Strategic Headlines.
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This $1.6 Trillion Market Could Cease To Exist Soon

WEDNESDAY, DEC 01, 2021 - 09:50 PM

By Bloomberg Markets Live commentators Ye Xie and Amy Li

By now, it’s clear that Beijing is greatly discouraging, if not completely forbidding, listings of Chinese tech companies in the U.S. What’s unclear is what Beijing will do with existing Chinese ADRs, an overwhelming majority of which used variable-interest entities to circumvent Chinese laws to get listed.

Even if Beijing doesn’t demand the likes of Alibaba and Baidu dismantle their VIEs immediately, the authorities have signaled that Hong Kong, instead of New York, is now the preferred capital market for China Inc. Over time, the $1.6 trillion ADR market may become a footnote in history books.

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Bloomberg reported that China plans to ban companies from listing overseas through VIEs. But companies using such structures would still be allowed to pursue IPOs in Hong Kong, subject to regulatory approval. The China Securities Regulatory Commission quickly denied the report, without giving details.

The controversial VIE structure, designed to bypass Chinese restrictions on foreign investment in sensitive sectors including the internet industry, has been used by most Chinese ADRs for decades. It allows a Chinese firm to transfer profits to an offshore entity, whose shares foreign investors can own. There’s always been an argument over why the best companies should be allowed to skirt Chinese laws and enrich foreigners, while depriving local investors opportunities to benefit from the crown jewels of the economy. As Paul Gillis, professor at Peking University, put it bluntly: “The VIE has always made a mockery of rule of law in China.”

Washington is also increasing security over VIEs, deeming they lack transparency and legal protection for investors. In other words, both sides would be happy to do away with VIEs.

But with billions of dollars at stake, outlawing the VIEs and demanding an immediate delisting would cause massive disruption and damage China’s reputation. Listing VIEs in Hong Kong may be still allowed, suggesting “we shouldn’t worry about the big hammer dropping on existing VIEs, as that would contradict Beijing’s stance re VIE listing in the HK,” noted Jason Hsu, chief investment officer of Rayliant Global Advisors.

What could happen is that the existing VIEs get “grandfathered,” but ADRs are encouraged to pursue dual-listings in Hong Kong. “Perhaps over time, as most of the liquidity shifts toward the HK venue, with the U.S. listing taking on a diminished role, the concern would become a non-concern,” said Hsu

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Biden's Asia Czar Says China To Likely End Trade War "On Australia's Terms"

WEDNESDAY, DEC 01, 2021 - 11:30 PM

More than 18 months after China kicked off its campaign of economic coercion against Canberra targeting a range of key commodities including barley, wine, coal timber and lobsters - Australia has yet to be brought "to its knees" as officials in Beijing had been hoping for.

Though without doubt devastating for many Australian farmers and others in industries directly impacted by the $17bn China trade row, the data ultimately shows it's been Canberra's allies like the US picking up much of the slack.

President Joe Biden's top Asia adviser Kurt Campbell is now predicting eventual defeat for China, telling the Sydney-based Lowly Institute that he expects Beijing to waive the white flag and restore the trade relationship with Australia, and on Canberra's terms.

Image: AP

The past months have seen Australia-China relations reach their lowest point in history, given the already soaring tensions went to boiling point after Canberra on Sept.15 unveiled the 'AUKUS' nuclear submarine technology sharing deal with the US and Britain. Thus economic warfare unleashed alarming words among state officials threatening future literal war.

Campbell, who is point man on everything Indo-Pacific for the National Security Council, told the think tank in his statements, "I fully believe that over time, that China will re-engage with Australia. But it will, I believe, re-engage on Australian terms."

"I think China's preference would have been to break Australia," he underscored. "To drive Australia to its knees… I don't believe that's going to be the way it's going to play out."

"I believe that China will engage because it is in its own interest to have a good relationship with Australia," he concluded. He suggested that likely China, as Australia's largest trade and export partner - had never expected Canberra to weather the storm this long...

Mr Campbell said that China respected "strength" and that Australia's resolve in the face of the economic sanctions would strengthen its hand when dealing with the Chinese government.

Months ago outside observers began expressing surprise over Australia's economy standing up better than expected in the face of China's coercion.

Biden's 'Asia Czar' Kurt Campbell

Australian treasurer Josh Frydenberg has lately emphasized a theme that despite Beijing "willing to use its economic weight as a source of political pressure" it remains that his country's economy has shown "great resilience to date".

We noted starting in October that there are signs China is beginning to fold - for example reluctantly unloading Australian coal amid its recent power crunch despite its unofficial import ban.