MNI EXCLUSIVE: Delisting Bill Won't Cut China Off:Ex-Officials

--Removing Chinese Companies from US Exchanges Won't Happen Fast

By Ryan Hauser

     WASHINGTON (MNI) - Bipartisan U.S. legislation to delist Chinese companies

from stock exchanges signals a deeper political will to disentangle the world's

two largest economies, even if the law won't force swift removals, former

officials told MNI.

     The bill is "more bark than bite," said Steve Pavlick, a former Treasury

official under Donald Trump, and the "psychological impact" is paramount,

especially for small U.S. investors. Based on the bill's trajectory, the

President could sign it into law by the end of the week, he said. 

     Enhancing oversight of Chinese firms "has been a topic of negotiation and

discussion for years," but could now be "yet another move to stoke tensions,"

said Greer Meisels, a former Trump Treasury official now at the IIF.

     Tensions escalated recently with the White House blaming China for

Covid-19, criticizing the crackdown in Hong Kong, and questioning U.S. reliance

on imported medical gear. Trump has long accused China of propping up its

economy through state-owned companies and currency manipulation, part of the

motivation behind the Phase One trade deal that generated brief goodwill.

     Curbing financial ties is difficult since China is a major holder of

Treasury bonds and because the U.S. has a major bilateral trade deficit. U.S.

de-listings are also more symbolic -- even to American shareholders -- because

Chinese firms can simply relist in London or Hong Kong.

     --PREEMPTIVE DE-LISTING

     Chinese firms can preemptively delist themselves as a result of the

legislation, and they would need to offer "fair compensation to existing owners

such as equivalent shares that are traded on other exchanges," said Shang-Jin

Wei, a former IMF trade and investment division chief.

     "Some are looking for an excuse to delist anyway," said Wei, and "the law

may give them an exit while avoiding lawsuits from shareholders."

     If the de-listing is forced, the SEC "will presumably try to find a way

that will minimize the loss to U.S. owners," Wei said. "But we can expect to see

lawsuits."

     The de-listing law will likely be watered down. Legislation will likely be

"substantially modified" as U.S. exchanges and the SEC lobby for changes, said

Reena Aggarwal, formerly a research scholar with the SEC and FINRA. 

     --YEARS TO COMPLY

     "Fortunately, the proposed law gives the firms three years to come into

compliance," said James Angel, former chair of the Nasdaq Economic Advisory

Board. Currency markets "will be impacted more by the prospect of further

conflict with China rather than the direct effects of the de-listings," said

Angel.

     If signed into law, the SEC also has 90 days to issue new rules for issuers

to certify they're not under foreign ownership or control, said Aaron Cutler, an

attorney and former senior Congressional advisor. "No one should expect that

stock de-listings would happen overnight."

     The legislation comes as Secretary of State Mike Pompeo notified Congress

Wednesday that Hong Kong no longer has clear autonomy from China, meaning it

should now be treated differently under U.S. law. China's top diplomat on Sunday

called Hong Kong an internal affair and warned some U.S. political interests are

stoking a new Cold War. 

     "There can be no doubt that this will lead to an eventual decoupling as it

pertains to Chinese stocks and bonds in U.S. capital markets," said Robert

Spalding, a former Trump NSC official.

--MNI Washington Bureau; +1 202 371 2121; email: ryan.hauser@marketnews.com

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