50 per cent drop in enquiries about US listings so far this year compared to the 2019 levels.
The report quoted sources saying that stock exchanges nearer to China are being targeted by many Chinese companies that had reported starting plans for US listings to China’s securities regulator which is the early stage in the process.
The reports carried no comments from either the China Securities Regulatory Commission as well as the US Securities and Exchange Commission declined to comment.
The entire process for a Chinese company to get listed in the US takes at the minimum several months to arrange and includes a number of processes such as appointing advisers, preparing a prospectus and obtaining regulatory approvals. The more stages that a company completes, the lower is the chances of such companies opting out of the process of US listing.