03:23 GMT +321 November 2019
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    Will Delisting of Chinese Companies Affect China-US Trade Talks?

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    Earlier, Bloomberg news agency reported, citing sources, that the Donald Trump administration was considering delisting Chinese companies from US stock exchanges. In addition, it was noted that the White House was considering limiting the flow of US portfolio investments into China.

    The US doesn’t plan to exclude the securities of Chinese companies from trading on US stock exchanges at the moment, the US Treasury has stated.

    However, the US Treasury’s statement didn’t really calm the markets. On Monday morning, the Chinese Shanghai Composite fell by 0.4%. Other Asian stock indices also ended up in the red. Japan's Nikkei 225 fell 0.48% and Topix fell 0.98%. Monica Crowley, a spokeswoman for the U.S. Treasury Department, said the administration was not considering blocking Chinese companies in order to prevent listing on US stock exchanges. But the fact is that the question of delisting Chinese companies arises now and then in the American political establishment. Therefore, despite the US Treasury’s denial, market participants don’t consider the Bloomberg report an absolutely unreasonable fake.

    © REUTERS / KEVIN LAMARQUE
    US Secretary of State Mike Pompeo and Treasury Secretary Steve Mnuchin

    Back in late May, the New York Times reported, citing Trump’s former political adviser Steve Bannon, that both the White House and wider political circles were discussing the possibility of reconsidering China’s role in the US stock markets. Moreover, Republican Senator Marco Rubio officially came up with an initiative to ban a number of Chinese companies from placing their shares on American stock exchanges, since they allegedly threaten the interests of American investors, pension funds and so on. Rubio explained that Chinese companies refuse to provide the PCAOB with full audit and reporting data. Thus, Chinese companies are supposedly non-transparent to investors, and may thereby mislead them. In addition, the Republican senator noted that it would be better to reduce the IPO of Chinese companies on American exchanges as much as possible so that US investors, including pension funds, wouldn’t end up financing China.

    Soon, Alibaba announced plans to place its shares in Hong Kong. Thus, the company sought to diversify its financing sources and insure against possible administrative risks. However, the listing on the Hong Kong stock exchange was postponed due to protests in the city. But, nevertheless, Chinese companies have for months been expecting some trick from American regulators. Therefore, the Bloomberg report, even if erroneous as the US Treasury claims, was still not a complete surprise.

    It cannot be ruled out that Bloomberg was simply in a hurry to publish the information. Perhaps in the US, indeed, they discussed certain options for financial pressure on China in case the upcoming October talks fail. Since tariff pressure on China has proved to be ineffective, Washington is now forced to look for new levers, Cui Lei, a researcher at the US Studies Department at the China Center for International Studies of International Problems, said.

    "I think this suggests that the US tariff policy regarding China hasn’t shown any particular results. China hasn’t made any comprehensive concessions to the United States, so they are looking for new ways to put pressure on Beijing. In addition to customs tariffs, they can, for example, increase pressure on investment. And the current situation suggests that the US doesn’t have high hopes for progress in the upcoming talks. Twelve rounds of negotiations have already passed, and the United States has realised that it’s not easy to win concessions from China. Therefore, there are no high hopes regarding the 13th round of talks, scheduled for October. But at the same time, the US still adheres to stringent conditions for concluding an agreement," Cui said.

    According to the expert, such an option is quite possible: it’s just not profitable for the United States to conclude a trade agreement with China right now. There are domestic political motives for this. Therefore, having made a throw-in, for example, through Bloomberg, one can probe the ground for assessing the possible actions on the part of China.

    "Speaking of US internal political factors, elections will take place at the end of next year. So if a trade agreement is signed now, it will be too early for Trump. In the end, there is still a lot of time before the election. There are also many uncertainties, like the Democrats’ attempts to impeach Trump. In any case, the voters will be focused on internal problems; and in this context, Trump’s external achievements, including the trade war with China, may go unnoticed. Therefore, it would be more profitable for Trump to conclude a deal with China right before the election," he stated.

    If this is so, it really turns out that it’s China that seeks to conclude an agreement with the United States, while the Americans combine their foreign and domestic interests in this game. But the problem is that if the United States really does delist Chinese companies, the trade war between the two states will turn into a financial one. Then, according to Cui Lei, we won’t see any early US-China agreement. Indeed, Chinese companies, including leading technology giants like Alibaba, are enjoying favourable conditions in the US stock markets to attract financing. However, their presence is beneficial for American investors as well, because Chinese capitalization companies are among the world leaders in terms of growth rates. Therefore, delisting Chinese companies, in essence, would be a financial “nuclear” blow that will hit both sides.

    So far, there are still favourable expectations from the upcoming negotiations in October, given that the parties have made mutual concessions in the form of deferred new tariffs and purchases of agricultural products. Chinese Foreign Ministry spokesman Geng Shuang said on Monday that China had paid attention to both reports regarding delisting of Chinese companies and the US Treasury statement. Geng Shuang emphasised that China was counting on reciprocal steps as well as constructive behaviour on the part of the United States to find joint solutions to existing contradictions.

    The views and opinions expressed in the article do not necessarily reflect those of Sputnik.

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