The U.S. and China are both playing “decoupling” in the same way

Who would have thought that after two or three years of fighting between the U.S. and China, two economies and countries with different political systems would find a “common language” on the issue of “decoupling”?

Bloomberg reported on July 12 that Janet Yellen, on her first visit to the European Union as U.S. Treasury Secretary, urged EU member states to help the U.S. in its fight against China and Russia in order to promote the repair of relations between the U.S. and the EU. She said that the United States will decouple from China in certain areas in order to protect national security, and she also fears that the United States and China may also completely cut ties in terms of technology. Treasury Secretary Yellen said, “We are looking at the full range of tools we currently have to push back and correct China’s damage to our national security and broader economic interests.”

As is well known, President Donald Trump has been waging a trade war against China since 2018, pushing through legislation in the U.S. last year that would require Chinese companies listed in the U.S. to have their accounting audit records reviewed by U.S. regulators or risk being forced off the market by the end of 2023.

Current President Joe Biden has so far largely maintained the previous administration’s pressure on Beijing, and in June he signed an executive order banning U.S. residents and entities from investing in 59 Chinese companies that have been identified as having ties to the People’s Liberation Army. Several Chinese telecommunications companies, including China Mobile, have been delisted from U.S. exchanges. According to the Congressionally mandated US-China Economic and Security Review Commission, as of May 5, 248 Chinese companies were listed on U.S. stock exchanges, with a combined market capitalization of $2 trillion. The combined market capitalization reached US$2 trillion.

The U.S. decoupling also forced China to announce plans last year to promote self-sufficiency in key industries such as technology and semiconductors. China’s Internet Information Office further announced a draft revision to the “Network Security Review” on Oct. 10, which requires companies with more than 1 million users’ personal information to apply for a network security review if they want to go public overseas. This affects almost all Chinese companies interested in overseas IPOs. Some analysts believe Beijing’s motive is to protect information on the one hand, and to reduce Chinese companies’ reliance on the U.S. as the world’s largest capital market for fundraising on the other.

The latest rumor that TikTok’s parent company ByteDance Ltd. has indefinitely shelved its plans to go public overseas this year after Beijing regulators tightened regulations on “going public overseas” because government officials told the company it should first focus on addressing “data security risks.”

The social media company had earlier planned to make an initial public offering (IPO) of all or part of its business in the U.S. or Hong Kong, the Wall Street Journal noted, citing a source familiar with the plan, which valued the company at a recent $180 billion in a funding round last December. But those plans changed after company founder Zhang Yiming met with officials from China’s State Internet Information Office (SIIO), and ByteDance decided in late March to put the IPO on hold, arguing that “it would be wiser” to address data security risks before deciding on an overseas IPO. The report said that regulators have never directly addressed the issue.

Regulators never directly asked ByteDance to postpone the IPO, but the agency said they had concerns about the company’s data security compliance for its Chinese apps, the report said. ByteDance is also said to have delayed the IPO because it did not have a chief financial officer at the time. ByteDance declined to comment. The company had issued a statement in April saying it did not qualify for an IPO and had no such plans at the time.

ByteJump’s cautious approach is seen as a stark contrast to that of online ride-hailing platform Didi Global Inc. Chinese cyberspace and securities regulators reportedly advised Didi not to list in the U.S. three months ago, but the company went ahead with its IPO anyway, in response to which China announced a cybersecurity review of Didi less than two days after its IPO and stepped up actions such as taking down the app and halting new user registrations.

In the past, Chinese companies generally did not need permission from the Internet Information Office to list overseas until late last year, when U.S.-China relations took a sharp turn for the worse and tensions between the two countries deepened, and Beijing authorities gradually began requiring tech companies to inform the office of their plans or circumstances to list overseas and to get informal approval, people familiar with the matter said. Under the new law proposed by China, nearly all companies making IPOs outside of China would be subject to cybersecurity reviews.

According to Nikkei Asia, Beijing’s high-level warnings of stricter regulations on personal security and overseas listings, coupled with China’s slowing economic growth and tighter government regulations, have made listing Chinese companies on the U.S. stock market much riskier, triggering a wave of investor sell-offs and affecting other Chinese companies’ plans to go public in the U.S. According to the Nasdaq Golden Dragon China Index, which tracks 98 U.S.-listed Chinese companies, the gap between their share prices and the broader U.S. stock market is now at its highest since at least September 2016, and is worse than it was at the height of the U.S.-China trade war during former President Donald Trump’s presidency. The Nasdaq Golden Dragon China Index has plunged 10.5% from the 2nd of this month to the present , and is now at its highest.

The Central News Agency commented that the two U.S. presidents, who for three years have worked one after another to suppress Chinese companies from raising money in the U.S., the world’s largest capital market, are now getting a boost from an unexpected source in China.