Tensions between America and China have escalated in recent months. This has been due, in part, to a Chinese preference for its companies to list closer to home coupled with reports that it is intending to ban companies from listing on foreign exchanges.

The Biden administration has exacerbated this situation by placing a dozen Chinese companies on a trade blacklist. And the US Securities and Exchange Commission has signalled its intention to force Chinese companies to delist if they fail to comply with government audits.

This pressure between the two global superpowers has culminated in ride hailing company Didi delisting from the New York Stock Exchange only months after it first joined. This marks a disconcerting acceleration in China’s decoupling from American capital markets.

In June Didi launched its $4.4 billion initial public offering on the US market, the largest listing by a Chinese company in America since Alibaba in 2014.

The timing of the IPO was unfortunate in two key respects. First, it completed just before the Communist party celebrated its Centennial. This proved to be a point of consternation among Chinese officials, who suggested the group had ignored national security concerns relating to its veritable plethora of mapping and associated data.

Second, it coincided with a concerted attempt by Chinese authorities to mitigate the influence of China’s largest technology companies. This was initiated in November 2020 when President Xi Jinping at the last minute prevented the dual listing of Ant Group on the Shanghai and Hong Kong exchanges.

The share price reaction to Didi’s delisting announcement is indicative of the level of concern felt by US investors. The group’s share price has more than halved since the June IPO price of $14 to its current level of $6.50.

This forced delisting has the potential to weigh on the share prices of more than 240 Chinese groups with a total value of over $2 trillion listed in the US. These include some of China’s most significant corporations such as JD.Com, Alibaba and China Life Insurance.

Chinese authorities seemingly want to ban public companies going public on foreign stock exchanges via the use of ‘variable interest entities’ or VIEs. These are legal structures often based in tax havens that have facilitated the US listings of Chinese companies such as JD.com and Alibaba.

Hong Kong Stock Exchange may prove to be a natural beneficiary of this process as more Chinese companies may now select it as their preferred listing location. Didi has already confirmed plans to list on this exchange and Western fund managers are likely to switch their holdings in dual listed names such as Alibaba from the US to the Hong Kong shares.

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