Wall Street ignores China meddling at own peril

The Didi logo can be seen in an illustration from July 1, 2021. REUTERS / Florence Lo / Illustration

WASHINGTON, Jul 6 (Reuters Breakingviews) – Washington and Beijing take turns hitting China’s US-listed companies. Didi Global (DIDI.N) shares fell more than 20% on Tuesday after app stores in the People’s Republic had to delete them following action by a Chinese regulator. Frothed markets can make investors too optimistic. But it is dangerous to ignore both governments as they signal more curbs.

Investors are licking Chinese tech companies that are going public on US stock exchanges. Last week, Didi’s shares were up 20% against the market price. According to Refinitiv, companies in the People’s Republican listing in the United States will already rake in more than the $ 12 billion raised in 2020, which, according to Refinitiv, was almost three times the amount in 2019.

Now China is flexing its muscles. Just days after Didi went public last week, the Cyberspace Administration of China said it was investigating the ride-hailing giant’s handling of user data. Then, on Tuesday, Beijing said it would impose further restrictions on overseas listed companies.

Others are trapped in the net too. The Full Truck Alliance (YMM.N) and the online recruiting company Kanzhun (BZ.O), both of which went public in the US in June, are also facing cybersecurity investigations. The impact extended to other Chinese tech companies, including e-commerce company Alibaba (9988.HK) and search engine Baidu (9888.HK), whose shares also fell Tuesday.

Washington is unlikely to be outdone. Earlier this year, the US government awarded dozens of Chinese companies ties to the People’s Republic military, which led to the removal of China Mobile and other companies. In March, the US Securities and Exchange Commission passed rules that would kick Chinese companies off US stock exchanges if they fail to meet auditing standards for three consecutive years.

Both are initiatives that began under the administration of former US President Donald Trump, and other raids are in the works. Congress is considering plans to punish Chinese companies for violating human rights.

The danger for investors is that the two countries will begin to play off each other. The US authorities are learning from China and taking action against US companies that have both American and Chinese data, such as Airbnb (ABNB.O). Ditto China, which in return could organize a strike by large US companies. Global companies with data have no limits on what investors like. When China and the US authorities draw clear lines, the best thing to do is to pay attention.

Follow @GinaChon on Twitter

CONTEXT NEWS

– Didi Global’s shares fell up to 25% in trading prior to the market opening on July 6, a few days after going public on the New York Stock Exchange.

– On July 4th, the Cyberspace Administration of China App Stores ordered the ride-hailing giant’s app to be removed as part of an investigation into Didi’s handling of customer data. The $ 75 billion company raised $ 4.4 billion when it went public.

– For previous columns by the author, Reuters customers can click

Editing by Lauren Silva Laughlin and Karen Kwok

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