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NYSE Flip-Flops on China Telecom Delisting Amid Reports of Broader China Investment Restrictions

The New York Stock Exchange (NYSE) announced on January 6, 2021 that it would delist three major Chinese telecommunications firms – China Telecom, China Mobile, and China Unicom – to comply with Executive Order (EO) 13959 (the “Order”), a November 2020 presidential directive aimed at preventing Americans and American entities from investing in firms with links to the Chinese military. This comes just two days after the NYSE announced that it would not proceed with the delisting of China Telecom, China Mobile, and China Unicom – following an initial delisting order on December 31, 2020. This reversal came after the Department of Treasury provided “additional, specific guidance” to the NYSE, indicating that transacting with three companies would violate U.S. law when the executive order came into effect on January 11, 2021. 

But while the NYSE’s flip-flopping has caused confusion, the delisting itself should come as no surprise. The three aforementioned telecommunications firms are included on the Department of Treasury’s list of 35 Chinese companies deemed to possess substantive links to the Chinese Military, pursuant to EO 13959. There is speculation that the largest Chinese national oil companies – namely CNOOC, PetroChina, and Sinopec – may be next to be delisted from the American exchange. 

The process of delisting, however, is largely a symbolic gesture. The ADRs (American Depositary Shares, the financial instrument used by foreign companies to sell shares on the NYSE) of the three telecom – total less than 20 billion RMB ($3.1 billion) in overall market capitalization. This, for each respective company, is less than 2.2% of their total equity shares according to a statement from the Chinese Securities Regulatory Commission. The vast majority of trading for each company is conducted in Hong Kong. 

Looking more broadly, the Wall Street Journal has noted that the White House is “prohibiting Americans from investing in Alibaba Group Holding Ltd. and Tencent Holdings Ltd.” With 217 Chinese companies listed on major U.S. Stock Exchanges (equaling around $2.2 trillion in total market capitalization, as of October 2020), the implications of a broader push to delist and force divestment could be vast. American investors hold significant positions in firms like Alibaba and Tencent, leading observers to theorize that moves of this nature would actually be a net detriment to American investors who find themselves in the regulatory crossfire. 

China Ministry of Foreign Affairs Spokesperson Hua Chunying stated, in response to the NYSE’s surprise reversal, that “some political forces in the United States have been wantonly suppressing foreign companies listed in the country, exposing an arbitrary and capricious uncertainty in its rules and mechanisms.” She did, however, note that the “suppression” of these companies would have little impact on the companies themselves, instead leading to a decline in the standing and image of the U.S. and American capital markets.

This sentiment appears to be echoed by domestic observers. The Wall Street Journal, in a subsequent report, quotes a retail investor – who dumped his shares of China Mobile for a loss after the initial news of delisting – as saying that the actions of the NYSE “[feel] like a trial-and-error approach in a Third World country, completely unacceptable for one of the most prestigious bourses in the world.” And Felix Salmon – writing for Axios – called the “listing fiasco” a “national disgrace” with the potential to turn even messier as President Biden takes office. Similar efforts to target China by banning and forcing a sale of TikTok have been largely ineffective. And with the country currently embroiled in a state of chaos and confusion, it is difficult to imagine a coherent (and intelligent) set of China policies emerging until the Biden Administration has sorted out the ongoing domestic strife and confirmed its cabinet.

Note: On January 13, 2020, the Wall Street Journal reported that the U.S. Govenment will not ban U.S. invstors from investing in Alibaba, Tencent and Baidu. 

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