A contingent of Wall Street’s most powerful and speculative investment houses, including BlackRock (personally led by CEO Larry Fink), and Goldman Sachs, held Sept. 17 a three-hour meeting in China with the Securities Regulatory Commission and the People’s Bank of China, the central bank. These investment bankers are unnerved by China’s open, increasingly tough crackdown on speculative activities throughout China, which the U.S. and British bankers view as a lucrative source of income.
The American investment banks that rushed to China to attend this meeting also included Fidelity Investments; Citadel; the private equity firm Blackstone; and others. They met with Fang Xinghai, Vice Chairman of Securities Regulatory Commission, and Governor Yi Gang of the People’s Bank of China. A Sept. 18 Bloomberg story entitled, “China Defends Tech Crackdown in Meeting with Wall Street Chiefs,” reports, “Global investors have been unnerved by the regulatory onslaught from Beijing targeting its biggest technology companies and other industries as well as a push by President Xi Jinping to create ‘common prosperity.’” Further, “Chinese policy makers are also considering tougher scrutiny over a legally gray corporate structure that is commonly used by Chinese tech companies to seek offshore listings, with some policy adjustment already underway.” Bloomberg notes, “Billions of dollars in potential profits are at stake for Wall Street.”
The media did not mention whether the investment bankers raised the case of the financially troubled Evergrande property developer based in Shenzhen; although they likely did. Evergrande has $300 billion in debt. British, American, Swiss, and other banks could lose billions of dollars on Evergrande. But Evergrande is framed by the Chinese policy over the last 18 months of shutting down up to trillions of dollars of speculative investments, shutting down offshore sinkholes, closing down “gray areas,” and distancing themselves from British-American financial shackles and the emerging blowout of their financial institutions. China’s success in this policy over the past 18 months may have brought the Evergrande instability to a head.
We consider a timeline showing a few pivotal steps in this process.
• For nearly three years, anti-China forces threatened to delist Chinese companies from the New York and other U.S. stock exchanges. In the United States, one cannot buy a Chinese stock, or most foreign countries’ stock, directly. Instead, one buys an American Depositary Receipt (ADR), which is a negotiable certificate issued by a U.S. bank representing one or a number of shares of a foreign company’s stock. Chinese companies have associated ADRs with a market valuation of $2.1 trillion on U.S. stock exchanges. During the last two years of the Trump administration, as the anti-China diatribes ramped up, various Senators introduced legislation threatening that unless China agreed to be audited by U.S. accounting firms—Chinese companies are audited by Chinese accounting firms—and by U.S. regulators, Chinese stocks would be delisted from New York stock exchanges. This culminated in a violently anti-China piece of legislation, the Holding Foreign Companies Accountable Act, which requires that foreign companies publicly listed on stock exchanges in the United States declare they are not owned or controlled by any foreign governments. This passed the Congress by a wide margin, and President Trump signed it into law on Dec.18, 2020. This was accompanied by much rhetoric against the Communist Party of China, which said that the CPC controlled most Chinese companies. The companies would have to open their books to accounting firms (and intelligence agencies) to prove they were not owned by the CPC.
The Chinese government apparently decided that it would try to comply, as best it could, with the legislation, but thence forward, that it would no longer depend on the U.S. as a principal source of funds.
• In November 2020, Chinese regulators stepped in to suspend the $37 billion Initial Public Offering (IPO) of Ant Group, which is owned by high-flying Jack Ma (Ma also owns Alibaba, the internet retails sales company). The Ant Group, between June of 2019 and June of 2020, transacted $17 trillion in credit card debt, outstripping Mastercard and Visa. Apparently, the Chinese government viewed the Ant Group’s and Jack Ma’s growing power and financial transactions as overstepping acceptable bounds. The Shanghai Stock Exchange said that Mr. Ma had been called in for “supervisory interviews,” and that there had been “other major issues,” including changes in “the financial technology regulatory environment,” that needed to be examined. Mr. Ma’s IPO, which would have been the world’s largest, was postponed. It never went through.
• On June 30, 2021, DiDi Global, a successful ride-hailing service (like Uber) issued an IPO for $4.4 billion in New York City. It appears from Chinese and other press accounts, that DiDi, following other flashy Chinese firms, only cursorily consulted Chinese regulatory agencies, high-stepping it to the United States, to get its pot of gold. Two days after the IPO, a Chinese cybersecurity regulator ordered the removal of DiDi’s app from China’s smartphone app stores. It is a little difficult to carry on a ride-sharing company without an app.
The July 4, 2021 Forbes magazine, reported on the DiDi story: “Didi’s not alone in facing the wrath of Chinese regulators, who’ve been cracking down on the nation’s big-tech leaders—Tencent, Alibaba, JD.com—with new actions aimed at curbing risk and unfair labor practices.”
• In a May 31, 2021 article, “As China Cracks Down on Online Education, It Wrecks IPO Prospects,” Bloomberg reports on the crackdown of private education and tutoring firms. In March, President XI Jinping suggested the surge in “after-school tutoring was putting immense pressure on China’s kids, signaling a personal interest in curbing excesses.” Some companies, which were only in existence six months to 2 years, were already trying to issue IPOs, frequently managed by Wall Street investment banks, pitching themselves explicitly to Chinese families: “You don’t want to ruin your child’s chance to pass exams.” Bloomberg stated, China’s regulation is “forcing once high-flying start-ups to moth-ball” IPOs.
• On Aug. 23, Reuters heralded, “China Halts Over 40 IPOs as It Investigates Law Firm and Broker,” revealing that the Shenzhen Stock Exchange had suspended more than 30 IPOs, and the Shanghai Stock Exchange, 8. Each of the exchanges is investigating “shady firms.” On Aug. 23, China’s State Council announced that it would tighten scrutiny over accounting firms in a fight against financial forgery, vowing “zero tolerance” toward misconduct.
In order to have full sovereignty, over the past 18 months China has greatly lessened its dependence on highly speculative British, U.S. and other financial markets, and has begun to crush in the cradle hundreds of financial and service company IPOs, which contribute nothing to the physical economy or to scientific and technological innovation. On March 11, Chinese Premier Li Keqiang unveiled China’s new Five Year Plan, which focuses on scientific self-reliance and innovation as the economy’s driver, with 7-10% of China’s state investment to go to innovation investment. It was around that in March, perhaps not accidentally, that the crackdown on speculation and IPOs greatly intensified.
