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China's and Wall Street's love affair is coming to an end. It's been a costly romance, worth trillions of dollars. Because Wall Street was so thoroughly and madly in bed with Chinese corporations and the CCP, the split will undoubtedly have economic implications for both China and the United States.
However, China is no longer reliant on Wall Street. The major motive for China's massive investment in Wall Street was to acquire access to Washington DC and the powers that be. That access is now obsolete, since relations between the two countries have thawed. China can no longer utilize its clout on Wall Street to sway political decisions in Washington.
As a result, the umbilical cord connecting Beijing and Wall Street has been severed. Didi Chuxing, China's answer to Uber and a $39 billion corporation, is leading the charge to disconnect from Wall Street. Didi said on Friday that it would delist its shares from the New York Stock Exchange. Didi will officially trade on the Hong Kong stock exchange, six months after the Chinese ride-hailing company made global headlines with its explosive Wall Street debut. Didi was able to raise billions of dollars from US pension funds and international investors in a splashy New York initial public offering in June of this year (IPO).
However, shortly after Didi debuted on the New York Stock Exchange, the CCP launched a harsh crackdown on the ride-hailing service. Chinese regulators barred Didi from Chinese app shops, claiming it violated data privacy regulations and presented cybersecurity concerns. As a result, its stock price plummeted. That is when Chinese corporations realized they could no longer take use of a loophole in Chinese legislation to go public in other countries, particularly the United States of America.
China's Prolonged Relationship with Wall Street
Tens of billions of dollars are at stake in China for Wall Street titans such as Goldman Sachs Group Inc. and JP Morgan Chase & Co. In 2019, five major US banks had a total $70.8 billion in China exposure, with JP Morgan alone investing $19.2 billion in lending, trading, and investment. Goldman Sachs and Morgan Stanley have assumed major control of their Chinese securities companies, as TFI reported last year. HSBC gained complete control of its Chinese life insurance venture. Citi was awarded a coveted custody license to service China's institutional investors.
China has had a three-decade relationship with Wall Street. Now that the CCP has decided it no longer needs Wall Street, firms such as Goldman Sachs, Morgan Stanley, and investment banks of all colors and hues will see their fortunes in China crumble, aside from Chinese corporations no longer assisting these firms in making large money. Even as recently as last month, Goldman Sachs Asset Management was purchasing one of the world's most distressed assets — Chinese real estate debt – while other investors stayed away and fled.
The United States tightens the screws on Wall Street
It's not as if China is the only one wrecking Wall Street's fortunes. The US has recognized the threat presented by Chinese enterprises owned by the CCP and is beginning to crack down on them. The Securities and Exchange Commission (SEC) announced on Thursday the adoption of a regulation that will empower it to delist foreign corporations from Wall Street exchanges if they fail to give information to auditors. The action is directed squarely at Chinese firms.
Companies must disclose whether they are "owned or controlled" by a government, according to the law. The SEC will now use a law approved by Congress last year that requires corporations to name any Chinese Communist Party members to their board of directors.
Wall Street escaped the wrath of the trade war between the United States and China, but it may be one of the largest losers from the continuing events.
