NetEase has partly attributed its decision to the need for more financing, which it wants to use to expand its business. But she also made clear that she believed the United States had become more hostile to Chinese companies, as regulators and legislators were looking into new rules that would lead to more stringent scrutiny. Some restrictions can make it more difficult for companies to go public or trade in New York.
The issuance of such rules “can cause investor uncertainty for affected exporters, including us, our market price.” [US shares] May be affected negatively, and our listing may be canceled if we cannot “meet the requirements”, NetEase wrote in registrations to the Hong Kong Stock Exchange.
Netease’s admission is a sign of how deteriorating the relationship between the United States and China is – and how much it is at stake for Chinese companies that are not implementing a viable backup plan.
Other companies are considering Hong Kong as well
“Technology giants in China see Hong Kong as a middle ground,” said Brooke Silvers, chief investment officer of Hong Kong-based Adamas Asset Management.
He added that the city is “under Chinese control, but still has access to the US dollar.” Unlike mainland China, where there are severe restrictions on capital entering and leaving the country, Hong Kong allows capital to flow more openly. The city’s currency is freely convertible.
NetEase will not be the last company to look into Hong Kong either. About 37 Chinese companies fulfill the requirements to do so, according to the data provider Refinitive, based on their market value, amount of revenue and ability to comply with regulations.
Baidu and Trip.com declined to comment. But Baidu’s founder and chief Robin Lee recently suggested that his business could go to Hong Kong if necessary.
But Beijing has eased some of those restrictions in recent years as part of a drive to push Chinese companies home. The country is trying to improve its position as a superpower in technology, and the more valuable some of the companies approach, the more influence the government will have on them.
“The political calculations that prompted Chinese technology companies listed in the United States to seek secondary listing were originally Beijing’s desire to put these companies under their bureaucratic control,” said Silvers. “But it developed in light of the trade war and the subsequent disengagement.”
But analysts at Goldman Sachs will only force those companies to cancel the list if it cannot be audited for three consecutive years.
Even the prospect of more stringent regulatory scrutiny, though, “is likely to accelerate the trend of its dual listing on the market. [Hong Kong] The Market, “Goldman analysts wrote in a recent report.
The pressure also comes from the Trump administration. On Thursday, Secretary of State Mike Pompeo praised “NASDAQ” for proposing new compliance rules that could affect Chinese companies, adding that other exchanges should consider similar regulations.
Pros and cons of Hong Kong
“we think that [Hang Seng] “It will undergo a similar change over the next few years, and it will become an indicator that mainly reflects the growth of new economic companies in China,” they wrote.
After all, Ali Baba was a great success story for the city. Shares of the Hong Kong-listed company have jumped 19% since it began trading last November.
“Other companies are following suit,” said Hong Hao, general manager and head of research for the International Telecommunication Bank in Hong Kong. “It is recommended that you have a plan B.”
However, Trump’s announcement did not include any specific sanctions related to the financial sector in Hong Kong. It appears that the Hong Kong dollar’s peg to the dollar is now safe: the city authorities reassured investors this week that they have sufficient reserves to maintain the peg, keeping the city’s currency trading within a narrow and stable range.