Didi, the Chinese equivalent of Uber, has announced that it will completely move its shares from the New York Stock Exchange to Hong Kong. Didi had listed in New York in June this year. But within days, Chinese regulators restricted online stores from listing Didi’s App, claiming that Didi was illegally collecting users’ personal data. Didi is being investigated by the Cyberspace Administration of China for protecting the public interest and national security.
Chinese technology companies have been caught in the dispute between the United States and China. The “trade war” began with President Trump accusing China of unfair commercial practices and theft of intellectual property. This trade war has turned into a cold war in which both countries impose sanctions, restrictions, high import tariffs and regulatory policies on each other.
Recently, the US Securities and Exchange Commission (SEC) has finalized rules authorizing regulators to delist Chinese companies if their auditors refuse to share information they request in accordance with the rules for 3 years. U.S. regulators have repeatedly been denied access to Chinese companies’ accounts for inspection by Chinese regulators. These rules force Chinese companies to list in Hong Kong. Their stocks have suffered losses in both US and Hong Kong markets.
At its core, “the final rule will allow investors to easily identify registrants whose audit firms are located in a foreign jurisdiction that the Public Company Accounting Oversight Board (PCAOB) cannot fully inspect. In addition, foreign issuers will be required to disclose the level of foreign government ownership in these entities, “said a SEC official.
Prior to this, Beijing had announced stricter controls on foreign IPOs of Chinese companies. China already has restrictions on foreign listings. Chinese companies, including Didi, avoid these restrictions by operating from an offshore company.
Investors in Chinese companies listed on US stock exchanges face one of the following outcomes if the Chinese company is delisted / delisted: Chinese company decides to go private and repurchases shares from the investors. Shareholders determine the price; Share Transfer – Investors could exchange their US Depositary Receipts (ADR) for the foreign shares of Chinese companies. This requires the company to be listed on more than one stock exchange; Shares in foreign companies listed on US stock exchanges are grouped in ADR by US banks. They are traded as stocks in dollars. In this way, foreign companies gain access to US capital.
The Chinese company delists but does not buy back shares nor does it list elsewhere, the shares will be in limbo. Investors still own stocks but cannot trade them. They can continue to hold them and wait for a listing or sell them over the counter, even though it will be at a much lesser value.
Chinese companies also fear restrictions in Europe. China has been accused of restricting investment by foreign companies in the technology sector. Foreign companies have argued that China requires the transfer of advanced technological know-how and intellectual property rights to Chinese companies in joint venture agreements.
On the other hand, Chinese companies are being pressured to use domestic technology, even though superior foreign alternatives are available.
In September, Chinese officials pulled up Tencent and NetEase, two well-known gaming companies, over regulatory issues. Tencent also owns WeChat, China’s largest instant messaging application. It also has a significant investment in Didi.
China has not allowed US-based social media platforms, such as Twitter and Facebook, to launch in China. Therefore, domestic platforms like WeChat and Weibo have flourished.
In addition to games, NetEase also provides music streaming services and has a news app. It is also the provider of China’s largest free email service. NetEase launched its headquarters in the United States in August 2014.