William John Market Report 10-08-21
Chinese regulatory crackdowns are bearing fruit for the Communist Party. William John looks to the future of Chinese domiciled listings on Western markets and its implications for the future of the Hong Kong Stock Exchange.
TikTok, ByteDance, Hong Kong, New York, William John, Equities, IPOs, Acquisitions

William John Market Report 10-08-21

William John Market Report 10-08-21

Category: Reports

Following up on William John’s analysis of Didi Chuxing’s listing on the New York Stock Exchange (NYSE) a few weeks back, markets are moving fast. Chinese financial regulatory authorities, including the China Securities Regulatory Commission and the Cyberspace Administration of China, are cracking down on overseas listings of Chinese companies, data protection and national security for Chinese big tech – these crackdowns are starting to see fruition. 

With the Hong Kong National Security Law passed in June 2020, China has authoritarian influence over the Hong Kong Stock Exchange and major news publications, including the Financial Times, have reported that a “sweeping new Data Security Law” is being drafted for September under recommendations from the Central Committee’s secretive Ministry of State Security which will only strengthen powers to exert and leverage Chinese founded companies to the will of the Chinese Communist Party. 

This week, ByteDance – the company behind popular social media platform TikTok – is planning a Hong Kong listing in either the fourth quarter of 2021 or early 2022. It comes after postponing a listing in New York following disastrous IPOs by Chinese companies that have faced harsh regulatory crackdowns based on national security concerns about hosting Chinese citizen data overseas, including Didi which has been removed from Chinese app stores and is banned from taking on new users for the platform. 

Given new regulatory rules in China state that any technology platform with 1m+ users must be inspected (and upon failing inspection their listing can be vetoed) it is highly unlikely that from this summer onwards, Western listings of Chinese companies are likely to continue – especially if those companies hold significant amounts of Chinese data. 

Assessing the “damage” by Chinese authoritarian crackdowns, the Nasdaq Golden Dragon China Index, which tracks the performance of Chinese technology stocks listed on the NYSE, fell 22% in July:

Source: William John Analytics, NASDAQ Global Indexes

Falling from a high of 20,688 index points on 16/02/21, the index has since steadily declined in value with a sharp drop of 22% (-3,277 points from an initial level of 14,895 points) between 30/06/21 and 30/07/21. 

It should be reminded that China’s “data” crackdown is not unilateral. Many Western states, including the U.S., implemented bans on Huawei 5G infrastructure in 2019 and 2020 and Western crackdowns on foreign data use and storage have been prevalent since the mid 2010’s with the introduction of the European Union’s General Data Protection Regulation (GDPR) and the United States’ passing of the Cloud Act in 2018 which allows law enforcement to request data stored outside its territories. 

So, what does all this mean? Well for one, data security is the one thing Western and Eastern political foreign policy is united about. Governments across the world are tightening the control of their data and data security and protection is quickly manifesting itself as the political zeitgeist of the early to middle 21st century. 

Moreover, it is likely that Chinese domiciled companies are no longer likely to pursue listings in Western markets making the blue-chip Eastern markets more attractive to investors such that if Hong Kong listings of technology companies continue, the Hong Kong Stock Exchange could one day rival NASDAQ and the New York Stock Exchange. 

Most importantly, though, in an increasingly globalised world, technological capital appears to be becoming more and more insulated by democratic and authoritarian regimes alike both sides of the pacific. 

Any opinions expressed in these documents are those of William John and are provided for information only. E&OE.