Beijing’s Crackdown Triggers Fallout In US-Listed Chinese Stocks

The fallout from Beijing’s crackdown on Chinese education stocks listed in the U.S. triggered plummeting values following the curtailing of foreign investments, CNBC reported on Friday (July 23).

Stocks from China that were listed in the U.S. plunged following reports of a crackdown by Chinese tech-sector government officials mandating the prohibition of outside backers. Two U.S.-listed Chinese stocks in the education space saw prices plummet following reports that a government crackdown was imminent regarding bans on international backing.

Mandates in place don’t allow educational training enterprises to gain backers from stock listings, according to a copy of the Chinese-language document seen and translated by CNBC. The news site in China, Caixin, said the new restrictions are already being rolled out across the country.

Jesse Fried, a professor of law at Harvard University, said he thinks this may not last. “My gut sense is that China will try to reach some accommodation with the U.S. government,” Fried told MarketWatch. “For now, China wants to keep the U.S. markets open and available for these young Chinese companies, which China’s undeveloped capital markets cannot adequately support. And even though Congress likes to shake the anti-China rattle, there is a lot of interest on Wall Street in keeping this pipeline open, because of the huge IPO fees.”

CNBC indicated in its report that stocks from China trading in the U.S. could end up being delisted by 2024. U.S. laws passed by Congress in 2020 mandated that any international firm listing in the U.S. would have to face auditing or possibly be delisted from U.S. stock exchanges. 

Legislation passed by Congress late last year requires that foreign companies listed in the U.S. agree to an auditing inspection within the next three years or face delisting by American stock exchanges, part of a multi-year effort in Washington, D.C. to address the issue of the lack of rights U.S. investors have in these stocks.

The news of the possible delisting of China’s Didi from U.S. stock markets, along with the plummeting of prices, has caused month-to-date losses totaling more than 25 percent, as reported earlier this month.

Initial public offerings (IPOs) in China are facing delays — whether being pulled or otherwise sidelined. Earlier this month, TikTok owner ByteDance had its public offering sidelined in its effort to list shares outside of China.