According to analysts, the United States could get hit as hard as China if it pushes through with its proposal to restrict investments on Chinese companies.
These remarks were made after news of the White House considering curbing investments in China came out. These include delisting of Chinese stocks from U.S. stock exchanges and limiting government pension fund investments in the Chinese market.
According to a professor of finance at Tsinghua University in Beijing, Ning Zhu, if the U.S. pushes through with restrictions including the delisting of Chinese stocks, this could convey the message that the “U.S. is not as open as before. It’s going to have a fairly far-reaching impact.”
When the news about the possible restrictions came out last Friday, U.S. stocks fell. Shares of KraneShares CSI China Internet ETF (KWEB), which follows internet-related companies from China that are listed in Hong Kong or New York, fell by 3.8%
The reported restrictions could be used by Washington as a bargaining chip in its upcoming trade talks with China. The White House has yet to confirm just how close it is from curbing U.S. investments in Chinese companies. The China Securities Regulatory Commission has not made any comments regarding the matter.
In a statement, the U.S. Treasury assistant secretary for public affairs, Monica Crowley said: “The administration is not contemplating blocking Chinese companies from listing shares on U.S. stock exchanges at this time. We welcome investment in the United States.”
The United States would find itself in a tight spot if it were to implement the investment curb. It would be difficult for the U.S. to carry this out and it will impact its capital markets quite negatively.
“Finance is unlike military or export orders, or trade. Finance is much more difficult to trace,” said Zhu.
In the past couple of years, many start-ups from China have chosen to publicly list in the United States to boost their brand and company and as well as access U.S. dollars.
According to an August report by analysts from research firm Gavekal Dragonomics, Andrew Batson and Lance Noble, over 200 Chinese companies including Alibaba have raised tens of billions of dollars on U.S. capital markets either through listings or the American Depositary Receipts.
The White House’s investment restriction is allegedly due to its desire to protect U.S. investors from taking excessive risks with these Chinese companies. Some of the companies lack proper regulatory supervision.
The CEO of investment research firm Stansberry China, James Early, understands why the White House would be looking at this option. Early said that around 2010, there were a lot of Chinse companies that were able to access U.S public markets without receiving any consequences for their fraudulent behavior.
If the United States pushes through with the ban, American investors would be missing out on long-term growth.
“While there may be other political reasons for restricting US capital flows to China, Washington should understand that the implications for the trade imbalance are the opposite of what they want,” said Michael Pettis, a finance professor at the Guanghua School of Management at Peking University.
“If American capital that would have gone to China stays home, that means inevitably that the net American imports of capital will rise, and with that so will the American current account deficit — not with China, but overall,” Pettis added.