Despite China's dreadful record on its treatment of minorities, Chinese officials are rubbing their hands with glee over the demonstrations sweeping the United States.
Faced with a critical U.S. State Department tweet that "freedom loving people" should hold China to account for broken promises over Hong Kong, a Chinese foreign ministry spokesperson tweeted back "I can't breathe."
The state-run Global Times is running a cartoon of "bunker boy" U.S. President Donald Trump preaching to Make America Great Again from his hole under the White House.
China likes to play up social problems in the United States, and stress that its own command governance is better. But it has been very keen to avail itself of access to U.S. corporate culture, particularly its capital markets.
Now China seems soon to be hit with concerted efforts to curtail its access to those free markets of capitalism. Already facing U.S. and British censure over its treatment of Hong Kong, China is increasingly authoritarian. Western politicians are growing weary of supporting its corporate expansion by allowing Chinese companies, which all ultimately answer to the state, to raise funds overseas.
The European Union is seeking new powers to review and block takeovers of European companies by overseas rivals that receive backing from a foreign government, the Financial Times reports on Wednesday. That's undoubtedly an effort stoked by China's increased influence. The Beijing government directly governs state-owned enterprises, but it has also written the Communist party into the charter of some private companies, as a superior and final power above shareholders.
The E.U. proposals, still in draft form, would provide for greater scrutiny of the activities of foreign state-owned and state-supported companies that are operating in Europe, or seeking to enter the single market.
U.S. legislators are also keen to review the ability of Chinese companies to raise money in the U.S. stock and bond markets. The skepticism that U.S. shareholder dollars are finding their way into Communist coffers has only gathered pace due to a series of accounting scandals.
Most recently, the would-be Starbucks (SBUX) rival Luckin Coffee (LK) imploded after admitting it had cooked its books rather than coffee to inflate sales. Blue-chip U.S. investment banks Goldman Sachs (GS) and Morgan Stanley (MS) helped Luckin Coffee prepare its initial public offering.
Nasdaq has started proceedings to delist Luckin. The company's shares fell another 35.8% when they resumed trading on May 20 after an enforced halt.
Nasdaq also on Tuesday filed rule changes with the U.S. Securities and Exchange Commission that intend to give it greater oversight of stock offerings from countries with questionable auditing practices.
It wants the ability to deny listing or apply more-stringent criteria to companies from a "restrictive market," where domestic rules hamper international efforts to review audited results. Nasdaq cites China, the mainland companies audited in Hong Kong as well as Belgium and France as jurisdictions where there's insufficient access for the Public Company Accounting Oversight Board (PCAOB) to inspect audits and the practices of accounting companies.
The new requirements could include requiring higher levels of equity, assets, earnings or liquidity from a company; requiring stock offerings to be on a "firm commitment" basis that requires the broker-dealer to do more due diligence on the company; and a lockup for stock sales by insiders.
The SEC has long pushed for the PCAOB, its accounting-oversight arm, to be able to inspect the audits of U.S.-listed companies. So far, it has had no success. The SEC is likely to revisit this topic this summer.
Chinese companies have long used Hong Kong as their first port of call to tap international investors. That position is now in doubt, particularly if the United States levies sanctions on Chinese and Hong Kong officials, and restricts the ability of U.S. companies to trade with Hong Kong banks.
Tencent Holdings (TCEHY), China's second-largest company by market value, raised $6 billion in a U.S. dollar bond sale in Hong Kong last week, the largest Asian debt deal so far in 2020. It did so right as U.S. Secretary of State Mike Pompeo announced he could no longer declare Hong Kong sufficiently autonomous of China. One banker working on the deal told Reuters he worried the offering by the operator of the WeChat app would be hampered, though it went ahead.
Smaller Chinese companies have sometimes listed in the United States as a way for their founders to cash out, exporting their money out of the rigid and restricted Chinese financial system. It is often said that Chinese companies have one set of books for public consumption, and another that show the true picture of what's going on. Chinese companies can also use a U.S. listing to raise loans with Chinese banks, or even get subsidies from local governments for going public.
In Europe, the official who oversees competition, Margrethe Vestager, has called on member states to buy stakes in companies under threat of foreign takeover. But concerns over state-subsidized companies from countries such as China predate Covid-19.
The European Commission is due to publish its policy proposal on June 17 to restrict such purchases. At the moment, its rules on state aid directly target only cash support from European nations.
China is in a curious position over the U.S. protests. It is essentially committing cultural genocide in Xinjiang Province, and officials targeted the small black population in Guangzhou for persecution over allegations that African merchants were spreading coronavirus. China is also even more ruthless in its suppression of protests. Still, U.S. weakness and "double standards" are too good an opportunity to pass up, so the Chinese media is giving full coverage to scenes of discord and violence on U.S. streets.
Its interference in Hong Kong risks damaging the city's position as East Asia's financial hub. On the other hand, restrictions on Chinese companies listing in the United States could drive more of them to Hong Kong, where U.S. listed-companies such as Alibaba (BABA) have already sought secondary listings.
American companies in Hong Kong are pessimistic about prospects in the city. Among their ranks, 60% expect their own business operations to suffer as a result of Beijing's bid to introduce a treason law in Hong Kong, according to a survey released Wednesday by the American Chamber of Commerce in Hong Kong.
Of the 180 members who responded, 37.8% say they are personally considering leaving Hong Kong in light of the national-security law. The response is less swift at a corporate level, but 29.4% of companies are considering a move to other locations, either of business operations, capital or assets.
Only 15% of American executives feel optimistic about Hong Kong's long-term outlook. Almost half (48.3%) say they are pessimistic about the mid-term to long-term future of the city.
