HONG KONG/SINGAPORE/WASHINGTON (Reuters) -The New York Stock Exchange said it no longer intends to delist three Chinese telecom giants – a shock reversal of an announcement made only last week and deepening confusion over a U.S. crackdown on firms said to be linked to China’s military.
The U-turn comes in the waning days of the Trump administration and against a backdrop of tension within Washington on China policy. U.S. Treasury Secretary Steve Mnuchin has long been seen as taking a dovish view on China, seeking to thwart attempts by hardliners in the administration – many within the State Department – to crack down on Chinese companies.
The bourse, which had planned to delist the companies – China Mobile, China Telecom and China Unicom – before Jan. 11, said in a brief statement it had made the decision “in light of further consultation with relevant regulatory authorities in connection with (the U.S. Treasury) Office of Foreign Assets Control.”
“For years, Treasury has led a rear guard action to soften some of the harsher policies related to Chinese companies,” said Leland Miller, the CEO of the U.S.-based consultancy China Beige Book. “It is apparent this is continuing to happen.”
Republican Senator and China hardliner Marco Rubio, however, said in a tweet that the suggestion that the U.S. Treasury may have caused the NYSE to wind back the ruling was “outrageous.”
“If it is true that someone at [Treasury] advised to reverse the decision to delist these Chinese companies, it was a outrageous effort to undermine [President Trump’s] Executive Order,” he tweeted.
A representative for the NYSE, which is owned by global exchange operator Intercontinental Exchange Inc declined to comment beyond the bourse’s statement on what caused it to change its mind. The Treasury declined comment on the decision to keep the listings. OFAC, which is responsible for enforcing sanctions, declined comment.
Coming in the final weeks of Donald Trump’s presidency, the flip-flop has underscored the lack of clarity about the implementation and implications of the U.S. ban on investment in 35 Chinese companies deemed to have military links, said Tariq Dennison, managing director at GFM Asset Management in Hong Kong.
Dennison’s funds hold China Mobile shares in both Hong Kong and New York. He has almost entirely unwound New York positions in anticipation of needing to find U.S. clients investments with less exposure to risks associated with the investment bans.
Some analysts said they believe the exchange had been told by OFAC that delistings were unnecessary even though investment in related companies was banned.
“We think this is the logical conclusion,” said Jefferies analyst Edison Lee, who called the about-face “bizarre”.
Others added that the reversal made sense for the bourse.
“China accounts for at least one-fourth of U.S. (stock exchanges’) foreign income. It’s a smart thing to do,” said Francis Lun, CEO of Geo Securities.
The November order from Trump’s administration has prompted index makers including FTSE Russell and MSCI Inc to cut a dozen Chinese companies on the list from their benchmarks, but none removed the three telecom firms, all of which have major passive U.S. funds amongst their top shareholders.
Hong Kong-traded shares of China Mobile Ltd, China Telecom Corp Ltd and China Unicom Hong Kong Ltd surged following the news.
The three telecom firms said in statements that they had taken note of the NYSE’s latest announcement and would release information in accordance with regulations, adding that investors should pay attention to investment risks.
China’s foreign ministry has lambasted what it calls the U.S. stretching of the concept of national security to suppress Chinese companies.
It reiterated on Tuesday that the status of the United States as an international financial centre relies on the confidence that global companies and investors have in the certainty of its rules.
The November executive order bans U.S. investors from buying shares of companies that Washington alleges are owned or controlled by the Chinese military starting in November 2021.
While the directive stops short of forcing a delisting, a bill signed into law by President Trump last month will kick Chinese companies off U.S. stock exchanges if they do not fully comply with the country’s auditing rules in three years.
“For the last year you’ve seen toughening policies on investment flows into Chinese companies,” said Miller. “But this is an issue that the Biden administration wants very little to do with and if you combine that with the total lack of attention from the Trump administration in its waning days many of these rules are likely to fall by the wayside.”
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