Collateral damage

The total market capitalization of China’s domestic stock market is 77 trillion yuan ($10.8 trillion). About 7% of the total, or around $800Bn is listed on US exchanges such as Nasdaq, NYSE and others in the form of ADRs (see table below). In order to do so, they need to go through the scrutiny of the exchanges, in terms of reporting, compliance and legal, to comply with U.S. rules and regulations. If the trade war escalates, which may not seem to be the most immediate scenario, but it can certainly happen, it wouldn’t be surprising to see a tougher approach to the transparency Chinese companies provide to U.S. regulators. Under those circumstances, China may decide not to comply with the requirements, or the U.S. may raise the compliance bar so high, that Chinese companies are effectively forced to be delisted or, like in the case of TikTok, go through an auction process to be acquired by a U.S. company. On the flip side, there are around 900 U.S. companies operating in China, like Tesla and AMD and 270 companies that are engaged with China in trade activities. All that is at risk now if the negotiations do not find common ground.

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