X

China Fundraising On US Stock Markets This Year Hits $9 Billion, Tripling 2019 Level

October 09, 2020

By CPA Staff

Despite rumors of getting tougher on China listings on the US stock exchanges, more are on the way. One of China's largest financial service platforms, Lufax, is expected to list later this month.

We keep reading that everybody is more aware of the China threat, including politicians, businesspeople, and the American public.

Wall Street didn’t get the memo.

According to the South China Morning Post, citing Dealogic data, so far this year, Chinese companies have raised $8.96 billion on US stock exchanges, more than triple the $2.6 billion raised in the first nine months of 2019.

The number of Chinese-listed companies on US exchanges is up 26 percent to 217, comparing 2020 to 2019. The market value of those Chinese companies has reached $2.2 trillion. Everybody thought it was a big deal when Apple briefly reached a market value of $2 trillion. But right now the market value of Chinese companies on US stock exchanges is greater than that.

Earlier this week, the US China Commission, a bipartisan body of the US Congress, helpfully published a list of all 217 companies listed on US stock exchanges. Many of them are state-owned. All of them are subject, per Chinese law, to “pressure and control” by the Chinese Communist Party, in the words of the US China Commission.

Some of those companies, like China Mobile, funnel R&D funds to Huawei so it can develop its spying network technology. Others, like Aluminum Corporation of China, build aluminum mills, so they can drive the US aluminum industry into bankruptcy. Canadian Solar, sounds like a western company, but is actually a Chinese-owned company that builds government-subsidized solar panels, to drive the US solar industry into the ground.

Countless others build car parts, to weaken the US auto industry, that ultimately jeopardizes our supply chain. There's also big online retailers who use the the money it raises to build its brand and sell cheap, low-quality, often counterfeit Chinese goods to bargain-hunting Americans. But most concerning, is the large portion of these companies who are assisting the People’s Liberation Army (PLA), China’s military with a variety of technologies to support their rapid militarization.

And then there is the risk of fraud. Luckin Coffee recently got suspended from the NASDAQ. Turns out it wasn’t the “Starbucks of China.” Instead, managers were fabricating revenue and profits. Luckin raised $561 million on US exchanges. It’s now delisted. What US investors will end up getting for their from their $561 million may buy them a cup of coffee—if they’re lucky.

Defenders of this Wall Street gravy train, like Benn Steil at the Council of Foreign Relations, says the Chinese companies could raise the money elsewhere if we block them from the US markets. CPA says that’s not the point.

“Chinese companies have been told to raise money in America because China’s complex network of banks, shadow banks, and corporations including many unprofitable zombie corporations, is likely to collapse one day, and the CCP government is very worried about that danger,” said CPA Chief Economist Jeff Ferry. “Raising money from US investors is one way to ease their plight. We should cut them off from US capital and hasten the day when the debt balloon explodes in their face.”

Yet, the Wall Street shuffle continues.

Of the 10 most recent initial public offerings here in the US, four of them were from foreign companies. One was from the UAE. The other three were China companies: Lixiang Education, Chindata Group and Boqii Holding. The three raised over $640 million in their IPO. 

But that’s nothing compared to what October 14th has in store for Chinese household goods retailer, Miniso. All alone, their IPO next week should bring in nearly $611.8 million. 

EV auto maker XPeng raised $1.5 billion in its IPO this year.

But, that might get toppled later this year when Lufax, backed by financial giant Ping An Insurance Group, aims to raise about $3 billion in its initial public offering, Reuters reported yesterday.

China hawks in Washington like Senator Marco Rubio, and others, keep talking about how we should not be funding Chinese companies – either by allowing them access to American investors, or by making sure China companies are not part of the index benchmarked to military retirement funds managed by the Thrift Savings Plan. Wall Street firms like Goldman Sachs, which now has offices in mainland China, are backing Chinese companies who want to list here. Meanwhile the Securities & Exchange Commission is still trying to figure out what to do about those Chinese companies, like state owned Petrochina, who are not Sarbanes-Oxley Act compliant. China says they can't share auditing information from mainland auditors, citing state secrets.

The Public Company Accounting Oversight Board, which reviews the audits of publicly traded companies listed on US exchanges by congressional order, is still – after many years of trying -- unable to inspect the working papers of mainland auditors, and of mainland China companies listed in Hong Kong.

Seven years ago now, the PCAOB signed a Memorandum of Understanding on audit oversight with the China Securities Regulatory Commission and their Ministry of Finance. Since 2013, Beijing has blocked Chinese-based auditing firms from complying. There's been no ramifications for their actions.

commentary

Showing 2 reactions

Please check your e-mail for a link to activate your account.
  • John R Hansen
    An excellent – and scary – article that highlights exceptionally well another important reason that the MAC must be implemented as quickly as possible.
    When China sells shares on the US stock exchange, this pushes up the value of the dollar — exactly what the MAC is designed to prevent. However, when talking about the MAC, we commonly think of the Chinese, for example, using yuan to buy dollars, then using the dollars to buy US treasuries. Or we think, for example, of the Japanese buying dollars with yen, thus increasing the demand for dollars and consequently the dollar’s exchange rate against the yen.
    However, when China raises money on the US stock exchanges, it is buying dollars with Chinese shares, not with yuan. This is not a money-for-money exchange.
    But whether China buys dollars or dollar-denominated shares with yuan or with Chinese shares makes no difference. The result is exactly the same.
    Foreigners are buying dollars and dollar-based assets with foreign assets, and this drives up the dollar’s exchange rate.
    Conclusion: When the MAC is introduced in the House, and when Congress negotiates the Competitive Dollar for Jobs and Prosperity Act in its final form, we should make certain that the MAC will apply to all foreign purchases of dollars and dollar-based assets, regardless of whether the foreign assets used to pay for the US assets are in money (MZM) or in some form of financial security such as shares of Chinese companies.
    Other policy measures could and should be implemented at the same time to control the problem highlighted in this excellent CPA note, but one of the most powerful measures would be the MAC because its legislation is already under consideration and is designed to discourage the foreign purchase of US financial assets.
  • Kenneth Rapoza