The White House is weighing a plan to stop Chinese companies listing on US exchanges in a move that would take its trade war with China to Wall Street.
President Donald Trump’s advisers are exploring steps to limit financial investments between the US and China, according to people briefed on the plans. Other options include curbing the ability of US government pension funds to buy Chinese equities.
Beijing is preparing to mark the 70th anniversary of the founding of the People’s Republic of China with a national celebration next week and is due to have new trade talks with the US in October.
A widening of the US-China economic conflict into the arena of capital markets has long been pushed by hawks in Washington, particularly Marco Rubio, the Republican senator from Florida, and like-minded officials within the administration. But it has been resisted by other Trump advisers who fear that it could deal a fresh blow to markets and undermine investor confidence.
The idea prompted a pointed response from one of the largest US stock markets, Nasdaq, which said in a statement: “One critical quality of our capital markets is that we provide non-discriminatory and fair access to all eligible companies. The statutory obligation of all US equity exchanges to do so creates a vibrant market that provides diverse investment opportunities for US investors.”
The US equity benchmark, the S&P 500, turned negative after news of the discussions was first reported by Bloomberg, ending Friday down 0.5 per cent. There was also a sharp fall in the shares of New York-listed Chinese companies and a weakening of the renminbi.
Ecommerce giant Alibaba’s shares were down 5 per cent, search engine Baidu dropped almost 4 per cent and the depository receipts of online retailer JD.com were down 6 per cent, respectively.
As of February this year, 156 Chinese companies with a total market capitalisation of $1.2tn were listed on the biggest US stock exchanges, according to the US-China Economic and Security Review Commission, with at least 11 of them being state-owned.
China’s renminbi, traded in offshore foreign exchange markets outside the mainland, weakened by as much as 0.4 per cent, a sizeable move for the currency, but tempered that decline to be 0.2 per cent softer at 7.14 per US dollar.
After a flurry of tariff escalations rattled markets in August, US and Chinese officials have been exploring ways to reduce tensions ahead of next month’s new round of talks.
Any capital markets restrictions by the US would come after China decided this month to scrap caps on foreign purchases of domestic stocks and bonds. Action by the Trump administration could stymie the potential flow of international capital into the Asian country.
“If this most extreme retaliation takes place, we will see the potential for additional escalation,” said Cesar Rojas, Citigroup global economist. “This is another negotiation strategy. It is showing what would be the cost of not co-operating with the US and not giving in to concessions.”
If the US proceeds, designing the specific measures to restrict Chinese access to US capital markets will not be simple, and could be challenged.
“I don’t think it’s as simple as turning off the spigot,” said Patrick Healy, chief executive of Issuer Network, a listings consultant. “The exchange has to cite why the company is being delisted and the company gets a chance to contest the delisting.”
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